Cisco dollars and channel sense

LAS VEGAS – Cisco Systems has put its money where its mouth is by pumping up reseller margins and launching a host of programs at the annual Partner Summit show.

This year, one of Cisco’s stated goals was to sustain profitability for their partners over a long period of time. They will try

to do that by securing more margin for Cisco certified partners who specialize in more complex networking deployments.

“”The objective is partner profitability,”” said Paul Mountford, vice-president of worldwide channels for Cisco. That profitability will come in three parts: discounts, technology and cost, he said.

In the past, partners would be getting the same margin for selling desktop switching and IP telephony. The cost of reselling an IP telephony solution is a lot higher and more complex than desktop switching, which can be sold direct off of a Web site and installed by the end user, Mountford added.

“”They should not be making the same amount of margin, which was typically four to eight per cent.””

Now, the margin for core technologies such as routers and switches – which are modular and could form a company’s backbone – will be bumped up from seven per cent to 12 or to 20 per cent, depending on the solution sale.

“”These types of solutions are more complex and need integration skills,”” he said.

In addition, advanced technology solutions for storage, IP telephony, wireless, optical and security will receive margins of more than 20 per cent.

Besides the bi-annual Value Incentive Program (released last month) – which gives certified Cisco resellers a 10 per cent net discount rebate after meeting the necessary customer satisfaction rate – the company will add the Eagent program and the Cisco Partner View program to its lineup of channel programs. The Eagent program will help manage inventory for Cisco partners, while the Cisco Partner View program will deliver more tools on its portal site.

The increase margins for the channel was met with positive feedback from two of Canada’s top channel executives.

Murray Wright, president of Ingram Micro Canada, said Cisco has clearly demonstrated they are differentiating the company from other vendors.

“”They have taken the time to evaluate the needs of the channel. I think this is real. Our company is really focused on the return on investment capital matrix . The more the reseller and VAR understand it, the better off they are going to be and they will have healthier businesses,”” Wright said.

Rick Reid, president of Tech Data Canada, said Cisco has identified the exact problem. “”They hit the nail on the head. I was impressed with the level of sophistication they went through to try to solve the problem. And they really did identify the problem.

“”Unfortunately, I believe this will not be a solution to the problem because too many resellers are just going to take the value that has been brought to them to the street and continue to make it too competitive,”” Reid said.

The problem, as far as Reid is concerned, is that Canada has one or two very large resellers that get the largest discount, which is disadvantageous to everyone else.

“”That has not been solved,”” Reid said.

Mountford assured all resellers at the Partner Summit that Cisco will try to police the program. “”We are policing it,”” said Mountford. “”No more one-offs for IP telephony. It has been eliminated.””

According to Mountford, partners hate losing business because of discounts — even more so than losing business to a better solution or to a better company./P>

Reid acknowledged that Cisco would try to police it and that the customer satisfaction requirement was a good measurement. But, he added, that it’s not the only measurement. “”They have to watch the pricing and, unfortunately, it is illegal to control the pricing that is delivered to the end user market.””

Partners will be able to make even more margin selling the services around solutions such as IP telephony. “”This is a service-rich business,”” Mountford said. “”This helps their P & L (profit and loss) and their balance sheet.””

The market for IP telephony is worth US$4 billion and 60 per cent of it is installed base, while the remaining portion is what Mountford called the Greenfield, or companies without IP telephony.

The Greenfield portion of the market is rapidly shrinking, Mountford said, adding it will be down 20 per cent by the end of the year.

Meanwhile, a host of new programs will be available to partners. They include Lab/Demo leasing for two years; accounts receivable purchases; IP communications financing; and expanded inventory so partners can fulfill projects.

“”The partner financing will be a 30-day improvement on today. It is a fantastic way to improve a partner’s cash flow,”” he said.

To create more market demand, Cisco will launch a $150 million marketing and advertising campaign to help drive business to the reseller channel.

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Jim Love, Chief Content Officer, IT World Canada

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