Cisco Transformation Requires More Time, Patience

SAN FRANCISCO—One of the largest corporate transformations in the history of the IT industry is proceeding at an uneven pace. At the Cisco Partner Summit 2016 conference held here Nov. 1 to 3, the company laid out a series of initiatives intended to accelerate a shift toward a business model based on recurring revenue derived mainly from the Cisco ONE software licensing model.

Launched almost two years ago, Cisco One seeks to shift customers toward a software licensing model that gives them access to a baseline of core functions that can be applied to both Cisco networking and server technologies. As of this week, Cisco reports that 2,700 partners have now participated in the Cisco One license program that currently extends to 14,000 customers. The global Cisco channel program stands at 60,000 partners.

Cisco’s Business Model Transition

The primary goal of Cisco’s business model transition is to make it less complex for customers to upgrade their network infrastructure by disaggregating software from the underlying hardware. In conjunction with that effort, Cisco under the framework of a Cisco Digital Network Architecture (DNA) is in the process of making it possible to run large swaths of its software portfolio, not only on its own hardware, but also on top of networking hardware from other vendors as well as in the cloud.

In terms of engineering, the DNA effort is nothing short of massive. At the same time, however, Cisco is not walking away from hardware either. It continues to invest in application-specific ICs (ASICs) to drive controllers that will be used in its hardware to analyze network flows as close as possible to their source. However, the management plan associated with devices will be delivered in the main via the cloud. Cisco also revealed this week that it intends invest in artificial intelligence and machine learning algorithms to automate much of the ongoing management of IT infrastructure.

The two most recent business initiatives intended to help accelerate Cisco’s business model transition come in the form of a new data center unit that promises to make it simpler for solution providers to create blended solutions spanning servers and switches as well as a new Cisco Spark Flex licensing model under which end-user licenses can be transferred more easily between Cisco on-premise and cloud collaboration technologies.

In general, Cisco is trying to employ software licensing to achieve two strategic goals. By making software licenses transferrable, it becomes simpler for solution providers to help IT organizations identify ways to upgrade IT infrastructure at a lower cost.

“There’s now a huge treasure trove of entitlements,” said J. Dean Romero, practice manager for software and lifecycle services at World Wide Technology (WWT), a Cisco partner. “We can help clients take advantage of that.”

Cisco also clearly sees software licensing as an opportunity to make it less attractive for IT organizations to acquire point products that compete with its offerings when they already have a Cisco software license in place that can be extended to cover a broad range of IT infrastructure technologies and services. As part of that strategy, Cisco is also making a concerted effort to extend its network strength to get partners to focus on security.

Cisco Security Products: Lucrative for Solution Providers

IT security is easily the most profitable segment of the Cisco product portfolio for solution providers, said Dave Gronner, senior manager for Cisco’s Security Partner Go To Market Global Partner Organization. “We reward partners that invest in security. There are a lot higher margins for partners that include security in their portfolio.”

Put it all together, and it becomes clear that Cisco and its partners have no shortage of opportunities. The challenge now is getting aligned on business models. In some cases, solution providers with a long history of selling software are farther ahead in making that transition than Cisco is. In other cases, more hardware-centric partners are likely to be making the transition to Cisco One at a less aggressive pace.

No matter how long it takes, making that transition is no longer optional.

“Cisco unambiguously needed to make this transition,” said Paul Edwards, an industry analyst with IDC. “Now, it’s unambiguous that partners need to make that same transition.”

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications, including InfoWorld, CRN and eWEEK. He currently blogs daily for IT Business Edge and contributes to CIOinsight, Channel Insider and Baseline.