Cisco CFO Scott Herren: ‘I Have A Huge Affinity For Channel Partners’

Cisco Chief Financial Officer Scott Herren, a self-proclaimed channel guy, talks with CRN about revamping enterprise agreements, consumption-based IT, and how important partners are in driving software and subscriptions for the tech giant.

A Fan Of The Channel

Cisco does more than 85 percent of its business through the channel, so it’s only fitting that Chief Financial Officer Scott Herren, who joined the company last December, is “biased” toward partners.

The tech giant wants to move from high-end switching and routing provider to a top software player in the eyes of the industry. The channel is Cisco’s biggest route to market and they’re already helping the tech giant make the transformation. Cisco finished its 2020 fiscal year with software accounting for 29 percent of revenues. Subscription revenue during the same period represented 74 percent of software revenues, Cisco revealed during its 2021 Investor Day last week. And it’s Cisco partners that are bringing in nearly 90 percent of the company’s overall bookings and driving most of the recurring subscriptions.

Herren met with CRN following Investor Day to talk about the critical role partners are playing in the company’s transformation. Herren talked about what partners can expect from Cisco’s enterprise agreements that are being re-worked and the company’s revamp of its product categories. He also shared his personal “affinity” for the channel and how important partners will be in helping to drive consumption-based IT and subscriptions for the San Jose, Calif.-based company.

Here’s what Herren had to say.

How big will Cisco Plus be in helping Cisco get to 50 percent of revenue from subscriptions by 2025?

Cisco Plus is our hardware and networking-as-a-service model. There’s two [offerings] in the market today — it’s very early days. But the feedback has been quite positive from them [on the data center offering]. Instead of saying: “I want to buy 10 UCS servers,” customers can say: “I need X amount of compute capacity over the next X number of years,” and that gets packaged up into a bundle and sold. That subscription model [is being] built into a monthly billing process so that you get billed as you consume. It’s got a consumption element to it, but it also has a subscription element. With the advent of the big public clouds, not everyone wants to put all their workloads out on Amazon or on Azure, but they like that style of pricing. So, it’s a way to give [customers] a little bit of the best of both worlds with the consumption-style pricing they see in these big public clouds, but at the same time, the control and the ability to control the data attached to their own apps. I think that I think we’ll see a pretty good reception to that.

The second offer is a combination of our SD-WAN and some of our cloud-based security. We’re going after that SASE space with a full subscription model. One of the questions we got [during Investor Day] was, why is your security business not growing faster than it is? Part of it is, when you look at a lot of the players in that space, they’re selling a lot through MSPs. One of the things that Oliver [Tuszik, Cisco’s channel chief] and I have spent a lot of time on is designing a more effective MSP program for Cisco looking ahead. Part of the answer is having an offering that is an MSP-friendly offering, and I look at what where we’re headed with Cisco Plus, going after that SASE opportunity, I think, will have a nice level of traction within the MSP world.

How critical are partners in driving the software and subscription focus for Cisco?

I probably have a biased opinion here. I spent four years running a sales organization at one of my prior companies — the European sales team at Citrix — which is a very channel-friendly company. As I reflect back on that time, not only that I learned a ton about running a sales team, some of my closest friends to this day from that experience were the business leads of our channel partners, both the distributors and the VARs in that space. So, I have a particular bias for channel partners. It’s the most pragmatic, straightforward set of business conversations that I have ever had my life.

As we look ahead, [partners] are critically important. The overwhelming majority — 85-90 percent of our sales go through the channel. Gerri [Elliott, executive vice president and chief customer and partner oficer] used the phrase during her presentation [on Investor Day] that our channel partners are our secret weapon. That that’s the way we think about them. And when I meet with channel partners, not only do I have an affinity for them, but at times, the passion that I get from them, it’s hard to tell who’s wearing a Cisco badge and who’s wearing a [partner badge].

And I know from my own experience working with channel partners, we have to protect that. You can’t just take that as an assumption. We have to ensure that as we work jointly with our channel partners to sell to customers, that there’s an effective, successful business for our channel partners there as well. It’s something that we spend an enormous amount of time on as we need to evolve and have more of a managed service provider-friendly touch. That’s what we’re in the midst of standing up.

