Agenda

Introduction
Evolution of CISCO
Channel
Rating the channels
Re-engineered channel
Distribution of VoIP
About Cisco
Leader in switches and router market
Growth through acquisitions
Highly reliable, innovative and quality products Brand
Highly regarded for the quality of reseller network
Products available for all the layers of ISO-OSI model but layer 1
Price variability high from low end routers to high end routers
Market Analysis
Markets Market Share Competition
Corporate Network Gear Market 70% Extreme, Foundry

SMB 40% HP, Nortel,3Com, Huawei Technology

Telecommunication Service Providers 5% market share in overall market

25% market share of narrow, $2
billion-$3 billion top end of the market
Nortel, Juniper(market leader in
higher end 30% market share),
Siemens, Alcatel, Lucent

Consumer market 40% market share

Doubled sales to nearly $800 mi after
acquiring Linksys
NETGEAR, D-Link

Direct
Other Channels
22%
78%
Prospecting
Cisco Customers
Cisco made its wide range of products in multiple plant locations worldwide,
channels became important staging points before fulfillment to the customers
Early 90s indirect sales was responsible for small
percentage
Grew almost 90% by the end of the decade
Emergence of thousands of new companies
Cisco increasingly relied on channel partners
Partners added unique value and it was cost effective
Divide and grow principle
Instituted value-added-reseller pyramid
Demand for network gear was enough through box pushing
2:1 split between the value of hardware and services
Pre Dot com bubble blast
Value-added reseller pyramid
GOLD
SILVER
PREMIER
42% discount
40% discount
38% discount
The gross
margin boils
down to 5% -
18% across
the industry,
depending on
the product
Minimum 16 ER
Minimum 8 ER
Minimum 3 ER
One Additional CCIE per $10 million in Cisco Business
Demand of routers and switches reduced.
Reverse trends in value of hardware and software split
Companies with international presence (HP, IBM), and niche
player, solution houses, though small but specialized in
regions, technologies and vertical markets were the survivors.
Ciscos direct online selling to SMB and SOHO was perceived
as a threat by the VARs
Telecommunication companies entered the networking
business causing further problems for other resellers by router
dumping
Cisco was loosing smaller regional solution provider
Competitors had started exploiting this unhappiness
Post dot-com bubble blast
Channel
Cisco
Linksys
Direct
System Houses
Telecommunication
Value Added
Resellers
Direct Marketing
resellers
Retailers
2 Tier
Distributors
Customers
Consumers
10% sales
25-30%
25-30%
30-35%
<10% sales
Gross Profit
Margin 5%-7%
Gross
Profit
Margin in
2003, 20%
Channel Ratings
Post Dot Com Crash
Shift from volume to value
Reward for resellers based on levels of new technology, certification
and customer satisfaction
Cisco would work with the reseller during the 6 months get-well
period
Reduction in the no. of gold, silver and premier-certified partners from
6000 to 3000
All discounts based on meeting certification and specialization
value engagement model bringing resellers early into the selling cycle
Internet one stop solution for SMB and SOHO, discontent of resellers
Agreement of Cisco with SBC communications discontent of resellers
Channel conflict between carriers and resellers
Rating

Pre Dot Com Crash
Reseller Program Based on sales volumes
Humongous demand for both resellers and carriers
Reseller program successful for indirect sales channel strategy
Cisco Certification requirements for engineering professionals
Quality of relationships with value added resellers
Distribution Model and reseller program suited the demand
Reseller Discounts based on sales volumes achieved
Channel most reseller friendly
Rating

Re-engineered Channel
Re-engineered Channel
Top 100 enterprise accounts & about 25 service providers.
Global Customized Sales Model. Intense Interface
Nest 125-10000 Customers, with a collaborative channel
partnership. High Degree of Interface.
Next 10000-100000 customers with a significant channel
activity and marketing support. Medium degree of Interface
Nearly 1 million Small business customers completely
channel lead. Low level of Interface, high level of marketing
Nearly 10 million consumer accounts served through retail
and/or web, with heavy marketing and promotional support
B
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Re-engineered Channel
Alternative
Alternatives Description Evaluation
Set product boundaries Channel differentiation based on
product specification and dimensions
Product differentiation already exists.
Set Market boundaries Channel differentiation based on
buying process of end customer
Exists except for Telecommunication
service provider and VARs
Promote price convergence Reduction of price difference among
channels by pushing the discounts to
the end of the purchasing cycle
Value based discounting implemented
Compensate for cost difference Reduction in leakage across channels
through cost compensation and value
incentive program
(penalties/incentives)
Distribution of reward for high
qualified and performing channel
partners
Distribution of VOIP Products
VOIP technology - Pull in
demand from end consumers
Threat to other existing line of
products
Expertise of handling networking
equipment
Dilemma of channels influence
on final sale
Avoids channel conflicts-demand
for core products increases
No clear calculation / knowledge
of margin
Growth rate is high due to
improvement in technology
Depend on the incumbent firm
such as PBX firms - No expertise
of handling new product
Voice channel is more
consolidated in market
May lead to channel conflict,
demand - core product increase
Individual attention as
competition is growing
Uncertainty whether work or not
VOIP products: Infrastructure, IP, Cisco Call Manager and Voice applications
Data VARs
Suggestion: Sales of VOIP products should be through Data VARs.
Voice VARs