Wikibon Blog

One of Cisco’s biggest strengths – it’s size – leads to one of its greatest challenges, how to keep growing.  CEO John Chambers explained Cisco’s strategy in his keynote at Cisco Live – see a replay of his keynote here (Chambers starts 14 min into the video).. While Cisco is a dominant force in networking, HP’s efforts to commoditize the networking market and the rise of innovators such as Juniper, Arista and others threaten the company’s core business. The key question remains, will Cisco’s moves into adjacent markets, which will take years to materialize, be worth opening new competitive fronts against the likes of IBM, HP and even Apple?

Here is my report on the current state of Cisco’s business

Adjacencies

Last year Chambers announced that Cisco was going into thirty adjacent markets.  With the high market share that Cisco has, to sustain growth it needs to create new markets or go into other markets.  Cisco’s huge brand, money and workforce makes them a force to be reckoned with wherever it goes.  I am specifically interested in four of the adjacent intiatives: 1) Collaboration; 2) Video; 3) Tablets and 4) Servers.

• Collaboration: Cisco had a big presence at the Enterprise 2.0 conference that I attended earlier this month.  The collaboration vendor space is highly fragmented today, so it remains to be seen if Cisco can translate this effort into a sustainable revenue stream.
• Video: is another big push for Cisco – covering from the “immersive business” Telepresence product to the consumer Flip..  No doubt the Flip is a success I even own one and love it.  I’m waiting to see how the Flip translates into business value for Cisco.  Remember, at the end of the day, Cisco wants to drive more traffic over their networking gear, so getting everyone to use video is a great way to do this.
• Tablets: The “big announcement” from Chamber’s keynote, was the Cisco Cius (pronounced See-us as in “Cius add Apple as a competitor”) Android-based business tablet .  While it looks like an interesting product, I was surprised to see everyone online gushing all over this product.  Do we really need video to the desktop phone?  Most laptops have built in webcams as do the latest Android and iPhone smartphones.  I sold phone and video equipment back in the 90s and from what I’ve seen since, the Cius is a pricy upgrade in an area of the budget that is typically tight.  The bottom line reality is that most business consumers with either go with an iPad-like consumer device or settle for a laptop with video function that is ‘good enough
• Servers/UCS: While collaboration and video are hot new areas, I was much more interested to hear the updates on Cisco UCS and networking gear.  Chambers only covered the UCS briefly, stating that the server product has grown 168% sequentially and that they are working with the VCE coalition (VMware and EMC) and also with NetApp.  Chambers was also quoted at the conference that they have 900 customers and an annualized run rate of $200M on the UCS.

Growth? If the growth rate was meant to impress, it didn’t – these numbers imply that Cisco has sold around $17M in the last month and is building off a very small base.  A single large multi-million Vblock deal could account for most of the growth and $200M a year is nothing compared to Dell, HP and IBM.

Two years after completing the acquisition of Nuova which brought the Nexus and UCS product lines, it’s a very mixed bag for Cisco.  They are trying to transition customers on the switching side from the Catalyst to the Nexus (sure the Catalyst isn’t EOL, but all of the new functionality and announcements are on the Nexus) and trying to break into the server market.  The idea of the server was to create a platform built from the ground up designed for the next generation virtual data center with a converged network.  The strategy helps drive adoption of 10 Gigabit Ethernet, the new generation of Nexus switches and FCoE – all Cisco initiatives.

Is this change good for customers? This is a lot of change for customers to swallow and while Cisco has a large and loyal install base, it is of network people.  The boundary between the server decisions and network decisions are blurring with virtualziation, but not fast enough or in enough accounts for Cisco yet.  Their partnerships with VMware, EMC and NetApp give them more access into the data center customers, but still not to the server decision makers. IBM, HP, Oracle and Dell all have deeply entrenched relationships with company CIOs and application heads and a very robust channel and ecosystem.

Competition: While Cisco may have had an advantage in technology when they launched the server last year, the competition is moving fast – the other players are working closely on virutalization with VMware, Microsoft and Citrix, and the converged network.  Cisco is also not the only player in the convergence space, IBM has a full line of options (including from Cisco and Juniper) and HP just announced the first blade server that can dynamically support FC and Ethernet.

Core Switching

Chambers made sure to say that they won’t forget their core products.  He showed some impressive market share numbers (on the right).  Cisco has been capitalizing on the changes in the marketplace including the death of Nortel and the acquisition of 3COM.  Cisco is going to face increased pressure – HP now has a plan in place for their combined networking products and is looking to commoditize networking and companies like Juniper and Arista are looking to out-innovate Cisco with more efficient deployment models.  Cisco’s push into servers is also limiting who will partner with them (most notable in their divorce with HP).  Beyond the traditional data center, there is also the switch to the cloud that looms.  Cisco has been marketing around cloud, but this inflection point could lead cloud service providers to look to other suppliers for best-of-breed architectures and deployment models that save them money.

Here are the key issues that I am watching:

• As customers adopt 10GbE, will they also move from Catalyst to Nexus or will they consider competitive options?
• Will Cisco’s compute ambitions gain it more than it loses from partners that no longer want to work with them?
• One of Cisco’s biggest strengths is the army of CCIEs, but what happens when things go to the cloud?
• Cisco has the personnel to move into adjacent markets, but will it affect their focus on their core networking products and networking customers?