Steve Kamman, senior networking and data infrastructure analyst with CIBC World markets, sees potential in Cisco’s latest Advanced Technology: Hosted Small Businesses Services. Here, he discusses the challenges and opportunities with Network World Senior Editor Phil Hochmuth.
Why is Cisco going after sub-100-employee customers?
Your average LAN is kind of mature. That’s true in most organizations. But when you go out to a Midwest factory with, maybe, 20 employees and a 20,000-square-foot plant, they might be using hubs.
This was always the logic behind Linksys. The last places on Earth where there is new incremental demand and where the LAN fundamentally needs a root-and-branch upgrade is in small businesses, as well as homes and in the third world. There is opportunity here, especially outside the U.S. You’re still looking at sneaker net as the solution in a lot of these small businesses.
I think fundamentally you have to assume what they’re partly doing is selling at a reasonable profit today in the hopes of capturing higher profits later on. You sell them the heroin cheap, and then work your way up from there. That’s where the managed services element starts to become interesting.
Why haven’t Cisco or carriers been able to do this in the past?
The question of how much you can sell vs. the cost of that sale has always been a challenge. If you can attach some kind of hosted service to it, then you can create an ongoing revenue stream for any individual SMB at a relatively small cost. But you can scale that up. And if you can scale that up, you can aggregate a lot of those businesses, and you can generate a nice profitable solution out of it.
To do that you need scale; Cisco can take advantage of a lot of what it already has in terms of service and support on the corporate side and spread those costs over a broader user base. That’s something they’re in a much better position to do than a super low-end supplier, someone selling OEM-ed Asian gear that doesn’t have that support base already built, or would be building it solely to support the SMB customer, which may or may not be economically efficient.
How will this approach play out among carriers, VARs and Cisco itself?
The one big question in all of this is your service providers/VARs/local distributors: Do you do this powered by Cisco? And how do you make sure that the channel is fuzzy-friendly-comfortable with this offering? The one nut so far that no one has really managed to crack managed services — in terms of the real network outsourcing and business applications. It really just hasn’t been able to be cracked. As long as they can offer it in a way that provides that some of the ongoing revenue stream stays with sales partners, it will be a win/win.
This is an area where some telcos continue to maintain dreams of going into someday, their utter failure to execute not withstanding. So that will be interesting to see — are they willing to do this on a co-branded or unbranded basis?
What does the Linksys brand bring to the offering?
It’s an area they’ve really started focusing on in the last couple of years. There always has been an inherent tension between the bottom of Cisco’s line and the top of Linksys’ line. I’m a lot happier seeing them handling that internally this way. This is a good sign of them over the course of the last few years beginning to figure out how to sort that out. [By leading with Linksys gear in SMBs], maybe it’s lower returns now for higher returns later, when you can upgrade [small business customers] to Cisco when these small firms become bigger companies.
