I've been covering Cisco as an analyst now for the better part of 15 years. Prior to my analyst career I worked for a Cisco reseller, and prior to that I was a customer of the company. All in all, I guess I've been watching Cisco and the networking industry for the better part of 25 years.
Throughout that time period, I've heard a steady drumbeat of people predicting the downfall of the networking industry's 800-pound gorilla. Despite the predictions of increased competition, commoditization, and other factors, Cisco has continued to thrive as a company. Sure, it's not the same hyper-growth company it was in the late 90s, but at almost $50 billion and 60%+ gross margins, even 3% to 5% growth is impressive.
So, why has Cisco been so successful? One of the big reasons is the loyalty of its massive base of channel partners. Every year I hear competing vendors tell me that Cisco channel partners are unhappy and are looking for a new strategic partner. However, when I interview Cisco resellers, I really don't get that sense at all. In fact, I get the opposite view – most channel partners get tremendous value from Cisco, and dropping the relationship is the furthest thing from their minds.
So, after all these years, how has Cisco managed to maintain such loyalty with its partner community? I think the answer lies in one word – innovation. This includes innovation both with products but also the partner program.
Cisco has easily been the most innovative networking vendor, and arguably one of the most innovative IT companies, in the past 30 years. In December of last year, I put together this list of Cisco's top product innovations over the past 30 years.
The role of product innovation with the channel should be obvious. It keeps the partner out in front of the competition with cool, new, unique solutions. When I was a reseller, VoIP was just coming into its own and Cisco was the first vendor to package VoIP with an architectural story (AVVID). This gave us a huge competitive edge over NBX and the handful of other VoIP pure plays in the market at that time. By the time the incumbent TDM vendors had a solution, Cisco had hundreds of large customers using Call Manager, and for years it was the only viable solution. The same can be said about wireless, PoE, routing protocols, and unified computing. The technology innovation gives Cisco partners the ability to move into markets sometimes years before competitive channel partners. I'm predicting that multi-gigabit switching and ACI will have a similar impact to Cisco and its partners over the next few years.
The other area of innovation that has been crucial to Cisco maintaining loyalty in its channel is innovation in the partner program itself. While conventional wisdom dictates that "if it ain't broke, don't fix it," Cisco is always tweaking its partner program. There have been times that these tweaks have caused some short-term discomfort in the partner base, but Cisco eventually wound up being right, and the thing that caused discomfort actually worked in the partners' favor. For example, I believe Cisco was the first large-scale solution provider to move to a value-based program. Instead of just looking at sales volume, a number of other metrics were factored in, including certified engineers, specialization, and mix of products. This is now standard across the industry.
A more recent example is that a few years ago, Cisco mandated that all channel partners include cloud services as part of their portfolio. I remember sitting in the audience at a Partner Summit when this was announced and watching some of the resellers squirm. Today, there's not a person around who would tell you that cloud services aren't crucial to the livelihood of all channel partners. In late March, Mark Haranas from CRN wrote this article outlining how UC resellers had to adapt to the cloud or die. It appears the shift in its partner program was the right move not only for Cisco, but also for its partners.
In a couple of weeks, Cisco will hold the 2015 version of its Partner Summit in Montreal. Despite Montreal being home of the Canadiens, mortal enemies of my hometown Bruins, I'm looking forward to this year's event. Given the industry shifts around IoT, cloud, digital transformation, mobility, SDN, and other trends, I'm expecting to see some more changes to better align Cisco's partners with current market trends. To all of the partners that will be attending, I'll offer this advice – if you see program modifications that make you uncomfortable, remember that in IT, change is necessary and change is constant. If you don't change, you go the way of the mainframe, token ring, and the PBX. So embrace the change and you'll thrive. See you in Montreal, eh?