Cisco aims to reinvigorate service, networking business for VARs

Cisco's new service-contract automation and router/switch margin increases benefit the channel -- but also help stave off growing competition from HP and Microsoft.

Most of the buzz coming out of Cisco Systems Inc. during the last few months has been about advanced technologies, new markets, new channel specializations and other plans for the future.

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But during the last two weeks, Cisco's focus has been a lot more practical. It has rolled out three new programs designed to help or encourage oft-ignored value-added resellers (VARs) who specialize in the router, switch and support business.

Two weeks ago Cisco launched a program called "Reigniting the Core," under which it will increase the rebates it offers to resellers who drum up new customers and close new contracts.

Today it announced a portal designed to help resellers track and renew the service contracts on every piece of Cisco equipment a customer owns. It also announced a Web site designed to analyze a partner's sales data, compare its performance to other channel companies and recommend areas in which training or alternate sales methods could shore up business.

All three are back-to-basics programs that every company should keep up to date, according to Cyndi Privett, analyst at Viewpoint Research Inc. in Scotts Valley, Calif. But they're also indicative of the places in the market Cisco executives perceive as vulnerable to competitors.

Get details about all three programs here. 

Every company should reward the channel that sells its core products, but the theme of "Reigniting the Core" shows that Cisco is trying to make sure it doesn't leave VARs who specialize in routing and switching -- rather than other advanced technologies -- behind, she said.

"If you look at the way they have been handling the market over the last few years, the compensation envelope for routing and switching was meager compared to security products or voice or wireless; [Cisco was] looking to those specialties to drag routing and switching along," Privett said. "All the back-end rebates were associated with security products or unified communications or wireless LAN, so if you weren't engaged in those opportunities, the partner's back-end opportunities were almost nothing."

That gave competitors such as Hewlett-Packard Co.'s ProCurve group the opportunity to squeeze in with "a pretty attractive price/performance offer," Privett said.

Cisco's traditional competitors such as HP and Nortel aren't the only threats, even in the routing and switching market, according to Zeus Kerravala of Yankee Group in Boston.

With its latest attempt to push into the unified communications (UC) market, Microsoft has made itself a direct threat to the name recognition and market share that have always been Cisco's greatest value to the channel, Kerravala said.

"Part of what made Cisco Cisco is competing with companies like Nortel, that had a hard time taking away market share," Kerravala said. "Now they're up against Microsoft, and Microsoft is a UC company. [Cisco is] going to have to manage the channel a little differently. They're going to have to go after different parts of the channel.

"The more broad Cisco gets the more complex it gets," he said. "A channel partner doesn't have to just know about networking now. They have to know about VoIP and storage and video, and with the breadth of the product line, it gets harder and harder for the partner to self-manage things like service contracts and the other aspects."

But any potential loss of either mind or market share hasn't happened yet, Kerravala said. Partner support features such as automated contract tracking and business performance management are the kinds of issues big vendors have to address in order to keep up with the competition.

"I look at this more as an evolution than as a break/fix situation," Kerravala said.

IBM and other vendors have also introduced service-contract-automation sites to help channel partners, Privett explained. Ingram Micro introduced its own version two weeks ago, focusing exclusively on contracts for Cisco products sold by channel partners to their own customers.

"Although these are not the most exciting new things, and does seem a little pedantic in some ways, these are the kinds of tools that protect a tremendous annuity stream and revenue base for channel partners," Privett said.

Let us know what you think about this story; email: Kevin Fogarty, News Director.

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