Paul Mountford may be new to the job of vice-president of worldwide channels for Cisco Systems but he is already making lots of friends.
He is doing so by offering unprecedented high margins to Cisco certified partners.
Computer Dealer News recently sat down with Mountford to discuss this
strategy and the Canadian market.
CDN: Is the strategy behind your high margin roll-out an attempt to lock in your core partners today so when the downturn ends you are stronger?
Paul Mountford: That is not the strategy. We may get that impact, but the main purpose of what we are doing is to drive profitability. What we want to do is to reward our good partners with more profit based on best practice. That is really what it is. As long as they are driving something that is part of our critical success going forward — for example, driving advanced technology solutions into the market — then we are quite happy to pay them rebates and high margins to drive that business. It is also to give them margins that are commensurate to the investments they have to make. There is a high cost of sale as you go up and we recognize that and we want to target margin that builds a sustainable business. If we do that then our partners are comfortable. They have growth and profitability and we get market share increments. It works for everybody.
CDN: Do you see your partner base increasing in the future?
Mountford: About 3,500 partners do 87 per cent of our business. That is the way I like to see it. But that is a really tricky question to answer. And, I will tell you why. We want to drive into the low-end space, the SMB space, and develop that more. The question is what partners do we have available to do that? Do we have the partners we need? That is a country by country question. So we do want to go into that space and drive that much harder? The question is how much product and technology do we have today. We bought Linksys and Linksys gives us zero to 25-employee breakout in the consumer and SOHO space. Then you got 25 probably up to 250 employees where we have low market share. Then you got 250 to 500 were we have pretty decent market share and after that 500 to 1,000 we have really great market share. After that is classic enterprise space. The question is, how many resellers do we need to get the coverage model on the 25 to 250 space and do we have the product that fits into that space? We will need authorized dealers in the local markets so we might expand that but they will not benefit over the Gold, Silver and Premier partners.
CDN: Cisco in the last five to 10 years was on an incredibly aggressive acquisition strategy. Then it just stopped suddenly until you acquired Linksys. Will Cisco start up again?
Mountford: We are making acquisitions and investments in a number of areas in the market. It makes sense when we have $22 billion on the balance sheet in a time when companies are relatively cheap compared to where they were three or four years ago. We are taking advantage of that. We are doing it that and we have an aggressive plan in front of us to get all the things we need for our portfolio.
CDN: With the VIP program and the 10 per cent net margin that partners get with that program are you at all concerned that resellers may take that to the street and gamble with the customer satisfaction requirement?
Mountford: Well there is a small thing called a six-month gap, which we call a receivable. There isn’t a lot of cash flow around now. Even the best performers will have a cash-flow problem with how the supply chain works. So let’s say they ignore all that and are prepared to take the risk. If they do not meet the customer satisfaction requirement they will not get paid. By the way, if I catch anyone doing it up front I will cancel the VIP program and take it away from them.
CDN: In Canada you have two extremely large resellers namely and they get tremendous discounts, which they take advantage of. Doesn’t this disadvantage everyone else?
Mountford: I do not know the Canadian market all that well. But, if they are two big players their cost of sales will be so high in comparison to a small regional Gold partner who is on the same discount because it is based on value not volume. It really does not make a lot of sense.
CDN: The 4.44 customer satisfaction requirement will that go up?
Mountford: Channels worldwide yes and they are closing the gap on the Cisco direct model. The customer is seeing them as adding more value and rate them higher. As you put more skills into the market you get better customer satisfaction.