Just because you're paranoid, so the old saying goes, it doesn't mean they aren't out to get you. This is certainly true of Cisco, the networking market's very own 800lb gorilla. So how is Cisco keeping ahead of the competition?
Like the seaplanes practising noisy touch-and-go landings just outside the auditorium, Cisco's announcements in Vancouver earlier this month came thick and fast. Three main themes, however, stood out: Cisco's SME plan, its Solution Incentive Programme (SIP) and, last but by no means least, a combination of ISV programmes and vertical markets.
The SME plan
Cisco is not a natural inhabitant of the SME market. Although John Chambers, chief executive of Cisco, has strong views on upfront pricing (see box on page 23), the company's products have a tendency to be highly priced compared with those of its rivals. In the past Cisco has not been widely known to recruit small resellers specialising in small business sales.
That appeared to change in March 2003, when Cisco said it would buy Linksys, pulling the company into the retail and SME sectors. The deal allowed Cisco to attack upwards from the very bottom of the SME market. At roughly the same time, the vendor started recruiting SME resellers to sell its own products in the other direction: from the medium enterprise downwards.
John Donovan, unified channel director, UK and Ireland for Cisco, said at this year's Partner Summit that in the European market, Cisco's SME customers are largely firms with 250 employees and fewer.
In April last year, Cisco operations director Phil Sorsky told CRN that he was looking to fast-track a further 70 resellers through Cisco's SME accreditation process to join the 70 existing resellers.
"SME Select is now about 300 resellers strong and growing," said Donovan. "SMEs want to buy from local providers."
Kathleen Klasnic, lead analyst at Datamonitor, said that Cisco has done well, but will continue to face competition.
"Cisco is making an impact and has a range of good solutions for the segment. However some markets will be tricky," said Klasnic. "Avaya's Tenovis acquisition should heat up competition both in Germany and for mid-tier solutions, particularly in health care."
On top of building the channel model and launching a range of products aimed specifically at SMEs, Cisco introduced a support package for small firms at the Vancouver conference.
At present there are two forms of support available from Cisco. Shared Support (SSP) replaced SIS 98 and RSA 98 last year, to a mixed reception from larger Cisco partners. SSP is sold by Gold and Silver partners that meet the correct criteria. SmartNet may be resold by smaller Cisco partners, and has been used by some firms to punch above their weight, offering advanced support without investing in their own support resources.
"Our standard offering up to now has been SmartNet," said Karl Meulema, vice-president of customer advocacy, services marketing and channels at Cisco.
"SmartNet is focused on the enterprise. In the SME space we find that customers are not highly technically competent. They have different needs and are looking for simplicity."
Support Assistant is a new package that sells for 55 per cent of SmartNet's list price, and offers lower levels of support. It provides technical assistance centre support during normal working hours, as opposed to round-the-clock cover. There is a special technical assistance centre with staff that talk plain English (as well as six other languages), rather than jargon, and next-working-day replacement instead of SmartNet and SSP's more speedy alternatives.
The immediate problem posed by Support Assistant, said Keith Humphreys, managing consultant at EuroLAN, is that SMEs have similar business needs to larger companies.
"A product that costs 55 per cent of the SmartNet list ? I like that," Humphreys said. "However, I'm not convinced that SMEs don't regard their networks as mission critical. I think they absolutely do."
Canalys director and senior analyst Sandy Fitzpatrick had similar opinions. "Support Assistant is yet another offer for the SME market," she said.
"Cisco has been trying to get into the SME space, and this is a way of getting traction. A core part of SMEs resellers' business is to offer services, so it will be interesting to see if resellers welcome this, or see it as infringing on their core competencies."
Research by Cisco, it should also be noted, found that 90 per cent of SME customers do not have support contracts. That number may suggest either a cracking opportunity for support packages, or that most SME customers are happy to rely on the sort of guarantees provided by traditional SME suppliers, such as 3Com or HP ProCurve. Or it may be simply that SMEs are not interested in buying support. Time will tell.
