For the second time in less than a decade, Cisco Systems Chair and CEO Chuck Robbins is pushing the company and its channel partners into the future. Since stepping into the CEO role in 2015, Robbins has been focused on directing Cisco’s metamorphosis from hardware heavyweight to a software giant. Now he’s set to make another transformational leap forward, driving the company’s Cisco Plus as-a-service strategy, which allows customers to purchase Cisco IT in a flexible, consumption-based Everything-as-a-Service (XaaS) model.
Call it Cisco’s new “X factor.”
“The reality is that we’ve found you gain a lot of trust and credibility with your customers when you give them flexibility,” Robbins said in an interview with CRN. “Customers will embrace you when you have the right technology that you delivered in a way that makes it easy for them, and you’re really thinking about outcomes.”
From Robbins’ perspective, it’s also critical that Cisco embarks on its as-a-service evolution hand in hand with its partners.
“What I always tell our team is, ‘I don’t know how you’re going to do it, but whatever we do, we’re going to do it with the partners,’” he said.
That was the case with Cisco’s software transformation and its customer success motion, and the same applies to the company’s XaaS push, Robbins said.
“If you look at what we’ve done with our software transition and the satisfaction that [partners] have with what we’ve done there, I think they’re going to see the same benefits as we move to the as-a-service model,” he said.
San Jose, Calif.-based Cisco is at the beginning of its XaaS journey, kicking off its as-a-service rollout this past May with the introduction of Cisco Plus Hybrid Cloud, the first of two XaaS offerings that were introduced last year. Hybrid Cloud includes Cisco’s entire data centre compute, networking and storage portfolio, as well as third-party storage and software, bringing together on-premises, edge and public cloud environments in a flexible consumption model.
The next Cisco Plus offering slated to be beta-tested by partners is the first offering that will be part of Cisco’s Networking-as-a-service (NaaS) model. This Secure Access Service Edge (SASE) offering will include secure cloud connectivity and SD-WAN technology.
Both the public cloud as-a-service and private cloud as-a-service segments will account for the majority of all cloud spending worldwide, predicted to grow from 55.7 percent in 2021 to 64.1 percent in 2025. These segments are also expected to see the fastest growth in spending, with a five-year compound annual growth rate of 21.3 percent, according to a September report from research firm IDC.
The as-a-service transformation that Robbins is driving will bring Cisco partners the benefits of recurring revenue, including more predictability than afforded by Capex-based revenue, Christensen said.
“It takes longer to get it, but once you start building an annuity revenue [stream], it just keeps building,” Christensen said.
Still, the new business model can come as a challenge to solution providers who are not preparing for the shift to as-a-service. Insight has had to train its own sales team on its value, he said.
“Many partners, if they sell something on Monday, they want their commission on Friday. They want to recognize the revenue immediately, but as-a-service doesn’t work that way,” he said. “It’s a learning game—and we’re not at 100 percent—but we’re telling our people, ‘You better ask your customers if they want to buy this way because someone else will.’”
XaaS brings challenges for Cisco as well, Robbins said.
Most of the work Cisco is doing now to get XaaS delivered to the market is focused on the operational structure in the background. “It’s one of our biggest challenges,” he said. Moving away from a net 30 payment model has created complexity for Cisco’s underlying systems and operational structure. Maria Martinez, who has been Cisco’s COO since last year and the company’s chief customer experience officer since 2018, has been diligently working with her teams to evolve Cisco’s internal infrastructure to prepare for the new business model, Robbins said.
“We want to get to a point where [our operational] infrastructure is not the issue; it’s just getting the offers built [that will] go out on a very standard set of operational infrastructure that makes these offers simple to consume,” Robbins said.
Cisco also plans to help solution providers make the transition, but it won’t prod them with partner incentives around Cisco Plus until it’s ready to scale its XaaS push, Robbins said.
“We want to be ready to scale, and we have to make sure that we’re at that point,” Robbins said. ‘Much like with our software transition, as an example, we’re going to put in a compensation element that we’ve never put in before in the second half of this year because we think we’re ready. Those are the kinds of things we’ll contemplate for the as-a-service portion of the portfolio.’”
XaaS is an evolution that has the “full support” of Cisco’s entire leadership team, according to Julia Chen, Cisco’s vice president of partner transformation. “We’re putting all of our eggs into the Cisco Plus basket,” Chen said.
“We’re really committed to delivering the majority of our portfolio as a service, and eventually, all of it.”
That’s because customers are increasingly telling Cisco and its partners that they want fully-baked solutions that they don’t have to stitch together themselves. To that end, more than half of Cisco partners today are building managed services practices, Chen said.
To make the XaaS evolution happen and to empower partners to deliver more managed services, Cisco is evaluating routes to market that are very different compared with when Cisco primarily sold hardware, Chen said.
“We would rely on partners to do the resale, do the service attach and do the logistics, like unbox the hardware and set it up. It’s just different in an as-a-service model, but the partner still has a huge role to play,” she said.
That role may involve billing, invoicing and integrating the as-a-service offering with other pieces of the solution. “It’s a different animal, but partners’ value-add is a little bit different than in the hardware world of boxes,” she said.
