CISCO LIVE 2019 — Amid all the talk about how tech vendors like Cisco Systems and their enterprise customers are adapting to a rapidly changing IT landscape of clouds, data and everything as a service, it’s easy to overlook the challenges channel partners face as they not only help their end users with their transformation but also evolving their own business models.

Cisco for the past few years has spoken about the its move from being primarily a hardware vendor focused on selling products to a company that also deals in software, solutions and services, and is increasingly reliant on recurring revenue rather than one-time sales.

Many of Cisco’s 60,000-plus channel partners are evolving along with Cisco and their other OEM partners, and while they aren’t giving up selling hardware assets, they understand that if they’re to survive over the next five or so years, they have to adapt to an environment where their customers are moving more of their workloads to the cloud, where they are less likely to want to manage large IT infrastructures and where mobility is playing an increasingly large role.

Transforming a business is a daunting undertaking for channel companies and customers alike, but the changes in the IT space also open up an array of opportunities, according to Brian Ortbals, vice president of advanced technologies for World Wide Technology, a 25-year Cisco partner. The company, with 6,000 employees and almost 1,000 customers, did about $18 million in business with Cisco when Ortbals joined WWT 20 years ago, and is projecting $5 billion in Cisco business this year, Ortbals said.

WWT’s Brian Ortbals

“The world’s changing,” Ortbals told Channel Futures during an interview at the Cisco Live 2019 event in San Diego. “With so much going to clouds and as-a-service, as a networking company, Cisco – and [WWT], being their largest partner by default worldwide – is having to adapt. I think cloud at the outset was a very scary proposition, that so much was going to change and move. But the reality is for us as an integrator, the potential upside of helping our customers navigate how to rearchitect their infrastructure is pretty significant.”

He said that five or six years ago, analysts were telling WWT and others in the channel that if you stick with selling hardware, you’ll go extinct. WWT continues to sell hardware and according to Ortbals, the company grew $900 million last year and “expects $1.5 billion in growth this year.” That’s not all due to selling assets. The company has made significant investments in recent years in such areas as consulting, to not only help customers with decisions around IT, but also their businesses.

WWT “has had a much more intentional focus on consulting, helping the customers navigate as they mature their business models, asking what the future holds for them before we talk architecture,” Ortbals said. “Our goal there is understanding what the customers’ dynamics are in terms of what they want their customer experience to be in the future and then backing into what is the service and the infrastructure, the cloud, the security and everything that will enable that, as well as the application itself at times.”

WWT’s business has transformed along with its customers and OEM partners.

“We’re finding that the demands of our customers have changed as the business models that surround us with cloud and as-a-service and major OEMs like Cisco have changed, and our services portfolio has changed as well,” he said. “Instead of just plan, design and implement, we’ve pivoted to …

… more of a managed and as-a-service model ourselves, to the point where we’re seeing more and more opportunities with the customers where they may never own the asset at all. They’re truly buying a service that includes the gear, the license, the implementation, the ongoing support, continued upgrades and feature enhancements. That is a major change for our business.”

The company has worked closely with Cisco as the networking vendor has evolved its business. They key has been for both companies to be open and transparent during the process, allowing them to share insights and ideas. During its transformation over the past several years, Cisco has grown its reliance on the channel. At one time, about half of Cisco’s business has come through the channel. Nirav Sheth, vice president of worldwide sale and systems engineering for Cisco’s Global Partner Organization, told Channel Futures that number now is close to 90%.

Cisco also is using its leverage with its channel partners to encourage them to adapt their business models to the new cloud- and services-based reality. At last year’s Cisco Partner Summit, Oliver Tuszik, senior vice president of the Global Partner Organization, unveiled the Perform and Transform initiative, which he reiterated in a blog last month.

The idea is to assure partners that Cisco will help them as they run their businesses today while evolving for the future. At the same time, the OEM will shift more of its money from partners that simply sell products to those that add value for their customers – and Cisco – by selling into lines of business, working with customers on life-cycle issues, improving the customer experience and building software to run on top of the programmable infrastructure that Cisco offers.

Cisco’s Oliver Tuszik

In the carrot-and-stick approach, Cisco will pay customers as they invest in new business models, understanding that it can take as long as two years before such investments make a return. For example, if a customer spends $1 million in a deal for DNA Center and the partner activates it or sells software to run atop it, Cisco will pay the partner even though there are no financial returns for the OEM. The deal still represents the potential for more business with that customer in the future.

Now, the company pays about 80% of its Value Incentive Program (VIP) rebates for “performing” — selling certain products, even if those partners aren’t adding value. More of that VIP money will shift to partners that are delivering value through such jobs as activation and installing technology.

“If you are now just selling a standard product, you will already make less than compared with two years ago,” Tuszik told Channel Futures at Cisco Live. “If you are selling a product that has a recurring or subscription model, if you install it and ensure its adoption, you can make up to three times more. I’m convinced we’re helping the partners go in the right direction. Each of them needs to decide which piece they grab, but it would be wrong to create the illusion by putting a lot of money on a classical shipping business.”