Cisco - Is the networking giant trampling its servants?

Cisco - Is the networking giant trampling its servants?

When a company uses a sales program involving both direct and channel-based selling, clashes seem inevitable. This certainly seems to be the case with Cisco resellers, many of whom say they're being undercut by the manufacturer's direct sales program.

The stories from the Cisco reseller channel are mixed. Allegations include undercutting dealer price when dealing direct with clients, being intrusive during the sales cycle, and running highly aggressive sales campaigns. However, as is the nature of the industry, no reseller has been willing to go on the record, for fear of jeopardising future dealings with Cisco. And then there are those resellers who say that dealings with Cisco have been a pleasure.

While not conceding such suggestions, Cisco's national channel manager, Peter Papaioannou, says Cisco's channel structure should avoid such conflicts. Papaioannou says Cisco keeps a list of the protected companies it deals with directly, which is available to resellers on terms of non-disclosure. He says the number of customers on the list has decreased by 10 per cent since it was released. "I can safely say that we actually are pulling out of some of those direct customers and passing them across to the reseller. Last month alone we did three in Melbourne, where the customer has seen there is sufficient value that the resellers provide. He adds that Cisco will add no further sites to the list.

However, one reseller said although they knew of the existence of the list, it was not freely available and they had to strongly request it be sent to them. The same reseller added that on at least one occasion they saw Cisco sales people involved in a sale to a company not on that list, although it was not certain if Cisco was acting on behalf of a reseller.

The Cisco model also does not necessarily exclude partners from sales within listed companies, Papaioannou said. "If it's a customer on the direct list, our channel knows it's a direct relationship. If it's one of our direct customers and it's only a box type of delivery Cisco will do that, but if the customers that want some value put around that then we let one of our partners do it," he said.

However, one reseller claims that when tendering for a backbone installation at Sydney University Cisco offered product to the Universtiy a rate ten per cent less than that offered to the reseller.

Cisco's policy of direct sales is a throwback to its early days in Australia. Starting as a branch office the company grew to the point of needing to employ its own engineers to look after ever-growing network sites. Eventually this led to the formation of its own sales force, in the belief that the complexity of the networking environment required a dedicated team of trained salespeople, Papaioannou said. "Shortly after it was recognised that we had to have the scaling capabilities." Cisco decided to provide high level support, with lower level support to be handled by a fulfilment channel.

Cisco has since revamped its programs, and has separate programs to address both the enterprise and, starting last September, the mid-tier market. They include a rigorous accreditation program for the Cisco Certified Intenetworking Expert, an essential component of member status.

Papaioannou says the sheer size of some networks, scaling up to more than 500 routers, drove Cisco into direct dealing. "When our partners ask why we go direct, at the end of the day you've got to tell the customer that you can actually do this business. Take BHP's network a year and half ago when it was already 400 routers. There was no partner in Australia that was skilled enough to support them."

Another criticism that has been levelled at Cisco is its heavy involvement in the sales cycle. With Cisco no longer chasing its own sales, its sales force has moved on to promoting the Cisco product set. "In the new model their role is what we call a high touch model. So they're typically one or two steps ahead of our resellers. It's more than lead generation, it's lead qualification."

The Cisco sales people are in place to assist the channel, says Papaioannou. "It's very much to ensure that Cisco's technical preference is met. And our guys are very sympathetic towards that, because where they're best used is touching 15 projects, not hand holding three. They do the complex work, the work which our customers have difficulty doing because it's a long sales cycle and they can't fund it.

Cisco grew its channel revenue 80 per cent last year, with 55 per cent of business going through channels. Papaioannou said he hopes to have this boosted to 65 per cent next year.

Cisco: growing into new shoes

While Cisco says its R&D spending is twice that of its nearest competitor, it has also been busy on the acquisition side. In the last 18 months it has purchased six companies, including rival networkers Grand Junction, Kalpana, LightStream and most recently ATM WAN switch maker StrataCom. Grand Junction gave Cisco presence at the desktop Ethernet switching level, and LightStream at the ATM campus switching level. It appears the aim in purchasing StrataCom is to promote Cisco into the WAN environment.

The StrataCom purchase came at a price of $US4 billion. It remains to be seen why Cisco would spend so much on a company with a mature product set that may be difficult to integrate into its own product line. StrataCom had previously had partnerships arrangements with Bay Networks, and was set to enter into one with 3Com.

Cisco already holds between 55 and 72 per cent of the router market (depending on who your source is). But this market is not growing as strongly as the switching market, which is where most of Cisco's recent purchases play.

However, Papaioannou says the router market is still going strong, and will continue to be a focus for Cisco. " We see routers getting bigger and bigger, we don't see the router business stopping. Yes, the LAN switching market is growing more quickly, but the need for high end routers that can do all the policy-based routing is still there." This need includes such things as protocol control, security and policy management. Indeed, Cisco's grand strategy, Cisco Fusion, aims to use Cisco's software-based router technology across the entire switching range.

Papaioannou said Cisco's Internetwork Operating System (IOS), a software layer designed to run across different hardware, will make this possible. "It's the ability to have both the switching and the routing capability coexist in the one product, but also to be separated and distributed in other products."

Who is StrataCom?

A relatively unknown quantity in Australia, StrataCom has been a developer in the high end of the ATM market. But doubts have been raised over StrataCom's ability to handle voice-based traffic and integrate IP traffic.

Central to Cisco's strategy has been the notion of large central routers handling pure IP traffic. It remains to be seen whether the notion of pulling these routers out to the fringe in favour of switches with questionable IP capability will be effective. Indeed, the routers may need to remain in place to handle the IP traffic.

When it comes to talking about what its plans are, Cisco's hands are somewhat tied by the laws of due diligence. Papaioannou says that once that period expires in July a number of announcements can be expected. You can be sure to hear announcements that Cisco's IOS will be appearing in StrataCom products, as it soon will in its Catalyst 5000 products.

While Papaioannou says much of Cisco's R&D development is in the "glue" that allows its software to run over so many hardware profiles, it remains to be seen how quickly Cisco can integrate StrataCom.

There is also the concern at the speed with which the StrataCom purchase was made. Cisco's previous purchases are still recent, leading to speculation that Cisco was caught resting on its laurels rather than trying to develop product in its own right. While it may be an easier task to mesh one company's product in with your existing products, purchasing three or four other companies in rapid succession must make that task tougher.

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