Solution Incentive Programme
Not to be confused with Session Initiation Protocol, as it was at the Vancouver conference, the Solution Incentive Programme (SIP) was introduced to the crowds at Cisco's channel event in Hawaii last year, to great fanfare. While resellers have used the programme and also seem to like the idea, Cisco used the Vancouver conference to unveil SIP again.
"SIP is ready to go now," said Cisco's Donovan. "There's a specific EU [European Union] implementation, and there will be a full roll-out by the end of the financial year."
In brief, SIP rewards resellers for coming up with innovative solutions for their customers. If the solution is registered with Cisco and proves to be unique, the reseller is duly rewarded.
SIP sits alongside the Opportunity Incentive Programme (OIP), recently opened up to resellers outside Cisco's SME Select accreditation (CRN, 18 April), and the Value Incentive Programme (VIP), both of which are popular with resellers looking to boost their margins.
"SIP wasn't necessarily new. It was just a revamping of the message. I think the company was just trying to re-emphasise the message," said Fitzpatrick.
"I'm picking up from partners that it has been quite popular. If you speak to some of Cisco's global system integrators, they are getting something out of it. The likes of Dimension Data say it is something they value. It puts money back into the process."
However, Peter Halls, head of the newly-combined Kingston Communications and Omnetica businesses, now renamed Affiniti, has some caveats.
"You always have a problem with things like SIP; if you develop something you think is unique for yourself, you might not want to share it with a partner," said Halls.
"I think it may fall by the wayside. At present it's a very drawn-out process. If it is to work, it needs to be snappy. VIP and OIP are very clear and very simple. SIP, on the other hand, is more long term."
The jury remains out. It is perhaps unsurprising that sources within the company joke wryly about conducting R&D in the channel when it comes to SIP.
But more complicated does not necessarily translate into being of less value. For one commentator at least, the truth will out in the way SIP is taken to resellers.
"If it's implemented effectively, SIP will draw a line between the kinds of reseller behaviours Cisco wants to incentivise and those it does not. The resulting benefits will increase the closeness of the relationships with these more forward-thinking partners," said Klasnic. "The challenge, though, as always, will be in consistent application and execution."
Klasnic added that the version of SIP presented this year was more fleshed out than last year's announcement.
ISVs and verticals
Perhaps the most interesting piece of news in the Cisco and general networking and telephony markets recently was that Avaya UK and Ireland vice-president Clive Sawkins had defected to Cisco.
Sawkins, who joined Cisco in April as director of IP Communications EMEA at the firm's advanced technology group, had good reason to take up the offer Cisco made him.
"Convergence has taken off. I'm now looking at converged applications," he said. "If you think of the converged market as a whole, 20 per cent growth is achievable for partners and organisations."
Coupled with Cisco's drive for applications, and its support for ISVs, is the assertion by Chambers that the firm will move towards vertical markets and away from horizontal ones such as LANs. According to Klasnic, the move will help bolster wilting margins.
"The reasons for verticalisation are similar in the networking space to those in the general IT market. Specifically, more tailored solutions generate higher margins," she said.
"As the networking space becomes more commodified and resellers have seen their margins squeezed further and further, Cisco has taken a lot of flack for not supporting them better," she added.
This move is a wise one for Cisco, not least for the roasting it has been subjected to over the past few years for its ? sometimes diminishing ? hardware margins for resellers.
Klasnic argued that moving towards a vertical market model, as well as a solutions-based model, makes sense, as it allows Cisco to grow the margins of resellers willing to go in this direction.
Fitzpatrick argued that Cisco has already verticalised itself.
"This is a drive to increase adoption, and now it has an applications and services play," said Fitzpatrick. "In EMEA, verticals are not the only way. Cisco is also trying to do horizontal applications, such as CRM on IP."
Part of the vertical conversion is what Cisco calls ecosystems: collaborations between resellers and ISVs, as well as between resellers. This may be a trickier process than it appears, according to Fitzpatrick.
"We don't often see partners with different core competencies working together on solutions," she said.
"It's a nice vision, but we have yet to see the evidence."
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