SAN DIEGO, CALIF. – As channel partners further their services portfolio, Cisco Systems Inc. (NASDAQ: CSCO), at itsPartner Summit held here, released a new Services Partner Program intended to open the Smart Services portfolio and bring about a new margin compensation plan to more solution providers.
The new program consolidates 47 different channel programs into one. It offers a new set of partner rewards based on the value model and on improved partner-to-customer relationships.
The new compensation model will have similar discount levels along with a pay-for-performance rebate component.
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Cisco’s Services Partner Program was piloted in Canada and the U.S. with about 2,500 participants. The rollout plan according to Nick Earle, Cisco’s worldwide services chief, is to make this program available to all the geographies in the next 12 to 18 months. Canadian partners and potential Canadian partners can start immediately with this program.
Earle said that this program will be similar to the current car dealership model. “I used to service my own car. If you could not, then a (dealership) garage would service the car. If you look at the BMW 3 Series, it has more than 300,000 lines of code and 15 Ethernet ports. A human being can no longer service his own car except for changing tires and oil. You have to connect to the manufacturer. What happens with cars now will happen with networks,” Earle said.
With that, solution providers will enter into a collaborative smart service called Partner Support Service. Solution providers will gain Cisco intelligent data with this service. Earle said that it will enable the channel to build new services offerings or build on top of current service offerings.
IDC Canada group vice president of research Tony Olvet said the smart services initiative is gearing up at a time when partners are going to make significant changes to their business model, as cloud and mobility change business buyer needs.
“It looks like the partners who have started the transition will be rewarded early. But Cisco wants to also bring along forward thinking partners who still need to rebalance their mix of revenue: more professional services, and perhaps more importantly, more managed services – which deliver recurring revenue,” Olvet said.
Earle added that Cisco has more than 25 years of experience built into this service. It handles more than 50 million installed devices and has six million customer interactions annually.
“This will give the channel access to a powerful arsenal of smart-enabled services,” Earle said.
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Peter Stravropoulos, president and CEO of Toronto-based solution provider FlexITy Solutions, said this program enables his company to better understand what’s inside the box. “We would never completely understand what is happening to the box in the BMW example. Margins comes from services; it’s almost at 80 per cent. This new model is tied into our model. The reality here is that most of our business comes from services,” Stravropoulos said.
In terms of channel profitability, Earle said that services now account for up to 50 per cent of the average Cisco channel partner’s business. “That’s up from 20 per cent just five years ago and can be about 70 per cent of a solution provider’s profits,” Earle said.
Mike Gaumond, senior vice-president of services for direct market reseller Insight, prefers this model because he can now collaborate with Cisco in a creative way. “I do not want to just resell Cisco-baked services because I do not have enough added value for the customer. Therefore, I do not make as much margin. So by bundling, I can add more capabilities to the customer, while adding to my margin base,” Gaumond said.
Raja Sundaram, vice-president of worldwide services partner organization for Cisco, said solution providers can earn up to 32 per cent margin rebates in this new program. There will be three components to qualify for this rebate: sales, delivery and premium services sales. For the sales and delivery requirement, a partner must meet metrics in request ratio and RMA.
“It will be very hard for competitors to challenge Cisco in the channel because the aim is to make solution providers’ services business more profitable. And, since most of the profits are in services, it would not matter much if the competition offers 60 per cent discounts,” Sundaram said.
IDC’s Olvet said that not all partners will make this transition, but Cisco needs strong partners to continue to grow and tie their services to Cisco’s architectures. “In Canada, Cisco and its partners have enjoyed a very strong year, but knowing the corporate culture, they won’t take their foot off the gas,” Olvet said.