Cisco Plays for Bigger SMB Share with Channel Rebates, New Products

September 18, 2009

Cisco Systems Inc. wants a bigger share of the small- and medium-sized business market, intensifying its play for the segment with an enriched rebate program for channel partners, a suite of products targeted specifically at SMB customers, a tailored service offering and an extended financing option.

The vendor lacks some of the command among SMBs that it maintains in larger enterprises but believes that meatier incentives and dedicated resources for channel partners selling into the segment will position it to carve more from a pie its internal figuring pegs north of $7 billion globally.

Cisco currently reaps about $2.5 billion in global sales to SMBs, about half of which comes from small businesses. Last year, the company poured some $100 million into product development and marketing to boost its standing among small business customers.

“For 10 years, we built up the SMB business from our enterprise portfolio but we realized that we could really grow the opportunity if we developed products and services specifically for SMBs,” said Andrew Sage, Cisco vice president, worldwide small business sales. “Now we have made our most serious step forward in terms of commitment to the SMB market.”

Chief among the vendor’s SMB-directed upgrades is the broadening of its Partner Development Fund (PDF) program to a wider range of channel partners, including for the first time some 50,000 registered, or entry level, partners that sell Cisco products, Sage said.

“SMB customers buy products and services in many different ways,” he said. “We needed to make sure that we have a profitability program for all types of partners selling to SMB customers.”

Thus far, more than 5,000 partners have signed on to the PDF program with a goal of enrolling 20,000 new members, Sage said. At the end of this week, the vendor will close enrollment for this quarter with partners unable to join for next quarter until October, he said.

Cisco expects that the expanded PDF program will help it to recruit new IT resellers, drawing from a pool of candidates the company estimates at 100,000 in the U.S. alone, Sage said.

New rebate program tracks

Under the restructured PDF program, channel partners earn rebates starting at 5 percent of sales of Cisco products. Payments are dispersed quarterly and stratified based on partner types, beginning with registered partners and progressing upward for online resellers, service providers and Cisco Specialized partners.

The foundation track--called Cash Back Basic—awards channel partners a 5 percent rebate on sales of Cisco equipment, with a cap on the total amount that resellers can earn in a fiscal quarter, a figure that Sage declined to disclose.

The next step—called Cash Back Accelerator I and II—is aimed at partners with a stronger presence in the SMB market such as online resellers and service providers. Rebates are earned at 5 percent of sales but the quarterly cap is “significantly higher” than the basic level, Sage said.

The highest rebate tier is reserved for the vendor’s 9,000 SMB-specialized Select and Premier partners worldwide--about 15 percent of which operate in the U.S.--who are granted a 5 percent rebate on core products such as routers and switches and a 10 percent kick back on advanced solutions such as security and voice.

Sage said that this past summer Cisco experimented with bumping up the rebate earnings rate for core products from 2 percent to the 5 percent level where it currently stands.

Based on “great performances from those partners” the vendor elected to retain the higher plateau. “Our partners were telling us it would be well received if we increased the profitability on core products and it was,” he said.

Cisco is providing channel partners with a new Web-based tool that will enable them to track daily sales and calculate payments, Sage said.

“It eases the administration of the program,” he said. “Partners can see how much money they’re owed and when we will pay it.”

Sage said that Cisco consulted with its four distributors—D&H Distributing Co. Inc., Tech Data Corp., Ingram Micro Inc. and Comstor—in constructing the changes to the PDF program. All of Cisco’s SMB sales flow through channel partners, who, in turn, purchase the vendor’s products from distributors.

“Distributors are subject matter experts in this and we talked to all of ours in the formative and development stages of the program,” he said.

New SMB products and services

Cisco also unveiled a new service offering for partners to resell called Small Business Pro consisting of four different products priced at $19, $69, $199 and $499 that cover the gamut of Cisco products. Service packages are sold as three-year contracts and include technical support, software upgrades and resources for small businesses.

“The service contracts are simple and affordable for SMB customers and cover any product in our portfolio,” Sage said.

Cisco also announced that in North America it was extending until the close of the year its zero percent financing program for voice and unified communication solutions.

On the product side, the vendor introduced new products formulated for SMBs, namely, the SA 500 Series, a network security device priced starting at $550; a series of five Internet telephony phones and handsets called the SPA 500 Series, priced from $135 to $430; and, an upgrade to its Smart Business Communications System, release 1.6, that supports the new phones and offers vertical applications for the healthcare, automotive and insurance industries.

“We built the new products with partner delivery in mind,” Sage said. “They’re a little more sophisticated than an out-of-the-box product—they require configuration and support so they provide a lot of value. They’re a good play for our partners to make money on services.”

Sage said that Cisco’s plans for the SMB segment include “investigating cloud computing opportunities for small businesses. It’s not a market that has solidified yet. We’ll look at enabling and delivering cloud applications of all types to SMBs.”