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Cisco moves from selling products to ‘lifecyle services’ model

However, industry analyst says only the country's biggest integrators or solution providers will be affected by the strategyrn

Cisco Systems Inc.’s increased emphasis on professional services should not cut into networking service sales for small to mid-sized integrators or resellers, says a Canadian IT analyst.

“”It would be their biggest partners, Bell Canada and IBM, that would be the ones most likely to suffer from

this,”” said Albert Daoust, manager of special projects for Toronto-based Evans Research Corp.

“”It has no impact on the vast majority (of integrators and resellers), because one Cisco router can support 150 workstations, so the service component from routers is small.””

With its “”lifecycle services and support”” program, San Jose, Calif.-based Cisco is moving away from selling point products and helping customers build integrated systems, said Derek Mak, vice-president of customer advocacy for Cisco Canada.

Lifecycle services include helping customers design their networks “”end to end””, plan their purchases, design the networks, anticipate bottlenecks and then monitor the networks once they’re built.

The emphasis is on ensuring the customers get a return on their investment, Mak said.

He does not believe Cisco is competing with carriers in providing pre-design services, because all projects involve partners other than Cisco, and more than 95 per cent of its implementations for small and mid-sized businesses are led by partners, not by the equipment manufacturer.

Cisco is moving towards the lifecycle services model, he added, because with newer security threats, and technologies such as IP telephony, networks are getting more complicated.

In the past, equipment manufacturers tended to sell customers products and limit their service component to ‘break-fix’ maintenance contracts.

“”Previously, we did things in a patchy way,”” Mak said. “”It was not an end-to-end view.””

By adding more professional services, Cisco will inevitably take some revenues from its channel partners, Daoust said, but added Cisco only gets 16 per cent of its revenue from services, while other vendors, such as IBM and Avaya, get about half their revenue from the service component.

Cisco has focussed on increasing the sales of its products, and has been very generous in allowing its channel partners — companies like EDS, IBM and Bell Canada — to profit from the service component of the sales.

“”I can’t think of a company that’s made less effort to keep the service portion and has thrown more over the fence”” to the channel, Daoust said.

“”They have acted as if they believed they had significant growth potential for selling new equipment to new customers, so they have been uniquely supportive of channel intermediaries grabbing the service revenues.””

Daoust predicts the early customers of Cisco’s professional services will be large companies — such as major banks — who haven’t outsourced network services but need help with special projects, or who find their own staff lack the necessary knowledge and skills.

But he adds there’s still a “”huge advantage”” to buying from companies like IBM, who have expertise in areas such as application design, software development and customer relationship management.