Cisco is expecting a spike in M&A activity among its EMEA partners as a result of its strategy to push channel incentives further down the sales cycle.
During this year's Partner Summit in Las Vegas, Cisco announced that it will begin to move partner rewards and incentives away from the initial sale to activation, implementation and customer renewals.
The move is part of a wider strategy by Cisco to drive more business through recurring and subscription models and generate loyalty among its customer base.
Cisco drove 70 per cent of its software business through a subscription model in its Q4 results ending 27 July 2019.
The new changes will mean Cisco's partners will now have to earn incentives by getting customers to activate and adopt its products as well as push for a renewal when the subscription runs out.
Cisco's global partner boss Oliver Tuszik gave a warning to partners during his keynote at the Partner Summit, that those unwilling to drive renewals could be replaced by those that are.
Speaking to Channel Partner Insight in Las Vegas, Cisco's EMEAR channel boss, David Meads, said he is expecting a significant spike in M&A among Cisco's partner base as resellers clamber to adapt to the new changes.
He said many Cisco partners will look to acquisitions over the next two years in order to keep pace with Cisco's new customer experience strategy.
"This is just an opinion, but I think that will accelerate. You will see more and more mergers and acquisitions in partners that may be struggling to bring in software skills and DevOps and are looking for a quicker route to acquire that in a company that's got it, rather than build it organically," he said.
"I think in the next two or three years it will be really interesting to see it happen. Even in the last 15 weeks since I've taken on the role, we've seen some of that activity with some of the large partners acquiring more footprint across Europe, for example. I've been meeting with some very boutique partners including a security partner in the Netherlands. If you're a large partner that doesn't have those in-built skills and one partner provides this particular capability as a service, then wouldn't that be an interesting conversation to have?"
He added: "I think it's going to accelerate significantly. I don't think it's going to be unique to any market; I think it's going to be across EMEA. I think that's going to be good for us."
Speaking to CPI at the partner summit, Steinar Sønsteby, CEO of Atea, agreed that smaller hardware partners will likely struggle as a result of the changes, and will need to acquire or be acquired in order to cope.
"I think a lot of the smaller partners with 150 people or less which have been pure switch and routing Cisco partners are going to have a big problem. So there's going to be consolidation there I'm sure," he said.
Just in the last three months, several of Cisco's top EMEA partners have made acquisitions around the vendor's technology.
In August, global Gold Cisco partner Logicalis expanded its IoT business in Germany into the industrial sector after acquiring a team of networking specialists from Hopf.
Logicalis also acquired Cisco Gold partner Cilnet in Portugal, which added approximately €20m in revenues and a team of internetwork experts to the firm.
Meanwhile Danish Cisco integrator Conscia broke into the German market just last month through acquiring xevIT, a €40m-revenue Cisco partner with DevOps capabilities.
Meads admitted that some of Cisco's partners will struggle to adapt to the vendor's new customer experience strategy and could suffer lower margins from selling with Cisco as a result.
But he added that it's ultimately up to partners to invest in lifecycle services if they want to stay profitable with Cisco.
He offered some reassurance that the amount of money available to partners has not changed. Cisco has been investing a consistent percentage of its revenues into partner incentives and rewards for the last 20 years, he said.
The EMEAR channel boss explained that Cisco won't be shifting incentives straight away, but will begin the process over the next six to 12 months.
"We are saying to our partners: this is how you're earning your dollars today, and in the next six to 12 months, this is how we're going to be shifting those dollars.
"Be ready for the fact it could be less profitable in the short term. And the reality is: for some it might be but for others it won't. For every example where a partner is saying it will impact their profitability, I can give you an example of one where it isn't," he said.
"We want to work with you throughout these enablement programmes that we've provided so you don't see that downturn in profitability. But ultimately, each partner needs to make that decision themselves. The rate at which they can move is going to vary for each partner."
Meads only stepped into the EMEAR channel role 15 weeks ago, having previously led Cisco's channel business in the Middle East and Africa for more than two years.
He said one of the most difficult conversations with partners has been how quickly Cisco executes on its customer experience strategy.
"If there's any tension, it's around how quickly we make those changes," said Meads.
"We need to move quickly, but the balance we have to find is in how we shift these programmes at a rate that is realistic for our partners. That has been a common conversation - pretty much every partner in every region is asking it."
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