DALLAS -- The ascendency of software continues at Cisco, and while its traditional hardware business is far from disappearing, the Cisco strategy now leads with software across a number of fronts.
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A software and subscription revenue push has been playing a more important role in the company's overall business mix in recent years. At Cisco Partner Summit 2017, which concluded this week, company officials restated the criticality of software.
From the big picture point of view, Chuck Robbins, Cisco CEO, noted the company's deferred software revenue grew to $5 billion in the company's fiscal fourth quarter ending July 29, double what that amount was two years ago. But the rise of software and a subscription-based consumption model can be seen in a number of developments throughout the company.
- A Cisco analysis indicates that for every dollar a customer spends on software results in up to an 11x incremental opportunity for partners.
- Cisco's latest generation of switches, Catalyst 9000 series, is the first Cisco hardware product line to be sold with an integrated software subscription. The Catalyst 9000 series is a component of Cisco's intent-based networking approach, which relies on software.
- The number of ISVs participating in the company's Solution Partner Program has grown more than 20% in the past year to some 1,100 companies.
In general, Cisco's sales motion and even how it presents its offerings to customers now revolves around software.
Mark Hillvice president of digitization, Cisco
"The best way to transform our business is through software," said Mark Hill, vice president of digitization at Cisco.
Hill said the software-centric strategy allows the company to describe the business outcomes it seeks to address and sparks discussions around digital transformation. This Cisco strategy, known internally as "platform economics," is moving the company from an environment where it provided goods and services at a particular point in time to one where the vendor delivers ongoing value via software, he added.
Hill said a large part of the company's revenue will always stem from hardware, but "we will center the business around software."
Cisco strategy and the partner impact
What does this all mean for Cisco's channel partners?
On the one hand, they can expect to see software and subscriptions drive more deals. That's proved to be the case for Glass Box Technology, an integrator based in Carlsbad, Calif. The company's recent engagement with Children's Hospital Los Angeles has a significant software component. Glass Box's proposal for the hospital project includes Cisco's Catalyst 9300 switches and the company's Software-Defined Access (SD-Access) technology, an element of intent-based networking that automates policy enforcement and network segmentation.
The engagement also includes a five-year subscription to Cisco One Advantage, noted Sharon de Luna, managing partner at Glass Box. Cisco One Advantage, which can be bundled with Catalyst 9000 switches, is a software suite that encompasses SD-Access and other software elements such as Cisco's Stealthwatch security analytics product and the company's Identity Services Engine.
According to de Luna, Cisco's intent-based networking lets her company deliver an efficiency message to customers. The technology is programmable and automates the networking environment, so technical personnel aren't stretched too thin, she said. The subscription model, meanwhile, appeals to the business side of the house, since it avoids upfront payments, she added.
Prashanth Shenoy, vice president of solutions marketing at Cisco, said the shift to a software-based model for networking marks a fundamental transformation for its partners. He suggested partners will be "building new software practices and customizing applications that can be built on top of the network."
Cisco executives cited the programmability of Cisco's technology as an opportunity for channel companies to differentiate themselves through their own intellectual property. Italtel, a systems integrator based in Milan, Italy, is one partner taking advantage of that opening. The company developed Netwrapper, a software-defined networking application built on Cisco's Digital Network Architecture. Netwrapper helps customers manage quality of service for unified communications.
Camillo Ascione, head of strategic alliances at Italtel, said Cisco's platform programmability gives integrators an opportunity "to develop new applications that can touch the line of business."
In another element of the Cisco strategy, partners can also expect to see more of the vendor's software offerings packaged as suites and residing on top of a common enterprise agreement. Hill described the enterprise agreement, introduced six months ago, as a single standard mechanism through which customers can access and license Cisco software. In addition to Cisco One, the company offers suites for security and collaboration, Hill said, adding that the internet of things and analytics software will eventually be sold as suites.
Cisco's Multi-Cloud Portfolio, announced at Cisco Partner Summit 2017, may also become a software suite, Hill suggested. The Multi-Cloud Portfolio is divided into four segments, with each containing Cisco products or services: Cloud Advisory, Cloud Connect, Cloud Protect and Cloud Consume. Cloud Consume, for example, includes Cisco's CloudCenter and AppDynamics products.
Multi-cloud offerings could be made into a "Cisco One-esque suite" and plugged into the enterprise agreement, Hill said.
Organizing for customer adoption
The Cisco software initiative will influence partners to acquire or cultivate development and customization expertise, a trend already underway. But the shift also calls for partners to develop an ongoing relationship with customers to ensure they adopt and unlock a software offering's full potential. Cisco executives at the partner summit repeatedly encouraged partners to develop customer success practices or adoption practices that follow through on the initial software sale. Such practices set customer expectations regarding software and may involve periodic workshops to help customers through software adoption issues.
Partners are grappling with just how to create customer success practices and how those groups will coordinate with sales teams.
Laila Nørgaard, vice president of network solutions at Atea, a systems integrator in Northern Europe, said software has changed how her company engages with customers. Atea, she said, once followed a "hit and run" approach in which the company would sell hardware, move on and call the customer again three years later. Now the company aims to sell the value of software over the long haul, rather than focus on a short-term sale.
Nørgaard said Atea's customer success team members work with customers early on in the sales process, offering advice on licensing and establishing expectations. Once the customer is on board, the emphasis shifts to quarterly or biannual workshops that follow up on software adoption.
Data#3, a consulting and managed services firm in Australia, is also altering its sales approach in light of software. Graham Robinson, group practice manager at Data#3, said customers have grown accustomed to technology suppliers "dumping and running." He said Data#3 started down the customer success path about five years ago, embarking on a lifecycle approach that keeps the company connected with clients.
"This shift to software-led selling ... hasn't fundamental changed what we sell," Robinson said. "It changes how we sell it."
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