What kinds of changes are coming to enterprise agreements as the company continues its pivot in favor of software and subscriptions?

Our enterprise agreement [EA] sales have been super successful. But as you know, they are architecture-specific. There’s a security EA, which is separate from a collaboration EA, etc. While I think that’s right to get started, what we hear a lot from our customers is: “But why can’t I take some of the money that I just gave you for my security EA and use it instead for Webex? We have some cross-architecture EAs, but it’s still difficult for a customer to be able to be more dynamic with their Cisco spend.

There’s nothing to announce just yet. But what Gerri [Elliott] alluded to is we are working diligently on —and we’ll get out within this fiscal year — a far more flexible version of our EA that allows for the ability to mix and match much better and make that more dynamic. I think it’s something that if I were a buyer, it’s something that I would want from the vendors that are selling to me. It’s incredibly complex, and it’s some of the complexity frankly lands on my team, because the accounting of doing that becomes quite challenging. But it’s something that we have to do an something that will get out. So, what I’d say is watch this space.

Cisco announced a revamp of its previous Infrastructure, Applications, and Security product categories during Investor Day. Why was this restructure important?

It’s really about providing more granularity, which I think is more transparency to our investors. The more data points you give, the more you expose the operations of your company, but I think we’re at a point in our transition where that increased transparency is exactly what we need to do. We need to provide that level of visibility to our investors.

Simplistically, we went from three to five [categories] and it’s not exactly a one-to-one mapping. But think of what was Infrastructure Platforms being broken out into Secure Agile Networks and Internet for the Future. Security is still security — security was a standalone category before and it’s a standalone category now. Then, Applications is being broken out into Optimized Application Experiences and Hybrid Work. Going from three to five — it’s really taking two of those [categories] and splitting them into two component parts. I think that higher level makes it easier for our investors to understand exactly how things are happening. People would look at the Applications number in the past and think it was a proxy for Webex, but there was so much else in that category. So, when they saw Applications growing at 1 percent instead of what they expected to see, we had to provide that visibility anyway. So, I think splitting it out is more transparent and it’s going to be easier and more effective for our investors.

How can partners work to reach new types of IT buyers?

It’s a great opportunity to go after. If you think of where we’ve traditionally sold a lot of our products, it’s been at the CIO level and in the networking side, and then the security OPs. What’s happening is the application architecture is changing. The way apps were delivered 3-5 years ago is totally different than the way apps are delivered today, and it’s bringing a new buyer — a new influencer at a minimum, but perhaps a whole new buyer — into the picture. That’s the application operations team and the developers. That’s an opportunity, I think, for our partners to really leverage those relationships they’ve got with the customer and get to that new influencer, or that new buyer, and drive those sales. It’s a space where, when Gerri [Elliott] talks about our partners being our secret weapon, that’s why. They have that access, and they can drive that force.

Is the call to action for partners to reach out to new customers or go deeper with existing customers?

It’s both. We’ve built up $22 billion of annualized recurring revenue. That’s a huge base that we need to renew. Those are sales opportunities to make sure that they’ve adopted ahead of time to make sure that you get that renewal. And by the way, while you’re in there, that’s an upsell and cross-sell opportunity. That’s the care and feeding of our existing customers.

More so in the security and applications side of our businesses, there’s a lot of net new logos for us to go and get. We were pretty deeply penetrated with our enterprise networking business across most of the larger companies. Meraki is pretty deeply penetrated in the commercial segments. But there’s a lot of new logos we can go get in both security and in various elements of our application portfolio. Let’s make sure that we’re taking care of our existing customers, we’re driving that adoption, we’re getting the renewal and we’re using that point of renewal to do the upsell and cross-sell.

But at the same time, there’s a huge amount of uncharted territory. Webex has made so much progress from a product standpoint over the last 12 months in the way Jeetu [Patel, Cisco’s executive vice president and general manager, security and collaboration,] (pictured) and his team have changed that product. But you have to now have people actually use it. In their mind, it’s: “I used [Webex] five or six years ago, I know Webex,” but you don’t know. So, one of the things that I’d love for our channel to be more engaged in is driving for new logos, in particular, for our collaboration portfolio.