Cisco is counting on partners to build solutions on top of Cisco Plus offerings. That’s where the Developer partner role comes in, which went live on 29 November, Chen said. The Developer role within Cisco’s recently revamped Cisco Partner Program gives developers access to more technical training, solution development, co-marketing, Cisco sales resources and the Cisco DevNet specialisation.
Cisco will also continue to build programs and incentives around customer success and help partners ensure their customers are getting the most from their solutions at every point in the life cycle, a critical piece for any as-a-service sale, Chen said.
“These pieces are necessary stepping stones for any partner moving to the XaaS model,” she added.
In addition to its eager partners, Cisco is learning how to work with partners that aren’t currently set up to manage and support the XaaS model. These partners want more enablement and clarity into the road map, which Cisco is getting out to partners as quickly as it can, Chen said.
To alleviate concerns and questions, Cisco is creating new, clear swim lanes for its different routes to market around who owns the contract and who is delivering the service. “It requires a lot more alignment at the beginning,” Chen said. “All of that in the past has been sort of unspoken because it’s just been part of the way that we’ve done things in resale. Now we have to explicitly have the conversation more often because there’s more than one route to market, and we’re asking partners to do different things.”
What partners want
Having the option to choose a business model like XaaS is very appealing to customers because they can manage the pace of their transformation while taking risk out of their purchasing decisions, solution providers said.
Still, Cisco was a little late to the XaaS game, which allowed some competitors, such as Hewlett Packard Enterprise with its GreenLake offering, to gain ground, said Ron Temske, vice president of cybersecurity, network and collaboration solutions for Cisco Gold partner Logicalis.
HPE committed in 2019 to deliver its full portfolio as a service by 2022. Cisco has not set a time frame for its own XaaS commitment.
“If you look over the last few years, I don’t think it was all up and to the right. There were some moments where [Cisco] lost their way, but I think they found it again, big time,” said Temske. “If I look at what they’ve done in the last year or so, it’s really impressive.”
Logicalis has built its own version of an XaaS model in which the company buys solutions from Cisco, retains the title and sells the offering in an as-a-service model to its end customers. This model has been a good differentiator for Logicalis, but it’s capital-intensive at the same time, Temske said. The shift toward Cisco Plus will remove liability from partners’ books, he said.
“It’s going to help the smaller partners even more that have not been in a financial position to do what we did with our own as-a-service offering,” Temske said.
One challenge that Cisco has historically run into with recurring revenue-based offerings was that its own field sales team’s compensation was aligned to the more traditional IT resale motion. This created channel conflict in some cases with Cisco partners, Temske said.
“It’s very hard to take a new model to market if the sales team is pushing in a different direction, [and] I know Cisco is working to change that,” he said.
Ultimately, compensation models also have to change in order to make XaaS successful, Temske said.
“Compensation alignment is needed on both sides [as well as] just understanding the value of selling as-a-service because it’s a different model, and not all account executives on either side are comfortable with that methodology yet.”
Robbins agreed that Cisco’s sales force and its channel need to be in sync.
“Whatever incentives we put in place with our sales force, we need our partner profitability programs to align to that so that we get a cohesive energy in the field,” said Robbins.
The Robbins effect
The XaaS push is reminiscent of another recent and major shift Cisco made to its business model. Historically a networking hardware provider, Cisco in 2017 unveiled plans to pivot its portfolio to focus on software and subscriptions. The company didn’t just talk the talk, either. Cisco immediately engaged its internal sales teams and channel partners with new selling motions, as well as incentives around managed services and customer life-cycle services.
During the company’s 2021 fiscal year, which ended July 31, 2021, Cisco had nearly $12 billion in subscription software revenue—a 23 percent compound annual growth rate. The tech behemoth in September revealed that it had exceeded its goal of generating 30 percent of its revenue from software and is on track for subscriptions to make up half of its revenue by the fiscal year 2025. In Cisco’s second fiscal quarter of 2022, which ended on Jan. 29, 80 percent of Cisco’s software revenue was subscription-based, up 4 percentage points year over year.
For Robbins, Cisco Plus is about delivering an outcome, not a product. Cisco Plus will give customers more choice and flexible options that won’t saddle them with expensive IT solutions that are more than what they need, especially as businesses grapple with the work-from-home trend that is leaving some enterprise campuses empty. Some customers may not be able to afford a large Capex spend during this time of uncertainty, but they still need to achieve the right business outcome, he said.
Continuing to build up that customer success motion, Robbins said, will be the most important factor for partners adopting XaaS. “Really helping customers achieve maximum value from the platforms and solutions as they go out—I don’t think it’s super dissimilar from what they’re doing in the software world for us today.”
The big shift
Robbins’ 2020 declaration that Cisco’s entire portfolio will be moving to an as-a-service model signalled to the world how serious the company was about this business model transition, partners said.
Robbins said customer adoption of XaaS will not happen overnight. In the meantime, partners are helping Cisco “think through” the implications of the XaaS model, he said.
“It’s going to be a very steady transition over multiple years to get to where most customers just are consuming this stuff as a service,” Robbins said. “But we work with the partners. They actually help us think through the implications of how this works. And we’ll continue to do that. And I think we’ll make sure that it’s good for both them and us.”