So far the networking giant has focused its storage efforts on sales made through a handful of large OEM partners that includes EMC, HP and IBM. But with that beachhead established, the company is now swinging its focus towards the channel, which by Cisco’s estimate serves around half of the entire storage networking market.
Cisco first launched its storage directors and switches in 2003, and since then has steadily stolen market share from the sector incumbents Brocade Communications Systems Inc and McData Corp. and now accounts for about 25% of the around $1bn market.
Some resellers and integrators are already selling Cisco storage gear, backed by a Cisco training program launched last June. But yesterday the company implicitly admitted that it has not yet seduced many of these smaller players away from their long-standing relationships with the SAN incumbents, McData and Brocade.
It [the Cisco training program] was nice for them, but when you looked at the business aspects of it, there weren’t many incentives to take part in it, said Keith Zubchevich, director of storage and optical solutions at Cisco.
Now Zubchevich is describing a cash-back scheme unveiled yesterday as one of the most lucrative schemes in the storage networking industry. Barely disguising the effort Cisco will have to make to buy new friends, he said: When you’re coming in from the outside as the third player in the market you have to make a big splash. Brocade and McData have been in the market for five and eight years respectively.
The rebates are based on points earned for products sold and year-on-year revenue increase. Cisco said average channel partners who achieve 20% year-on-year sales increases in any quarter will score about 5% rebate, but some might claw back as much as 20%.
That drops straight to the bottom line, and is a significant reward, according to Cyndi Privett, analyst at View Point Research. It can be tough for resellers to make more than 10% or 20% in any deal. Adding five points on this [switch or director] part of a storage deal clearly helps, she said.
Privett said that Cisco’s estimate that between 50% and 60% of all storage networking gear is sold via integrators and resellers is plausible, while IBM said that around half of its storage gear comprising software and disk arrays alongside OEM’ed networking hardware is sold via the channel. The channel serves smaller customers, and as such Cisco’s rebates will affect Brocade more than McData. The pain is definitely going to be felt more by Brocade than McData, Zubchevich said.
Mesabi Group analyst David Hill said however that it remains to be seen how fast Cisco can recruit channel players who have so far have been loyal to Cisco and Brocade. Cisco has always had an excellent marketing organization, and it tends to be effective. But getting buy-in from the channel is not easy, he said. Cisco’s success in the storage channel will depend on more than just prices or rebates, he said.
Buy-in might be hard to get from the channel, but it would be even harder to get anywhere else, according to Privett. For Cisco it’s a question of creating brand preference. That can’t do that at the OEM level, and the customers don’t have any preference. So I think it really has to be done at the channel level, she said.
Zubchevich was adamant that Cisco is not planning to sell its storage networking gear directly to end-customers. Cisco partners for life, he parroted. We’re not even thinking about going direct. We know the storage market is OSM [OEM]-centric, and it’s a channel-centric business, because storage networking is typically only about 15% of a storage deal, he said.
But McData and others have speculated that Cisco will at some stage begin selling hardware directly. These predictions may refer to the sale of Cisco storage gear directly to resellers and integrators, who currently must buy this kit from Cisco’s OEM partners. I suspect that at some point in time that is what Cisco will do. They’ll make it an option for their channel partners. But when they do, they’ll be as quiet as church mice about it, said Privett.
