The channel partner of the future has to get comfortable with business models that are today uncomfortable for many, Cisco’s worldwide channel chief told solution providers in his keynote at the company’s annual Partner Summit in Boston.
The model is no surprise – Peres painted a picture of an “average” Cisco partner that in the future will be much less dependent on products sales and “close to the box” services, and much more about a variety of delivery models that include on-premise, managed services, and public or private cloud, will grow to include more application-specific practices, and will wrap it all in professional services and a variety of consumption models for customers.
What was a surprise, perhaps, is the subtle sense of urgency Peres brought to the partner community.
“Many of you are still sitting on the sidelines, wondering if cloud is really here, if XaaS is really important,” Peres said, urging partners to get “off the sidelines and into the game.”
That sense of urgency is underlined by data – Peres said the company’s own partner profitability survey found that managed services and professional services are a much greater part of the mix for the company’s most profitable partners than they were even a year ago. And The 2112 Group’s own Quarterly Channel Review on profitability found gross margins on managed services to be number one with a bullet in terms of profitability in the channel, with net margins coming in between 30 and 50 percent, compared to hardware and software margins of 10 percent and 20 percent respectively.
The channel chief’s three-point message to partners:
- Get comfortable with hybrid deliver models to allow flexibility to your customers;
- Lead with professional services and complete solutions; and
- Get your sales team ready to sell to customers outside of the IT management sphere.
Peres delivered his message with a subtle sense of urgency – framing it with grandiose expressions of how the Cisco partner community was his “business family.” And it’s an apt analogy. The channel chief chose to tread carefully, being soothing and reassuring wherever possible, as one might do when delivering heartfelt advice to a family member who might not be entirely receptive to the message. In a roundtable with international press at the event, CEO John Chambers said the company didn’t think it was its place to deliver “change or die” messages to the partner community, but rather to provide the intelligence, guidance, and resources necessary for partners to find their own optimal path forward.
But Peres did offer some tough talk for partners who have not yet started their journey to transform their businesses. “You need to weight the cost of successfully transforming versus the cost of doing nothing,” he told partners.
Peter D’Almeida, managing director of Sri Lanka-based Cisco partner N-able PVt. Ltd. not to be confused with the Ottawa-based RMM vendor). D’Almeida had strong thoughts on the cost of doing nothing, comparing cloud-laggard solution providers to builders of horse-drawn carriages trying desparately to hold onto their business model at the dawn of the automobile era. As D’Almeida sees it, it’s an evolve or die moment.
“I believe the system integration market as a whole is a dying breed,” D’Almeida said. “Particularly in the midmarket, it will not be a viable business model. We can’t make money selling products. We can make money selling technologies.”
He said he appreciated the vendor’s candor, but believed they have to be even more blunt in raising the alarm with the partner base, saying that “Cisco has to help them understand that they need to do it or they’re dead.”
To D’Almeida’s way of thinking, the only thing allowing old-school SIs to survive is that “the service providers aren’t smart enough to go after this business as of yet.” Of course, that reprieve is fleeting – consider the purchase of massive global Cisco partner Dimension Data by Japanese telco NTT.
Peres acknowledged that for many partners, re-orienting for the variety of delivery models – and the variety of business models that are required to make those delivery models real – may seem like “remodeling a plane while it’s flying and full of people,” but stressed it’s a necessary change for solution providers to thrive – although others might say it’s a more fundamental survival requirement.
To that end, the networking vendor has introduced what it calls a Business Transformation Playbook to help solution providers change. Peres said Cisco has spent more than nine months gathering ideas on how partners can successfully evolve, and vetting it against other members of the community. The result, he says, is a collection of best practices that address many of the most successful ideas from partners who’ve tackled the business model, sales, execution, and marketing challenges that most partners will face as they seek to diversify their business model. Peres said it’s all about finding the right pace and timing of change for partners.
“If you move too quickly to a recurring revenues-heavy model, you will be greeted with cash flow challenges. But if you move too slowly, you’ll lose customers to the competition,” Peres advised.