Channel Insider content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

Next month Cisco plans to formally roll out a channel program for managed services after piloting the program for a year and half with a small select group of partners.

Although the complete details of the program are still being worked out, the program is being built around three classes of managed service providers that, under the terms of the program, will be able to market managed services under a powered by Cisco brand, said Edison Peres, Cisco vice president and chief Go-to-Market officer for worldwide channels.

Like most major vendors, Cisco has found it challenging to come to grips with a new business model in the channel that requires vendors to make significant changes to the way they interact with partners. For example, vendors creating programs for managed services need to change their compensation models, incentives and related back end systems, said Tiffani Bova, an industry analyst with Gartner Group.

“They essentially have to change a volume program to a value program because now it’s a lot more about the value of the customer that the solution provider is bringing to the vendor,” said Bova.

Keith Goodwin, senior vice president for worldwide channels for Cisco, said the changes that Cisco is making to its back end systems to support the program have been significant, which accounts for the extended period of time it has taken Cisco to roll out the program.

Peres also noted that the incentives Cisco traditionally gives to its partners needed to be adjusted as well to provide something that is roughly equivalent to the incentives that solution providers get today from Cisco when they participate in specific programs that are built around reselling Cisco products.

But even though Cisco will have a specific program for managed services, it will still expect managed services partners to pay for equipment up front, rather than letting them pay for equipment over the lifecycle of the managed service contract that the solution provider has signed with the customer. But it will let either the solution provider or the end user customers take title to the equipment, said Peres.

In general, many solution providers are still on the fence about offering managed services because some of them are still concerned about their ability to profitably scale these types of services over a large number of customers.

“We’re definitely looking at it,” said Jim Kavanaugh, CEO of World Wide Technology in St. Louis. “My concern before jumping in though is are we going to be able offer these services in a way that is really profitable.”