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Cisco’s X Factor: How Chuck Robbins Is Taking Partners Into The Future

Gina Narcisi

Cisco Chair and CEO Chuck Robbins is making his mark with the tech giant’s new Cisco Plus XaaS strategy, putting partners at the forefront of the as-a-service revolution.

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For the second time in less than a decade, Cisco Systems Chair and CEO Chuck Robbins is taking the company and its channel partners into the future. Since stepping into the CEO role in 2015, Robbins has been heavily focused on directing Cisco’s metamorphosis from hardware heavyweight to software giant. Now he’s set to make another transformational leap forward, driving the company’s Cisco Plus as-a-service strategy, which allows customers to purchase Cisco IT in a flexible, consumption-based Everything-as-a-Service (XaaS) model.

Call it Cisco’s new “X factor.”

“The reality is that we’ve found you gain a lot of trust and credibility with your customers when you give them flexibility,” Robbins said in an interview with CRN. “Customers will embrace you when you have the right technology that you delivered in a way that makes it easy for them, and you’re really thinking about outcomes.”

[RELATED: Cisco CEO Chuck Robbins To Partners: ‘When We Make Changes, We Make Them Together’]

From Robbins’ perspective, it’s also critical that Cisco embarks on its as-a-service evolution hand in hand with its partners.

“What I always tell our team is, ‘I don’t know how you’re going to do it, but whatever we do, we’re going to do it with the partners,’” he said.

That was the case with Cisco’s software transformation and its customer success motion, and the same applies to the company’s XaaS push, Robbins said.

“If you look at what we’ve done with our software transition and the satisfaction that [partners] have with what we’ve done there, I think they’re going to see the same benefits as we move to the as-a-service model,” he said.

San Jose, Calif.-based Cisco is at the beginning of its XaaS journey, kicking off its as-a-service rollout this past May with the introduction of Cisco Plus Hybrid Cloud, the first of two XaaS offerings that were introduced last year. Hybrid Cloud includes Cisco’s entire data center compute, networking and storage portfolio, as well as third-party storage and software, bringing together on-premises, edge and public cloud environments in a flexible consumption model.

The next Cisco Plus offering slated to be beta-tested by partners is the first offering that will be part of Cisco’s Networking-as-aService (NaaS) model. This Secure Access Service Edge (SASE) offering will include secure cloud connectivity and SD-WAN technology.

Early adopter solution providers are already seeing success with Hybrid Cloud.

“It feels like a snowball going downhill, and it’s gaining a lot of momentum,” said Kent Christensen, practice director of virtualization and cloud for Insight Enterprises, a Cisco Gold partner that’s part of the Cisco Plus Hybrid Cloud beta. “Everybody who has tried as-a-service has continued to renew and grow.”

Tempe, Ariz.-based solution provider Insight, No. 14 on CRN’s 2021 Solution Provider 500, is seeing “dozens” of opportunities with Cisco Plus Hybrid Cloud and is already closing deals.

“It’s growing faster than we thought, and it’s with bigger companies than we thought,” Christensen said.

Insight was selected as part of the beta because the company had already developed a strong business around the as-a-service model. “Cisco recognized that they don’t have everything that a customer needs to transform, but they have strategic partners and storage partners, and we’re partners with all of those [providers], so we can actually create the full solution,” he said.

Insight customers of all sizes are interested in the as-a-service model, Christensen said. That’s because most customers today are dealing with technical debt and trying to figure out what to do with aging infrastructure.

“I had one customer say to me, ‘I want completely out of the hardware life-cycle market,’” Christensen said. “The as-a-service model eliminates that debt because businesses can consume what they need and plan for future events, such as moving locations, growing or shrinking.”

The business model can help customers conserve capital up front by only paying for what they use. For partners, as-a-service offerings that cost, for example, $1 a month, can be $1.20 to $1.40 per month after partners add their own services, compared with a product that might pay out 80 cents to 90 cents on the dollar to partners, Christensen said.

“It’s profitable for everybody in this business, and it’s actually good for the customer because they have flexibility,” he said.

For customers considering the cloud, the Cisco Plus Hybrid Cloud offering provides a level of clarity that businesses and even solution providers aren’t accustomed to, Christensen said.

“You can actually go in and say, ‘It’s 8 cents an hour for a [virtual machine]. How does that compare to your other options?’ And [the customer] is like, ‘Oh, wow, thank you for the numbers—let me figure out how to fit this into my business model.’”

Both the public cloud as-a-service and private cloud as-aservice segments will account for the majority of all cloud spending worldwide, predicted to grow from 55.7 percent in 2021 to 64.1 percent in 2025. These segments are also expected to see the fastest growth in spending, with a five-year compound annual growth rate of 21.3 percent, according to a September report from research firm IDC.

The as-a-service transformation that Robbins is driving will bring Cisco partners the benefits of recurring revenue, including more predictability than afforded by Capex-based revenue, Christensen said.

“It takes longer to get it, but once you start building an annuity revenue [stream], it just keeps building,” Christensen said.

