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LAS VEGAS -- Cisco's shift into software, several years in the making, is picking up steam, according to speakers at Cisco Partner Summit 2018, who cited growth in recurring revenue through subscription sales and a doubling of the number of participants in Cisco's software-oriented Lifecycle Advisor Program.
The Cisco software strategy is a response to a number of factors, including the virtualization of networking functions and the rise of SaaS as a preferred technology consumption model.
"We are seeing this transition accelerate," said Vinay Nichani, vice president of worldwide software sales, who provided an update on Cisco's software business at Cisco Partner Summit 2018.
As evidence, Nichani noted nearly a third of Cisco's total revenue was recurring revenue in its fiscal fourth quarter, which ended July 28. "Underneath that, software is a significant piece of how we drive that transition," he said.
Other signs included a 20%-plus increase in deferred software and subscription revenue, which increased to $6.1 billion in the fourth quarter. At last year's Cisco Partner Summit, Cisco CEO Chuck Robbins cited deferred software revenue of $5 billion in Cisco's fiscal fourth quarter as evidence of software's growing importance.
Nichani, meanwhile, pointed to other Cisco software developments:
- Software sold via Cisco Enterprise Agreements (EAs) has grown to about 1,400 EA sales in fiscal year 2018, compared with 600 EA sales in 2017. Nichani said EAs have become a delivery platform spanning areas such as collaboration, security and networking "with more to come."
- The number of Cisco partners that have become Lifecycle Advisors has doubled to 659 partners. The Lifecycle Advisor Program is geared toward partners with expertise in Cisco collaboration, Webex, enterprise networking, enterprise agreements and security. Cisco provides incentives for partners that succeed in having customers adopt Cisco software and expand its use within their organizations. Nichani said Lifecycle Advisors have margins that, on average, are 10 points higher than partners who aren't Lifecycle Advisors.
- Fifty-six percent of Cisco's total software sales now come through subscriptions versus perpetual licensing.
Partners exhibiting at Cisco Partner Summit 2018 have watched the Cisco software strategy evolve in recent years.
Pat Scheckel, executive vice president of product management and marketing at Singlewire Software, a Madison, Wisc., company that offers an emergency notification system, said his company transitioned from perpetual licensing to subscription sales a couple of years ago. Under Singlewire's OEM agreement with Cisco, Singlewire's InformaCast system is sold with new installations of Cisco Unified Communications Manager.
Singlewire also participates in Cisco's SolutionsPlus program, which puts partner products on Cisco's Global Price List (GPL).
Scheckel said the move to subscription sales represents a shift in software economics, in that software providers receive higher upfront revenue from a perpetual licensing sale compared with a subscription. But once a company makes the transition to subscriptions, higher recurring revenue kicks in, he added.
VBrick, an enterprise video platform provider based in Herndon, Va., is a Cisco SolutionsPlus partner that sells its software on GPL. Michael Krause, manager of channel operations at VBrick, said his company is in the process of moving to Cisco's annuity platform, which he noted supports the SaaS billing model. Krause said Cisco products such as Webex are already sold along those lines via Cisco's Flex Plan, which offers a single vehicle for purchasing Cisco's collaboration products.
Krause said VBrick continues to offer perpetual licensing, particularly for on-premises customers with security concerns. But the shift to subscription-based, recurring revenue has been good for VBrick, he added, noting that a high percentage of customers are renewing their subscriptions. That renewal revenue is on top of the new subscription business the company generates.
"We want to make sure customers are renewing and continue to focus on adding new subscriptions," he said.