Cisco Doubles Down on Managed Services, Fastest Growing Route to Market

Enabling partners to deliver Cisco managed services has become a primary emphasis of the networking giant’s investments in the channel. Cisco is doubling down to drive partner-delivered managed services because they’re the fastest growing route-to-market (RTM) opportunity.

Not only do managed services offer future growth potential, but Cisco has found they have become among the most profitable. Global channel chief Oliver Tuszik this week underscored Cisco’s accelerated managed services drive during a briefing with media and analysts.

Cisco’s Oliver Tuszik

“Products that are sold in a managed service model [are] even bigger than our overall [product growth], which by the way is a very important thing because we believe this part will last, but the product type on a pure infrastructure resell might come down,” Tuszik said.

Managed services represent a 45% RTM opportunity, according to research commissioned by Cisco. The company also is forecasting that by 2025, its total addressable market (TAM) for managed services will be $113 billion.

Tuszik said managed services sales growth is now outpacing overall revenue growth delivered by Cisco partners. During its most recently reported quarterly earnings, overall bookings from partners grew 27% year-over year. But product revenue from partner-managed services grew 31%, and among SMBs it rose 32%.

It’s a major win that small and midsize businesses are embracing managed services, Tuszik said.

“Where a lot of companies said managed services is nothing for smaller customers and our smaller partners, the opposite is happening and we’re heavily investing in the segment,” he said.

Delivering Managed Services ‘as a Service’

Alexandra Zagury, Cisco’s VP of managed services and as-a-service sales, said the 45% RTM for managed services compares with the overall business which “oscillates” between 20% and 30%.

Cisco’s Alexandra Zagury

“That is tremendous,” Zagury said. “When you look at this route-to-market opportunity, it’s also very key to the shift to as-a-service, because the best way to deliver an outcome right now is through a managed service. But as soon as you start adding the consumption model, as soon as you start adding the cloud-like delivery experience, you’re suddenly delivering a managed service as a service.”

Cisco has built and is expanding its service catalog. Also, the company can now measure partner performance and invest in those that are showing success.

“We have over 400 new provider partners, and we have 20% more [memoration-of-understanding]-based investments,” Zagury said.

Zagury said Cisco’s platform enables its managed services strategy. The company already has multitenant architecture technology as a foundation, she emphasized. Now, Cisco is working with its business units so that they are all managed-services ready, Zagury explained.

“We’ve actually unlocked the partner investment fund and doubled our investments in [it] to align certain activities with our provider partners,” she said.

Cisco also has more than 100 new service creation co-sell projects, in different regions, she added.

“That’s 100 new offers that are going to be deployed in our partner catalogs for us to jointly sell with our partners,” Zagury said.

Also, Zagury spoke about a framework Cisco developed that it calls minimal viable partner requirements (MVPR).

“This is all about making sure that it’s multitenant in nature, that we have the standard APIs [and] that we have the ability to export data into partner data lakes,” Zagury said. “We were going through our whole portfolio and really looking at …

… the big outcomes that we can deliver and then matching them against whether they’re managed, ready or not. And of course, we already do this today, and our partners have already built great outcomes based on Cisco.”

Cisco Partner Logicalis Making the Transition

Logicalis is one Cisco partner seeing the benefits of the networking giant’s managed services.

“Logicalis came from a very classical VAR … resell-and-deploy motion,” said the company’s COO, Michael Chanter. “And over the last three or four years, we’ve really shifted our focus heavily toward much more of an outcome-based and managed services-based business.”

Among Logicalis’ 6,500 employees around the world, roughly 20% are now part of his team focused on building global managed-service offerings.

Logicalis’ Michael Chanter

“Our strategic objective as a business is that 50% of our profitability will come from modern managed services,” he said. “We’re not quite there yet, but we’re making very good progress on that.”

Noteworthy Progress, but Challenges Ahead

Techaisle principal analyst Anurag Agrawal said he was impressed with the level of Cisco’s partner-driven managed services acceleration. Agrawal told Channel Futures that Cisco has made significant progress in less than two years.

Techaisle’s Anurag Agrawal

“It is very different from the Cisco Smart Care days,” Agrawal said. “Exactly a year-and-a-half ago, Cisco was still trying to understand the triggers for catalyzing the managed services market opportunity. And now they have come out with a V8 engine firing.”

There is significant upside for Cisco to pivot its channel partners to managed services, Agrawal noted. But it also requires some heavy lifting.

“An MSP’s business is built for a transaction and not consultative sales because it undercuts their business model,” Agrawal said. “Cisco’s challenge will be to create consultative opportunities for its partners, which create high-margin opportunities, while keeping its brand rather than partner’s brand front-and-center.”

Indeed, Agrawal asked about the vendor and partner branding implications during the media and analyst briefing.

“We lead with the Logicalis brand; however, customers are looking for comfort and recognition about the architectures and platforms underneath,” Chanter responded. And so, we still obviously have strong reference to how we build these. And they want to see that. Cisco, Microsoft, and other elements in our stack are still visible to the customer. But the solutions are holistic, and they’re ours.”

Fastest Drivers: Meraki and Duo

The key emphasis on delivering managed services focuses on delivering on key business transformation customer requirements. Those include supporting hybrid work and shifting to digitization, which was underway before the pandemic, but continues to accelerate.

A key driver of Cisco’s managed services is its Meraki business. Meraki provides cloud-managed wireless networking equipment, switches, mobile device management, cellular gateways, SD-WAN infrastructure, security cameras and IoT sensors.

Also accelerating Cisco managed services is Duo, to support new security requirements.

“Duo is one of our new superstars, with 75% growth in managed service,” Tuszik said. “And the all-time superstar in managed services – no surprise – is Meraki.”