It's been long pondered by partners, but now it is proven true: Cisco Systems Inc.'s salespeople are given financial incentive to work with "preferred VARs" in some situations.
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The issue came up as part of testimony during the Infra-Comm-Cisco trial, when two Cisco executives confirmed on the stand that there are "uplift" incentives for a select group of VARs that offer specific services or technology. And, with that, internal Cisco salespeople who assist in those accounts get a higher commission than they would if they worked with another type of VAR.
It turns out, these uplift incentives were, in fact, not part of what made Infra-Comm lose a $3 million IP telephony customer to AT&T, which resulted in the lawsuit. Cisco officials have said that the services and technology sold in the deal did not qualify for uplift.
Still, of many Cisco partners contacted by SearchITChannel.com, almost none knew that these internal incentives existed and only a few knew that select VARs get more money for selling combined services and technology. One large Cisco partner who asked to remain anonymous said he was aware of both incentives, but he said internal uplifts are "behind-the-scenes information."
Trial testimony paints a pretty clear picture of these incentives. According to court records, Infra-Comm attorney Brian Daucher asked Chris Schlereth, operations director of west channels at Cisco, to describe "uplift" incentives for salespeople.
Schlereth answered: "The example is there's a deal that's worth $100,000. If a certain product or service is sold through an AT&T [for example], then we would uplift the value of that opportunity as it pertains to the calculations of commissions."
To clarify, Daucher followed up, asking Schlereth: "So when that uplift program is in place, Cisco sales personnel actually have financial incentive to sell business through AT&T as opposed to another reseller, like Infra-Comm, correct?"
Schlereth answered, "Yes, but it's got to be specific, a specific product or services. It's not any business you resell."
A Cisco spokesman later confirmed that internal commissions are "uplifted" when salespeople work with a select group of VARs that are part of the Managed Services Channel Program or sell the "top level" of services plus product.
"We run a deal that incents our managed service providers to deliver more strategic managed services -- as opposed to just connectivity. You get more incentive to deliver an advanced technology," the spokesman said, adding that if Sprint or Calence offered unified communications with services as opposed to just switching and routing and connectivity, they would get an uplift. "There is an associated commission program with the sales team." The spokesman admitted that the Cisco salespeople then have a vested interest because they could get paid more for working with these selected partners.
However, he said, the goal of the uplifts is to avoid rewarding partners for only pushing volume, as was the case in the past. Instead partners are offered incentive to add value by way of services. In that case, they don't have to be a large reseller of huge volume to become one of the select VARs, he said. As for salespeople, these uplifts are just one of many different types of incentives offered.
But not all VARs that offer services are eligible to be on the list, and the spokesperson did not have an exact number of how many VARs are on it.
The anonymous partner said he is familiar with the list of preferred VARs and that it has about seven members -- most of which are large carriers, including AT&T, Verizon, Qwest and possibly Sprint. The only integrator he could recall being on the list was Calence. Still, the partner said, that's not to say the list won't grow to include many more VARs in the future. Most of these telecom service providers are also Cisco's largest customers, acquiring their network carrier infrastructure from the vendor.
"This is not known on the street, but I have known from Cisco for a long time that there is incentive that drives business to certain VARs," the partner said. "I was a victim of this where a large client contacted me and I was the lowest bidder, but Cisco consulted with the client and moved them to another VAR. Cisco puts small VARs on small deals and big VARs on big deals."
Still not all VARs disagree with internal uplifts and certainly not with incentives for preferred VARs.
"My personal feeling is that there is no coordinated effort to go out and screw someone over," said Ethan Simmons, president and co-founder of Cisco partner NetTeks Technology Consultants Inc. in Boston. "I'm not saying that some of the incentives may not at times instill bad behavior and that gets people in trouble on the whole. But if you look at the entire history of Cisco's incentive programs, they've been [good and effective]."
Analyst Ken Presti said uplift programs for VARs are incentives. Any VAR could feasibly work its way into being on a preferred list, he explained, especially now that it's not based solely on volume, but also on adding value.
"They try to level the playing field by giving the different channel partners an equal opportunity," Presti said. "That has been volume driven, but now it's a lot more attached to things like training and customer satisfaction."
Another major Cisco partner, who asked to remain anonymous, said, "not every incentive program is going to be fair to every partner." And she said internal incentive programs are necessary to encourage Cisco salespeople to work with VARs.
Kevin McDonald, executive vice president of Alvaka Networks Inc., said incentives for so-called preferred VARs and internal salespeople are "the pink elephant in the room," and this is normal behavior for most vendors. Irvine, Calif.-based Alvaka is not a Cisco partner.
"It's easier to work with a big company because if they make a mistake, Cisco believes they have deep pockets to take care of it. But when there is a higher commission for a salesperson, they have no need to respect the ethics."
Daucher, Infra-Comm's attorney, also questioned the ethics of making AT&T a preferred VAR when it is also one of Cisco's largest customers.