Cisco Changes Sales Model In Effort To Increase Partner Profit

Cisco Systems

Speaking at the Cisco Partner Summit 2002 here, Mountford said Cisco is moving from a neutral engagement model to a value engagement model.

Key to the change: Cisco partners will be brought into a deal much earlier in the process, Mountford said. "We recognize that we need to change for you to be successful in this market," he said.

Cisco's neutral engagement model often leads to lowest-price sales and lower margins, he said. And engaging partners late in the sales process leaves high-margin services opportunities for partners out of the mix, he added.

What's more, Cisco's neutral engagement model leads to lower customer satisfaction scores, Mountford said, and he provided the numbers to back it up.

About 8 percent of Cisco's enterprise sales are direct, he said. The company earns a customer satisfaction score of 4.59 out of 5 on those sales. Some 22 percent of Cisco's sales, largely in the SMB space, involve only a partner and the end customer, Mountford said. Partners earn an average customer satisfaction score of 4.4 out of 5 on those sales.

Cisco and its partners deliver the remaining 70 percent of Cisco's sales together, Mountford said. On those sales, the customer satisfaction score is 4.15 out of 5.

"It's not a tragedy, but it shows we're not engaging well enough together," Mountford said. "And the key issue is late partner engagement."

Implemented last week, Cisco's new value engagement model would bring the partner into the process much earlier, allowing partners to deliver high-margin pre-sale design and consulting services, Mountford said.

"We recognize that just through engaging better together, we can help drive profitability for our partners and Cisco," he said.

Last year, Cisco changed its partner program to reward value add rather than sales volume, and added its specialization requirements. In the past year, Cisco's partner base has moved from 400 specializations awarded to 3,900, Mountford said. The number of specialized partner companies grew from 300 to 2,500, he added.

In the process, customer satisfaction rose from 4.05 to 4.15, but partners ran into increasing barriers to profitability, he said.

Mountford also addressed the issue of carriers selling hardware. Cisco's solution provider partners have been complaining that Cisco's service provider partners are selling Cisco hardware at less than cost to get the transport business.

Mountford said Cisco's solution provider and service provider partners are missing big opportunities by competing rather than partnering. Service providers are under increasing pressure from the financial community to sell new IP services on the infrastructure they built recently. Cisco is creating programs to reward service providers for working with solution providers and minimizing conflict over product resale, he said. The service provider can benefit from Cisco's partners selling their services and Cisco's partners can earn more money by selling those services, he said.

Dana Zhaka, president of Westwood, Mass.-based solution provider Select, said she thinks Cisco's value engagement model is a good idea.

"Absolutely we have to get in there early to sell the higher margin services," Zhaka said. But Zhaka said she is still concerned about service providers selling Cisco hardware at cost. "They really didn't address the service provider issue and it's a huge problem," she said. "Partnering with service

providers isn't the solution."

Zhaka added that a lot of Cisco's solution providers she talks to are worried that they won't survive the current market to take advantage of any upturn if the competiton between service providers and solution providers isn't fixed.

Cisco is still counting on emerging technologies to drive growth for the company and its partners. In the high-growth past, the company referred to IP telephony, storage, security and wireless LAN technologies as "tornado markets." Mountford said these markets may be more like "dust devils" now, but still are key to growth.

For instance, IP telephony hardware sales are expected to grow 36 percent to 44 percent annually, but IP telephony services revenue is expected to grow 66 percent annually, he said.

In total, those four markets represent about $13 billion per year in hardware sales and at least $13 billion per year in services revenue, Mountford said.