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Kris Snow, president of Cisco Capital, says the company’s new Open Pay flexible financing model, announced at this week’s Partner Summit, as well as the recent relaunch of the Cisco Certified Refurbished Equipment (CCRE) business as Cisco Refresh, can help channel partners transfer some customer risk while maintaining margins.
Cisco Capital works in three areas: customer leasing and financing, extended-term channel financing ranging from 60 to 180 days, and the Cisco Refresh pre-owned equipment business. All three programs are available to partners, and hardware, software and services may be financed.
“Channel partners have told us it’s the second most valued program offered by Cisco, second only to the VIP incentive program,” said Snow of captive financing. “About 55 percent of the business every quarter that flows through Cisco’s partner base is on Cisco financing, so it’s a huge leverage point for cash flow management.”
Snow said partners tend to prefer Cisco financing over other options — Cisco incentivizes based on deal size, and Snow said involvement by her team in channel deals increases the close rate by about 12 percent, and that financed deals tend to be 35 percent larger.
The Open Pay program will typically have 70 percent fixed commitment with the remaining 30 percent falling under a flexible consumption model. It’s currently available only in the United States and for UCS, Vblock and FlexPod products, but the company plans to expand the program’s solution and geographic coverage next fiscal year. Snow says Open Pay is ideal for partners with customers facing seasonal spikes or uneven demand.
“We meter the utilization daily, we report it monthly, we reconcile it quarterly for billing, and then we bill quarterly in arrears,” she said.
Cisco’s aim with Open Pay is to help partners encourage customers to purchase and run on-premises data-center hardware and software in a private cloud by delivering at least some of the public cloud’s pay-as-you-go cost flexibility.
“Everything is moving toward variable consumption,” said Snow. “Cisco Capital, with the backing of Cisco, is able to step in and say, ‘we’ll take the risk on the 30 percent.’ And I do expect, over time, as flexible consumption becomes more of the norm, that variable amount will become more and more of the offer.”
Variable charges are based on the metered usage of UCS blades, or a combination of UCS blades with converged storage. Blades are considered used if they are powered on and have an active service profile. Storage charges are based on the percentage of memory used.
HP offers a somewhat comparable Flexible Capacity hybrid-cloud program, where servers, storage, networking and software, on premises as well as in the Helion Public Cloud, are metered and priced on a per-VM basis. The package can incorporate hardware and software from vendors including Microsoft, VMware and Red Hat. Customers are charged based on …
… blades and servers used each day, gigabytes of storage and network ports. Customers can also meter and pay on a per-VM basis. However, bursting must be to the Helion Public Cloud, also on a pay-per-use charge, and the customer billing is monthly rather than quarterly.
Snow also discussed Cisco Refresh, formerly CCRE, calling out benefits for channel partners and end customers. Of course, Cisco also benefits by keeping gear out of the gray market and maintaining the new-gear price base and margins. Snow says there will be a 3 percent rebate incentive for channel partners in the program, and that solutions providers often blend pre-owned gear with a full warranty with new hardware and thus increase their profits while maintaining discounts.
“It’s got the warranty, it’s got the certification,” said Snow of the refresh products. “When you blend in pre-owned, the margins are so high.”
As to the reason for the name, Snow cited the green factor. Using remanufactured gear extends the useful life of hardware and reduces the amount of electronic equipment ending up in landfills.
Snow’s group has about $10 billion dollars of assets under management.
“We don’t look to make a profit on the channel extended terms,” said Snow, but Cisco Capital does deliver revenue on the other two programs. “[Cisco CEO] John Chambers is always very clear with me: ‘Don’t lose money,” she said, and while the group’s numbers are not reported separately, she says it does add to the bottom line. “Our channel partners are great customers,” she says. “They pay on time.”
Of course, the systems customers buy from Cisco tend to be mission-critical, so that’s not unexpected. What is new is that Cisco Capital is now often called in by partners to consult with customer line-of-business executives, Snow says, adding that her conversations with partner execs were very different this year versus three or four years ago.
“It’s becoming more and more the norm for CFOs to be involved in the conversation.”
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