Advanced Technologies Powering Profits for Channel Partners

March 30, 2005

by Charles Waltner, News@Cisco

The age of advanced networking technologies is here, and it is paying handsome dividends for Cisco Systems' channel partners.

Channel partners broadly report 2004 as one of their best years for revenues and profits since the late 1990s, with double digit growth driven in large part by the sales of advanced networking services technologies such as security, wireless, storage, and, in particular, IP Communications implementations. Such positive news continues the momentum established in 2003 when Cisco channel partners as a whole enjoyed profit increases for the first time in 18 months.

Channel partners said that Cisco's introduction of a host of new incentive, financing, training, sales support and other programs over the last two years greatly helped them in the transition from simply fulfilling product orders to selling advanced technologies coupled with offering consultative and support services during the entire life cycle of the customer's network.

Cisco's channel partners, a force of over 200,000 people in 20,000 independent value-added resellers, systems integrators and network consultancies, account for more than 92 percent of Cisco's enterprise and commercial business revenue. Cisco will once again meet with this invaluable sales force to discuss the year ahead at the annual Cisco Partner Summit, held this year at the Vancouver Convention and Exhibition Center, April 4-7.

Robert Cagnazzi, the chief executive officer for the North American operation of Dimension Data, one of the largest IT services company's in the world, said the IP voice business for his organization increased 150 percent last year, making it by far the fastest growing part of his business. Security was the second biggest growth segment for Dimension Data.

Other partners also reported a very high demand for IP telephony and IP Communications networks, in addition to security and wireless projects. Alex Obeso, president of ADX Technologies, an 11-person IT consultancy specializing in serving the networking needs of small and medium-sized businesses in Coral Gables, Fl., said much of his company's IP telephony business in 2004 was driven by customer demand rather than aggressive sales efforts. His biggest challenge was developing engineers with IP Communications expertise fast enough to handle the upswing.

"Our pipeline became quite full," Obeso said. "It's not trivial to implement IP Communications so our engineers need to be extremely competent. But these types of engineers aren't out in the market. You have to train them and that takes time and resources."

Obeso said Cisco's introduction of a wide range of channel partner programs supporting the transition to advanced technologies could not have happened at a better time for his company. Before the dotcom bubble burst, his organization focused on providing data network consulting to major corporations with operations in Latin America. But that business evaporated with the economic changes in 2001, causing Obeso to look closer to home for a new business model. His company decided to target the local and regional businesses in southern Florida by bundling his company's consultative expertise with the new advanced technologies products being developed by Cisco, specifically using IP telephony as a way to differentiate his company from commoditized basic local area network (LAN) and wide area network (WAN) data installation and maintenance competitors.

Obeso said the transition to the more complicated IP Communications deployments taxed his small company, but the partner support programs Cisco developed over the last two years have made a dramatic difference and helped his company to its new prosperity. Obeso is not alone in his appreciation of Cisco's new partner support programs. Cisco channel partners interviewed for this story lauded Cisco's efforts, in particular the Cisco Value Incentive Program (VIP). Richard Zimmerman, director of network solutions with Forsythe Solutions Group, Skokie, Ill, said VIP is making a big difference for his company.

"Cisco recognized the financial commitment necessary for channel partners to successfully sell and support advanced technology products," Zimmermann said. "Successful implementation of these products to meet customer expectations requires an investment in personnel and tools. Cisco's VIP rebates have helped offset some of the investments we have incurred as we have focused heavily in these areas."

John Freres, president of Meridian IT Solutions, in Deerfield, Ill., said 2004 was a great year for his company. He gives credit to Cisco's Paul Mountford, senior vice president of worldwide channels, Chuck Robbins, vice president of US channels, and other Cisco executives who brought new management to Cisco's channel partners program after the economic upheaval in 2001. "Everything that they've promised, they have delivered," he said. "Being a Cisco partner has never been better."

Freres said most importantly Cisco is listening to its channel partners, demonstrated most clearly in its regional planning initiatives. He said regional planning has provided an excellent forum for Cisco to understand the unique qualities of its channel partners and how it can best support their efforts to sell advanced technologies.

The channel partners also noted that Cisco programs such as VIP and the Opportunity Incentive Program (OIP) have helped channel partners make the transition to the new era in networking services. "The biggest change has been Cisco's shift from a supply chain model to a consultative ecosystem," Cagnazzi said.

Many channel partners said their evolution to a more consultative model based on Cisco advanced technologies coupled with a focus on support during the entire life cycle of a customer's network has also helped their companies flourish. Meridian's Freres said his company's biggest challenge is building a sales force with better business savvy oriented to providing solutions rather than products. "Customers aren't ordering just to order," he said. "They're looking for business justification and need to see a ROI, so they're using a lot of discretion in choosing their IT investments." More and more to make a sale Meridian must talk with the chief financial officer or chief operating officer of a company, rather than just the chief information officer, Freres added.

Most channel partners said they would like Cisco to further improve on the changes it has made by offering expanded investment support, greater marketing support, and more coordination between its channel partners and its in-house sales force.

"It's a lot better but we would like to keep pushing the dial," Cagnazzi said.

Charles Waltner is a freelance journalist in Oakland, Calif.