This week, Cisco held its annual reseller conference--called Partner Summit--in my hometown, Boston. There's a lot of excitement in Boston nowadays as the Bruins have slapped around the high-flying Penguins, the Red Sox have had their way with the Yankees and (going back to last year) the Patriots caused the Jets own "Sanchize" to execute the "butt fumble", one of the most embarrassing, infamous plays in all of sports history.
It seems that recently, Cisco has been doing its own slapping around of the competition. This past quarter saw almost every networking vendor miss their financial results and take anywhere from minor to huge hits on stock price, while Cisco bucked the trend and performed quite well, including in the challenging US market. Cisco continues to dominate the data center space with UCS and has had tremendous growth in wireless.
Some of the credit for the Cisco rebound has been given to the fact the company has shed some of the markets it should never have been in, such as the consumer markets. I think a bigger contributing factor is that Cisco is much more aggressive when it comes to competition and is pushing back a lot harder than it had in the past few years.
During the opening keynote, CEO John Chambers openly talked about the perils of competing with the company. He showed a slide that showed Cisco's competition through the different phases of Cisco all the way back to 1990. The slide hammered home the point and listed names like 3Com, Wellfleet, Bay Networks, Cabletron, Nortel and Redback. Chambers did give credit to Juniper for making the bridge from one era to today's, but did state something to the effect of "We're coming to get you, Juniper".
The message to the partners was clear and shown to everyone in the form of a slide. "History is littered with competitors big and small who were going to win against Cisco and failed". The underlying theme here to the partners is that if you want to have a sustainable business that can make it through the different eras of IT, Cisco is the only choice. If you look back at the number of competitors that failed to make it through transitions, it's hard to argue with this thesis. I'm not saying that resellers shouldn't sell other vendor products, but Cisco has been the most consistent vendor over the past 25 years.
Looking ahead at to what transitions are coming next, Bruce Klein, the new SVP of Worldwide Channels, urged the partners to transition their business to hybrid IT (defined below). Klein took over this role from the incomparable Keith Goodwin, who did an excellent job running Cisco's channel during his tenure. These are big shoes to fill with big expectations, and Klein needs to deal with maybe the biggest shift in the history of Cisco's channel.
The concept of hybrid IT is that IT will be built on a combination of traditional IT but also new IT, which is cloud-delivered.
While selling the cloud can be intimidating because it's different, the go-to-market can be even more daunting. Selling cloud requires selling to line-of-business managers, which is an entirely different skill set than Cisco partners have today. Some resellers that I talked to at Partner Summit have made the shift themselves and created practices around verticals, but these are few and far between.
To help partners make this shift, Cisco has created two new certifications. Both are called "Business Transformation Certifications," but one is aimed at systems engineers, and the other at account managers. Additionally, Cisco has created a "Cloud Business Transformation Playbook" that explains cloud business models, the financial implications, sales models, and compensation structures.
Frankly speaking, the world is moving to a hybrid model and resellers that embrace it will have a chance of grabbing some share. Those that don't will go the way of the voice interconnect and rapidly become irrelevant.
Targeting the Midmarket
The midmarket opportunity was also front and center at the conference. By Cisco calculations, which are likely an aggregated view of industry analyst work, the midmarket globally represents a $55 billion opportunity composed of $25 billion in product and $30 billion in services.
While Cisco dominates the enterprise landscape, the midmarket is highly fragmented. Cisco's midmarket share is currently about 20%, so there's a tremendous amount of upside in this segment. Cisco bought Meraki to help drive wireless sales in this market and launched the Catalyst 2960-X wired switch to support this effort.
Last year, Cisco dropped an additional $75 million in extra incentives, rebates and compensation to drive midmarket sales. This year, they'll double that to $150 million to create even more financial incentive. Cisco's also committed to creating $1 billion in pipeline to help lead generation for resellers focused on this market segment.
Cisco wants its channel partners to sell more solutions into this market segment and quantified that when solutions are sold--that is, a combination of hardware, software and services--deal sizes are typically anywhere from 2.5–7 times bigger than product sales. A billion dollars in pipeline? Bigger deals? Higher payouts? Seems like great incentive to me.
Lastly, to no surprise, Cisco talked a lot about the concept of the Internet of Things. Chambers claimed that this is a $14.4 trillion opportunity over the next decade. I've got some thoughts and questions about that, but I'll save that for another blog--but I will say the Internet of Things should open new doors to new buyers for Cisco and its reseller channel.
Perhaps the company's ability to separate itself from some of the competitive threats they were supposed to have from the likes of HP and Huawei put some swagger back in their step. I'd certainly expect Cisco to step on the acquisition pedal, particularly when it comes to software, and look to transform faster than its competitors.
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