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Like its traditional channel, Cisco has had to work hard the last several years to pivot from hardware-based revenues to a recurring services business model. Two new services portfolios announced today will help partners navigate their own transition efforts.
October 18, 2017
Some may not know that Cisco’s services division is the second largest business in the networking giant’s organization, and the company is betting big on software and services—as opposed to the switches and routers its known for—to shape its future footprint.
Bryan Palma, senior vice president and general manager of the Cisco Advanced Services Group, estimates that a quarter of the company’s revenue is driven through its services business today, and says its near-term goal is a number closer to 50 percent. Cisco’s inevitable turn away from hardware toward software and services sales mirrors that of many traditional resellers and MSPs, and today it announced a new portfolio of services designed to help bring channel partners and IT heads out of the back office and into the strategic business discussion.
Experts estimate that upward of 60 percent of IT spend today is on maintenance and support rather than innovation and growth initiatives. But more than ever, IT leaders are being asked to contribute to the value proposition and growth strategy of businesses. Which means CIOs—both the in-house version and partners acting on an outsource model—are stuck between a rock and a hard place.
In addition, Cisco’s customers are having a hard time recruiting the right talent for next generation technologies such as advanced security solutions, IoT, software-defined networking, and predictive and prescriptive analytics.
To address these two market forces, Cisco has rolled out a large portfolio of predictive services on both the professional and the technical services sides. The new Business Critical Services and High-Value Services offerings leverage AI and machine learning to help offset the skills shortage and help IT leaders shift their focus from maintenance functions to innovation.
Both programs leverage automation, analytics, and Cisco expertise to assist in digital transformation (DX) initiatives, where a lack of talent and resources is hampering some organizations’ ability to compete. Herein lies opportunity for the channel. Research firm IDC forecasts that of the $6.3T in direct digital transformation investments between 2017-2020, more than two-thirds will be budgeted and spent exclusively on third-party services firms with expertise in digital transformation.
And for traditional partners still leaning on resale revenue streams, Palma says Cisco’s services approach is a good segue. Both Business Critical Services and High-Value Services are multi-year recurring services typically matched up with some product suite across Cisco’s technology pillars, such as networking, security, and the next-gen data center.
“That resale opportunity still exists, and it’s a good opportunity. We physically coupled these services up with product sales. That’s not going away.”
While Palma doesn’t want to understate the resale opportunity, he stresses that the future of Cisco and its partners is about more than just resale. With the two new services offerings, partners can launch their own solutions using the analytics and automation built into the portfolios, and essentially use them as vehicles to sell more products.
“Obviously we prefer those to be Cisco products, but the solution support basically allows us to support third parties. In the security space, for example, our customers have an average of 60 or more vendors. We can do support across that whole ecosystem, even to competitors’ products.”
The emphasis on software and services is a big mind-shift from where Cisco was even five years ago, when it was viewed as a highly proprietary, commoditized hardware company. Like its channel partners, Cisco has had to fundamentally shift its underlying business strategy, an evolution that Palma says is very different from just learning a new technology. Today, Cisco is all about digital transformation, line of business buyers, and solving for business outcomes.
“We’ve managed a lot of technology transitions, whether IP or ecommerce or video. This is much more of a business model transition. While software and services is becoming more important, that vertical expertise and business knowledge is also becoming more important—and becoming a big opportunity for our partners.”
Palma says the most successful Cisco partners are those that have been able to tap into a vertical or technology set that nets them the line of business sale. Business Critical Services and High-Value Services can provide support along a pathway toward hyperspecialization, as well as supplement strictly resale revenues with ongoing follow-up services.
“There absolutely is the ability for smaller shops to put their hooks in this and benefit beyond resale.” To services and beyond.
Head of Channel Communities, Zift Solutions
Kris Blackmon is head of channel communities at Zift Solutions. She previously worked as chief channel officer at JS Group, and as senior content director at Informa Tech and project director of the MSP 501er Community. Blackmon is chair of CompTIA's Channel Development Advisory Council and operates KB Consulting. You may follow her on LinkedIn and @zift on X.
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