Still, the new business model can come as a challenge to solution providers who are not preparing for the shift to as-a-service. Insight has had to train its own sales team on its value, he said.

“Many partners, if they sell something on Monday, they want their commission on Friday. They want to recognize the revenue immediately, but as-a-service doesn’t work that way,” he said. “It’s a learning game—and we’re not at 100 percent—but we’re telling our people, ‘You better ask your customers if they want to buy this way because someone else will.’”

XaaS brings challenges for Cisco as well, Robbins said.

Most of the work Cisco is doing now to get XaaS delivered to the market is focused on the operational structure in the background. “It’s one of our biggest challenges,” he said. Moving away from a net 30 payment model has created complexity for Cisco’s underlying systems and operational structure. Maria Martinez, who has been Cisco’s COO since last year and the company’s chief customer experience officer since 2018, has been diligently working with her teams to evolve Cisco’s internal infrastructure to prepare for the new business model, Robbins said.

“We want to get to a point where [our operational] infrastructure is not the issue; it’s just getting the offers built [that will] go out on a very standard set of operational infrastructure that makes these offers simple to consume,” Robbins said.

Cisco also plans to help solution providers make the transition, but it won’t prod them with partner incentives around Cisco Plus until it’s ready to scale its XaaS push, Robbins said.

“We want to be ready to scale, and we have to make sure that we’re at that point,” Robbins said. ‘Much like with our software transition, as an example, we’re going to put in a compensation element that we’ve never put in before in the second half of this year because we think we’re ready. Those are the kinds of things we’ll contemplate for the as-a-service portion of the portfolio.’”

Insight’s Christensen, for one, can’t wait for Cisco’s SASE as-a-service offering, which he said is the next natural fit after Hybrid Cloud.

“It can’t come fast enough,” he said. “We’re probably pushing Cisco a little bit on that one.”

The New Swim Lanes

XaaS is an evolution that has the “full support” of Cisco’s entire leadership team, according to Julia Chen, Cisco’s vice president of partner transformation. “We’re putting all of our eggs into the Cisco Plus basket,” Chen said.

“We’re really committed to delivering the majority of our portfolio as a service, and eventually, all of it.”

That’s because customers are increasingly telling Cisco and its partners that they want fully baked solutions that they don’t have to stitch together themselves. To that end, more than half of Cisco partners today are building managed services practices, Chen said.

To make the XaaS evolution happen and to empower partners to deliver more managed services, Cisco is evaluating routes to market that are very different compared with when Cisco primarily sold hardware, Chen said.

“We would rely on partners to do the resale, do the service attach and do the logistics, like unbox the hardware and set it up. It’s just different in an as-a-service model, but the partner still has a huge role to play,” she said.

That role may involve billing, invoicing and integrating the as-a-service offering with other pieces of the solution. “It’s a different animal, but partners’ value-add is a little bit different than in the hardware world of boxes,” she said.

Cisco is counting on partners to build solutions on top of Cisco Plus offerings. That’s where the Developer partner role comes in, which went live on Nov. 29, Chen said. The Developer role within Cisco’s recently revamped Cisco Partner Program gives developers access to more technical training, solution development, co-marketing, Cisco sales resources and the Cisco DevNet specialization.

Cisco will also continue to build programs and incentives around customer success and help partners ensure their customers are getting the most from their solutions at every point in the life cycle, a critical piece for any as-a-service sale, Chen said.

“These pieces are necessary stepping stones for any partner moving to the XaaS model,” she added.

In addition to its eager partners, Cisco is learning how to work with partners that aren’t currently set up to manage and support the XaaS model. These partners want more enablement and clarity into the road map, which Cisco is getting out to partners as quickly as it can, Chen said.

To alleviate concerns and questions, Cisco is creating new, clear swim lanes for its different routes to market around who owns the contract and who is delivering the service. “It requires a lot more alignment at the beginning,” Chen said. “All of that in the past has been sort of unspoken because it’s just been part of the way that we’ve done things in resale. Now we have to explicitly have the conversation more often because there’s more than one route to market, and we’re asking partners to do different things.”

What Partners Want 

Having the option to choose a business model like XaaS is very appealing to customers because they can manage the pace of their transformation while taking risk out of their purchasing decisions, solution providers said.

Still, Cisco was a little late to the XaaS game, which allowed some competitors, such as Hewlett Packard Enterprise with its GreenLake offering, to gain ground, said Ron Temske, vice president of cybersecurity, network and collaboration solutions for Cisco Gold partner Logicalis.

HPE committed in 2019 to delivering its full portfolio as a service by 2022. Cisco has not set a time frame for its own XaaS commitment.

“If you look over the last few years, I don’t think it was all up and to the right. There were some moments where [Cisco] lost their way, but I think they found it again, big time,” said Temske. “If I look at what they’ve done in the last year or so, it’s really impressive.”

New York-based Logicalis has built its own version of an XaaS model in which the company buys solutions from Cisco, retains the title and sells the offering in an as-a-service model to its end customers. This model has been a good differentiator for Logicalis, but it’s capital-intensive at the same time, Temske said. The shift toward Cisco Plus will remove liability from partners’ books, he said.

