Cisco, this week at the Cisco Partner Summit sent an unambiguous signal to partners that it expects its best partners to begin evolving their business models to better align themselves with a Cisco effort to drive more recurring revenue from software.
To provide some financial incentive for partners to make that change Cisco announced it is changing how it compensates partners for services sales. Cisco is shifting away from a performance-based incentive strategy to a more predictable compensation strategy based on recurring revenue, says Marc Surplus, vice president of strategy, planning, and programs for Cisco’s Global Partner Organization. This new approach will also include bonuses on expanding a services contract or renewing a deal, adds Surplus.
Cisco, however, also made it clear it doesn’t expect miracles to occur overnight. Those new incentives will not be implemented until next year. That should give partners the time they need to change how they compensate their own sales teams, says Surplus.
“We’re signaling intent here,” says Surplus.
Making that transition, however, may not be easy. Partners that have begun to make that transition report that not every member of their sales organizations was excited about changes to compensation plans that require them to accept new plans based on how much recurring revenue gets generated.
That transition created a lot of emotion within one longtime Cisco partner, says Bill Padfield, group chief operating officer for transformation and services at Dimension Data.
“It’s a seismic change,” says Padfield.
On the plus side, Padfield notes there is now more clarity between where Cisco services end and the services provided by the partner can now begin. That’s been problematic in the field because customers have become adept at playing Cisco services off partner services to drive down their costs, notes Padfield.
Making that transition is now unavoidable because customers have changed the way they want to consume IT in the age of the cloud, says Dean Romero, practice director for software and lifecycle services at World Wide Technology (WWT).
“It’s a fundamental change,” says Romero.
Channel partners will need to be prepared to part ways with some salespeople who don’t want to make a transition to what is now a much longer sales cycle, adds Romero.
Salespeople will also come to terms with having more people talking to what many of them have always thought of as their customer. Much of the effort required to convince customers to consume more software is going to be driven through ongoing customer service engagement rather than a sales call.
Cisco is also now adding a series of Business Specializations, the first one of which will focus on customer engagement.
As part of making that transition, Cisco is also encouraging partners to join the Cisco DevNet program to learn how to build applications. As more technical services become automated, Cisco is pushing partners to find new ways of adding value by building applications that can run on Cisco switches, routers, and servers.
In the meantime, Cisco continues to plow ahead on its transition. The company reported first-quarter net income of $3.5 billion on revenues of $13.1 billion, an eight percent gain in sales year over year. But the services portion of that revenue only grew three percent.
To help fuel future growth, Cisco this week also announced a Master Networking bonus to align this Specialization with the other Master Specializations, a DNA Center Activation Accelerator bonus for the next two fiscal quarters. They also simplified the activation proof of purchase (POP) requirements for DNA Center, expanded activation eligibility to nine months after the VIP period ends, and is exploring adding new offers to the VIP Activation portfolio to accelerate key data center solutions.
Based on the latest revenues it clear Cisco is getting more adept at driving recurring revenue based on licensing its software versus bundling it with hardware. The challenge partners now face is deciding how far they want to go down that same path selling Cisco services.
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