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Cisco cloud services: Good for partners?

Can channel partners make money with Cisco cloud services? At the Cisco Partner Summit this week, the vendor's executives will tell partners how they can stay relevant in the new cloud era. VARs say they will need a lot of convincing.

Channel partners will hear a lot of about cloud computing opportunities at this week's Cisco Partner Summit in New Orleans. Cisco executives will explain how networking partners can remain relevant as Cisco cloud computing services supplant component sales and margins.

Cisco has been pushing its services-centric (read: non-component-based) model for a couple of years, but in the meantime the company has lost ground in switching market share and moved into all sorts of other consumer-driven businesses. Some partners worry that the company is losing sight of its core networking mission.

Market data shows that Cisco's switching revenue fell 7% while HP Networking's rose 6% in Q2 2010. HP's growth is partially attributable to its 3Com acquisition, but the company has come out swinging with less expensive switches and lifetime warranties that Cisco can't match.

“Cisco's been losing ground in switching for some time due to the uncompetitive pricing, lack of comparable warranty, and customers getting tired of being jammed for SmartNet when they can get a lifetime warranty from HP PC,” said the CEO of a California partner that works with both Cisco and HP.

“We sell both and we like both, but our market is predominately SMB focused. We're also in a region with 16% unemployment -- higher than the national average.  So I think our customers are probably more thrifty than those enterprise accounts that get so much attention.”

Partners also face resistance from their core customer, networking professionals who are worried about their jobs. Cloud computing will eventually enable infrastructure-on-demand, meaning that entire wide area networks and local area networks can be hosted in the cloud. These services are much easier to manage, meaning some companies could trim or repurpose their IT staff.

The Cisco cloud computing services message

Cisco will have to show partners how they can continue to make sales as customers begin to shift to cloud services.

Edison Peres, Cisco senior vice president of worldwide channels, said that Cisco channel partners will play a central role in the cloud in three ways: building private and public clouds for customers, building their own clouds and selling hosted applications and infrastructure, and reselling cloud applications from existing providers.

In the long run, Peres sees partners offering a hybrid of these models. But this week Cisco will focus on how Cisco partners can resell cloud services while they plan their cloud architecture approach.

Peres said the company will begin “branding Cisco-centric cloud services” and will focus on forming partnerships between partners that already offer cloud services with those looking to resell them.

“We are not going to compete with partners in the world of cloud by developing our own cloud offering,” said Peres.

Yet Peres confirmed that Cisco will have “certain apps” in the marketplace as an option for resale -- and he said the details of those apps and their accompanying programs would be laid out at the partner summit. Cisco already offers channel partners the ability to resell hosted WebEx conferencing as a service, which is sold as a subscription model with a percentage margin for partners. Hosted WebEx has seen success, but Cisco killed its hosted email service just this month only a year after launch.

Mont Phelps, president and CEO of NWN Corporation, a Cisco partner, foresees Cisco coming to market with a hosted voice service that will be worth reselling as long as the cost of entry is not extraordinary and the value proposition is attractive for customers. Asked whether he would consider bundling WebEx or another hosted application with voice, Phelps said the company is not prepared to be “involved in some grand cloud play” just yet.

“Until now the cloud has been a dream in the sky,” said Phelps. “This year I see it coming into reality. We have decided we will be involved in reselling and then looking at doing some of our own [architecture].”

Cisco Smart Services for proactive network management

As components become increasingly commoditized each year, Cisco has added ways for channel partners to develop new revenue opportunities by beefing up their services portfolios. Those services are generally focused on remote network management and troubleshooting.

Now as virtualization and mobility take hold, Cisco is banking on the idea that there are even more components -- virtual, physical and mobile -- to monitor and manage. So this year, Cisco will lay out its Smart Services program, which will integrate reporting from network monitoring devices into a centralized Cisco database of analytics to help channel partners troubleshoot and upgrade networks proactively. The service will be specifically geared toward small and mid-market companies.

Smart Services has three dimensions that include the collection of information from across the entire network (including at the application level), the use of statistics models that assess the incoming data, and the method of reporting back to Cisco partners so that they are able to use the knowledge to offer services, according to Raja Sundaram, Cisco senior director of worldwide services partner organization.

Beyond Smart Services and cloud computing services, Cisco is also expected to make announcements related to expanded mobility and video integration services.

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