“It’s going to help the smaller partners even more that have not been in a financial position to do what we did with our own as-a-service offering,” Temske said.

One challenge that Cisco has historically run into with recurring revenue-based offerings was that its own field sales team’s compensation was aligned to the more traditional IT resale motion. This created channel conflict in some cases with Cisco partners, Temske said.

“It’s very hard to take a new model to market if the sales team is pushing in a different direction, [and] I know Cisco is working to change that,” he said.

Ultimately, compensation models also have to change in order to make XaaS successful, Temske said.

“Compensation alignment is needed on both sides [as well as] just understanding the value of selling as-a-service because it’s a different model, and not all account executives on either side are comfortable with that methodology yet.”

Robbins agreed that Cisco’s sales force and its channel need to be in sync.

“Whatever incentives we put in place with our sales force, we need our partner profitability programs to align to that so that we get a cohesive energy in the field,” said Robbins.

The Robbins Effect

The XaaS push is reminiscent of another recent and major shift Cisco made to its business model. Historically a networking hardware provider, Cisco in 2017 unveiled plans to pivot its portfolio to focus on software and subscriptions. The company didn’t just talk the talk, either. Cisco immediately engaged its internal sales teams and channel partners with new selling motions, as well as incentives around managed services and customer life-cycle services.

“That was really my first understanding of how powerful Cisco can be,” said Shelliy Cymbalski, CMO of solution provider and Cisco partner iT1 Source.

In fiscal year 2015, Cisco had pulled in $3.4 billion in subscription software revenue for the year, right before Robbins took the helm. Then in 2020, Cisco revealed it would be transitioning the majority of its portfolio to cloud managed offerings that can be delivered as a service and introduced Cisco Plus in 2021.

“I would call the software push a building block to what Cisco is doing now. It really set [things] up for [Robbins’] next move, which is [XaaS],” Cymbalski said.

During the company’s 2021 fiscal year, which ended July 31, 2021, Cisco had nearly $12 billion in subscription software revenue—a 23 percent compound annual growth rate. The tech behemoth in September revealed that it had exceeded its goal of generating 30 percent of its revenue from software and is on track for subscriptions to make up half of its revenue by fiscal year 2025. In Cisco’s second fiscal quarter of 2022, which ended on Jan. 29, 80 percent of Cisco’s software revenue was subscription-based, up 4 percentage points year over year.

For Robbins, Cisco Plus is about delivering an outcome, not a product. Cisco Plus will give customers more choice and flexible options that won’t saddle them with expensive IT solutions that are more than what they need, especially as businesses grapple with the work-from-home trend that is leaving some enterprise campuses empty. Some customers may not be able to afford a large Capex spend during this time of uncertainty, but they still need to achieve the right business outcome, he said.

Continuing to build up that customer success motion, Robbins said, will be the most important factor for partners adopting XaaS. “Really helping customers achieve maximum value from the platforms and solutions as they go out—I don’t think it’s super dissimilar from what they’re doing in the software world for us today.”

Tempe, Ariz.-based iT1 Source for the past two years has been offering managed as-a-service offerings to its base of customers. Life-cycle and customer success, which has been as big a focus for iT1 Source as it has for Cisco in recent years, is critical to landing and expanding XaaS sales, said Cymbalski.

“If you sell a service and then you don’t check in and make sure [the customer] is utilizing all the things that they bought, your utilization is going down. They have to be happy because they can cancel that model,” she said. “The as-a-service model works really well when you combine it with customer experience and utilization, and [Robbins] has set us up to be ready for [XaaS].”

While the two initial Cisco Plus offerings aren’t generally available to partners or end customers yet, iT1 Source is champing at the bit for Cisco’s flavor of NaaS. “The moment we’re allowed to sell on this motion, we want to sell on this motion,” Cymbalski said.

The Big Shift

Robbins’ 2020 declaration that Cisco’s entire portfolio will be moving to an as-a-service model signaled to the world how serious the company was about this business model transition, partners said.

Cisco’s timing with XaaS couldn’t be better, Cymbalski said. “For a primarily hardware company to make this shift over the last several years and now say, ‘Everything’s going to be a service,’ it’s going to be incredibly exciting.”

Robbins said customer adoption of XaaS will not happen overnight. In the meantime, partners are helping Cisco “think through” the implications of the XaaS model, he said.

“It’s going to be a very steady transition over multiple years to get to where most customers just are consuming this stuff as a service,” Robbins said. “But we work with the partners. They actually help us think through the implications of how this works. And we’ll continue to do that. And I think we’ll make sure that it’s good for both them and us.”

Partners like Cymbalski have little doubt.

“What we’ve learned from Cisco is when they roll something out, you dive in as deep as you can because it’ll be a great model,” Cymbalski said.

Gina Narcisi

Gina Narcisi is a senior editor covering the networking and telecom markets for CRN.com. Prior to joining CRN, she covered the networking, unified communications and cloud space for TechTarget. She can be reached at gnarcisi@thechannelcompany.com.

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