Cisco stays on services sidelines

As leading vendors in many IT sectors rush to dive directly into the services swimming pool, the top player in the networking hardware arena seems content to lounge on the deck and let its partners get wet.

That leader is Cisco Systems Ltd., and its dominant position in the router and switch markets would seem like an ideal base from which to hawk all kinds of lucrative services to befuddled network pros trying to make sense of their latest Catalyst or Aironet purchase. Dispatching in-house troops to help such customers untangle IT complexities is, after all, what firms in other markets are basing a huge portion of their futures on. For the likes of Hewlett-Packard Corp. or Novell Inc., for instance, Cisco’s huge market share would be looked upon as near Nirvana.

Yet Cisco’s philosophy around offering assistance to customers has traditionally dictated that third-party vendors, or channel partners, will do the bulk of that work, not Cisco itself. And despite the growth of services as a key component of the average enterprise’s IT efforts within the last few years, Cisco shows few signs of altering its indirect approach.

Evidence of that was on display at the company’s recently held Cisco Partner Summit in Las Vegas. At the conference, Cisco announced they were dropping administrative fees charged to partners for use of its eAgent program, through which they receive compensation for acting as Cisco sales agents.

Cisco also improved the flexibility of its channel financing options, potentially making it easier for partners to build more sustainable business models. The San Jose-based firm also introed technology packages to help resellers better target the growing small/medium business market.

To Karl Meulema, vice-president, customer advocacy, worldwide partner marketing for Cisco, the approach is rooted in a very simple business decision, one that the company feels represents its best chance for success in the services game.

“If you look at the services model of Cisco compared to IBM, IBM has taken services as the lead and become relatively multi-vendor and product-independent in their services model,” said Meulema. Cisco’s model, on the other hand, is always one where its services organization attempts to “ensure customer satisfaction and product absorption” around Cisco technology.

“And not that one is better than the other; it’s a choice, and as a company you need to make choices. Strategically you need to put your investments behind those choices, and that is, I believe, what Cisco is doing very well – as is IBM, by the way,” Meulema added.

Mike Farabelli, vice-president, services marketing, customer advocacy for Cisco, states plainly that services isn’t in the middle of the firm’s radar screen.

“Our goal is not to be a huge professional services firm. We don’t think the network industry can scale unless we go to a very partner-friendly model.”

Nevertheless, Cisco does offer services directly, usually when customers request that its professionals get directly involved. According to Dan McLean, director of outsourcing and IT utility research for IDC Canada Ltd. in Toronto, those direct services account for 15 per cent of its overall revenue.

“For a US$20-billion-dollar company, 15 per cent is pretty sizeable,” McLean commented.

McLean views Cisco’s involvement with direct services as a task that the firm probably would rather not have to do.

“I don’t think they envisioned themselves as becoming a services company, and I don’t think they would admit to anyone that they are a services company, or that they’re evolving to become a services company. They see themselves more as a technology company where they’re trying to define solutions.”

Where Cisco does tend to get involved, McLean noted, is in situations where partners aren’t able to step up to the complexities of the technologies as much as Cisco would like. McLean noted security as an example.

“Where a partner can’t do a deal, that’s where Cisco steps up, or in a case where a customer simply insists on having Cisco,” the analyst said. “I think those would probably be the two golden rules for Cisco in terms of engaging a customer.”

For Network Architechs, an Albuquerque, N.M.-based systems integrator and Cisco partner, the issue of Cisco becoming more directly involved in offering services has “always been a question, especially as you see that happening more throughout the industry,” according to the firm’s chief technology officer, Klaus Mueller.

However, the service provider, which operates throughout New Mexico and western Texas, has been impressed with how little Cisco interferes with its operation.

“They’ve made a commitment over and over, both verbally and, as far as we can tell so far, in action, to support the customers and not try to take that service out,” Mueller said. “It’s very encouraging that they haven’t tried to compete with us directly.”

IDC’s McLean isn’t expecting any kind of sea change from Cisco in its approach to services, mainly because a services-heavy model would represent such a drastic change for the firm.

“The issue with services is that they tend to be a people-intensive thing, and it’s an entirely different business model than they have right now.”

That present model sees relatively few employees generating high revenue per employee.

“Services are kind of the other direction, where you have a lot of employees generating a lower per-employee revenue,” McLean said.