During Cisco’s latest earnings call last week, the Asia Pacific region came out singing the loudest.
Having posted 12 per cent revenue growth for the last quarter, the region considerably outpaced its geographic rivals and even scored higher than Cisco’s eight per cent global growth.
Although it's hard to pinpoint just how much Australia factors in a market of 18 countries, the performance of local partners at Cisco’s awards last week are a telling sign, with Data#3 scooping the global prize for Software Partner of the Year, while Deloitte, Optus Business and Local Measure took away regional honours.
However, Cisco’s new channel chief Oliver Tuszik warned that some new big changes are coming.
His ‘Partner of the Future’ vision leaves little room for its traditional channel resellers unless they’re prepared to do some heavy lifting.
Under the new specialisation ‘Customer Experience‘, which is expected to start rolling out next year, partners will be rated and remunerated based on how effectively they serve customers through the entire ‘life cycle’ of Cisco's products.
The revamp will require channel firms, whose business models have typically focused on selling, installing and then simply moving on, to actually ensure customers are using the products they’ve sold.
According to Cisco, this will gear customers towards a renewal and therefore improve long-term profitability.
As Cisco partner business group director in Australia Tara Ridley put it: “If the customer sees no value in a product, they won’t spend money on it again.”
“The focus is now on how the end-user is making the most of the technology," she explained. “We have to look at the full life-cycle of a customer.
"How are they adopting and using the technology? Have they even turned the software on? Because that will lead to a renewal.”
As an incentive, Cisco will pay 1.5 per cent higher rebates for partners making the transition into software and life-cycle sales, while a number of new bonus schemes will also heavily reward the channel for renewals.
But for Australian partners that have typically made the bulk of their revenue from large upfront sales remits are going to have to drastically overhaul their business models over the next two years.
In particular, in the words of Thomas Duryea Logicalis national practice manager of security Gavin Coulthard, the speed of the planned transition is likely to catch a number of Australian partners out - despite Cisco’s assurances that the changes are gradual.
In addition, as Cisco pivots away from its traditional hardware business to software networking, partners without capabilities in security, cloud integration may be challenged, Coulthard added.
For Jonathan Barouch, founder and CEO of the Sydney-based Local Measure, these announcements should serve as a wake-up call for many of the 3,000-plus delegates joining Cisco in Las Vegas.
“I think they were gentle [with the partners] because they knew a lot of people in that room have a lot of legacy revenue they need to migrate,” he said. "The reality is there is an existential threat to many of the business of half the people in that room."
For Data#3, that shift towards recurring revenue began three years ago - and there’s still work to do.
“We’ve had to hire people we’ve never had before, and use entirely new tools over the past three years," explained John Tan, general manager for infrastructure at Data#3.
"The selection of the right customer has become really important. A lot of it was a mindset shift. But we still have a long way to go.”
As well as moving focus from hardware to software, the channel may also find itself challenged by Cisco’s adoption of ‘Customer Experience’ as its long-term view.
As Jens Butler, an analyst from the Sydney-based consultancy Tech Research Asia, remarked, Cisco’s use of the term wasn’t entirely clear and generated a degree of confusion over the three-day conference.
“What Cisco has done is take away that services component and make it part of this overall ‘CX’ framework, which has the consulting, support and customer journey mapping built on top of it,” he explained.
“There’s a big gap in there. But the one comment that came up rather a lot is ‘what is CX’?,” he said. “It’s so nebulous right now. The challenge is that CX isn’t quite clearly defined by anyone.”
What next?
So how can partners start to make the necessary changes? Talent and skill sets - forever a difficult topic within the IT industry - will require a rethink, according to Butler.
“Getting the right resources will be a challenge," he said. "Because it’s not just about installing routers, or cloud migration or dot net programming. It’s going to be around those customer journey road-mapping.”
“The hiring processes need to change,” added Peter Stojkovski, a partner at Deloitte Australia. “For a long time, the focus has been on hardware. The merger of hardware and software is only now becoming the focus over the last four years.
"When you take a step back, the architectural change taking place now is one of the biggest in years.”
According to Dicker Data general manager for Cisco, Vickie Madeleine, progress is already being made.
“We’ve seen the rate at which partners are transitioning towards recurring revenue models accelerate in the past 12 months,” she said. “Cisco now joins a host of our other vendors that have a strong focus on this area.
"As vendor incentives continue to be realigned towards these new ways of doing business and the technology we use becomes more reliant on software, partners are naturally being driven to change."
Nevertheless, Ridley left little room for doubt as to what will happen to those that fail to keep up.
“I don’t think that partners we have today will be the partners we have in the future,” she said. “And that’s ok. They’ll still have their own niches - and they won't just be selling Cisco."
