Cisco To Partners: Just Say No To Commodity Competitors

Cisco Executive Vice President Rob Lloyd Thursday closed out the company's Partner Summit with a bang by urging solution providers to just say 'no' to competitors that are commoditizing core networking gear.

"When my competition asks you to join them in commoditizing the network business, they are not asking you to commoditize Cisco, they are asking you to commoditize your own business," said Lloyd . "When my competition comes to you and says, 'I'll give you some of my server business if you'll join me in inserting my technology as a commodity into a Cisco account' just tell them, 'no' because they are asking you to commoditize your business," he said to thunderous applause from several thousand Cisco partners.

Lloyd's passionate defense of Cisco's value-based sales proposition came with a surprise announcement that the company is doubling Value Incentive Program (VIP) rebates on select core routers and switches. The products, which include Cisco's Catalyst 3560x, 3750x and 4500 Series switches as well as ISR G2 1900, 2900 and 3900 routers, are now eligible for 4 percent rebates, up from 2 percent, he said.

"We care about routing and switching," said Lloyd. "We have been less than vocal about how much we care about routing and switching, but after all this is the foundation upon which our business is built. And actually it is the foundation upon which your business is built: routing, switching and services."

The increased rebates will add "tens and tens of millions of incremental profit" for Cisco partners, Lloyd said.

Lloyd's comments come as Cisco's core routing and switching business is under attack from competitors such as HP.

"What HP is trying to do here in my opinion is take the architecture play with core switches and edge switches away from Cisco and charge more for SANs, where they don't compete with Cisco," said Craig Hardee, president and CEO of ENETsolutions, a Houston-based Cisco partner.

ENET does not currently sell HP products but has been courted by the vendor to attend its upcoming HP Americas Partner Conference, being held later this month in Las Vegas. "I need to at least see what they have to offer," Hardee said.

That said, Hardee said Lloyd's call to resist commoditization comes with "perfect timing. It's the right approach." He also said the increased rebates will help energize Cisco solution providers selling the company's core products. For ENET, the bump could add $80,000 to $100,000 in rebate dollars, he said.

NEXT: HP's Threat To Cisco Networking

HP, weighing in at $126 billion, has waged the most public war on Cisco's core networking products, singling out Cisco's high networking product margins as out of line. HP is even claiming a 40 percent price advantage over Cisco on core networking products.

That strategy appears to be paying off for HP. In the most recent quarter, HP said its enterprise switching and routing revenue grew 30 percent year over year.

Cisco's switching sales, meanwhile, in the most recent quarter were down four percent compared with the year ago quarter, while routing revenue was up four percent.

When asked by CRN if his comments were directed at HP, Lloyd said: "No. It is directed towards all of those that would choose to commoditize the network."

Lloyd, a one time solution provider, gave an example from his own professional life of the devastation that accompanies commoditization of a market.

As a 24-year old entrepreneur running his own VAR business, Lloyd recalled selling IBM PCs at 41 percent gross margins. "Man, was that fun," he said.

That is until Dell drove into the market with its direct sales model, driving down PC margins. "Along came this really smart Texan named Michael Dell and he said, 'The party is over, everyone'," recalled Lloyd. "Dell said, 'We are going to remove from you the value that you established in your VAR business ... We are going to do all the stuff that you built a business model on, and we are going to drive the price down. And it wasn't so much fun anymore."