Project California was one of the worst-kept secrets in tech history. The semi-leaked blog that announced Cisco Systems’ data center intentions last December was the first shot in what could be the looming war between the networking giant and the rest of the IT marketplace. The unveiling of Unified Computing System—as Cisco calls it—could spell the beginning of a shift in channel dynamics and a protracted war for control—or at least dominance—of the channel.
The Wall Street Journal has already declared Cisco’s Unified Computing System a war between Cisco and Hewlett-Packard, the world’s largest technology company (in terms of revenue, HP is nearly three times Cisco’s size). But other targets include IBM, Dell and Sun Microsystems—all of which have blade servers, storage, networking management and virtualization capabilities. Overseas, European companies Fujitsu-Siemens Computing and Bull Information Systems are bristling over Cisco’s brash entry into their server clubhouse.
“Cisco deserves a lot of credit for its industry chutzpah,” writes analyst Jon Oltsik of the Enterprise Systems Group in his blog. “John Chambers and Co. were willing to risk deep relationships with HP and IBM to enter the server market. In this way, Cisco is adding new innovation to an old market and shaking up the industry, as well."
Cisco, which has been planning its server entry for more than a year, pegs the total addressable server market at $85 billion globally annually. For its Unified Computing System platform—a combination of virtualized blade servers on Cisco’s unified fabric infrastructure and managed under a centralized system—the company believes the total market is somewhere around $20 billion annually.
In launching Unified Computing Systems, Cisco is taking no chances—all of the initial installations will be managed direct and, in time, handed off to a core set of 250 data center partners, primarily large systems integrators. In time, Cisco says it plans to add more channel partners to the mix—mostly those that have existing capabilities in networking, storage and blade server.
Cisco believes it has the channel partners it needs within its ranks to pull off its blade server strategy without having to delve into competitive placements in rival channels. It also believes that its technology is sufficiently differentiated that it will leave room for solution providers to continue representing other brands' conventional x86 and RISC-based servers.
“Obviously, we’ll be in conflict in certain areas, depending on what we’re selling,” says John Growdon, senior director of the Go-to-Market Group, Worldwide Channels, at Cisco.
That’s the belief, at least. Cisco isn’t stupid, nor is it taking an uncalculated risk for its server strategy. As with other emerging technologies—telepresence, physical security, logical security, desktop video—Cisco only places bets on segments that have the potential of becoming billion-dollar businesses within three years. To reach its goals, it will need the support of partners within and outside of its partner base, and it’s clear by the phalanx of OEM partners—Microsoft, EMC, VMware, Red Hat, Novell, NetApp—that it has a broad base of potential partners to cultivate and harvest for its server effort.
Projecting 12 months into the future, HP is the most likely target of channel displacement. Of all the rivals, HP matches up most closely to the new Cisco product set. Its Proliant servers, ProCurve networking gear, storage hardware, systems management capabilities and virtualization alliances make it a kin to Cisco’s Unified Computing System. It also means HP has the channel that Cisco needs to quickly ramp its new business.
“There will be some channel partners that will have to make a critical, game-changing decision on what they’re going to lead with,” says Cindi Privitt, CEO of ViewPoint Research.
Then again, Cisco’s server ambitions could spark a massive wave of consolidation in the upper layers of the channel. Unified computing has obvious need for deeper storage integration, which explains the tight alliances with EMC and NetApp. But rumors have persisted for years that Cisco’s storage ambitions would eventually lead to its acquisition of either of the storage vendors.
Likewise, dissatisfaction with Cisco as a business partner and supplier among enterprise and business consumers could prompt the marketplace to look to alternatives for support. Juniper Networks—the second largest networking vendor—could build tighter relationships with storage switching companies, such as Brocade. HP could add more storage and management capacity to its portfolio, as well as acquire high-end networking technology to bolster ProCurve. And Dell, which has its own storage ambitions with its acquisition of EqualLogic, may be forced to find a networking gear partner or acquire its own components.
The presence of Cisco in the server and data center market could pressure the entire IT marketplace. While Cisco’s unified computing strategy sounds interesting and has the potential for cost-savings, it remains largely unproven in real-world implementations. In its initial analysis, research firm Gartner recommends inviting “Cisco to be shortlists initially, and use it in ‘greenfield’ opportunities and to negotiation with other vendors.” This could put pressure on price and margins of Cisco competitors and their channel partners.
No matter which way the market shakes out, the long-term implications for the channel are dramatic. Loyalties will be tested. Technology sales will be stressed. Markets and prices will be challenged. And solution provider and integrator business owners will have to make tough decisions on which vendors they choose to invest and support. And the transformation won’t be held to the highly virtualized enterprise; without a doubt lighter-weight SMB versions will come to the fore within the next 24 months, and that will put more pressure on channel dynamics.
Cisco says it has a knack for identifying markets in transition and capitalizing on niches. The reality is that Cisco may have just sparked a much broader transition for the totality of the IT marketplace and channel.
Lawrence M. Walsh is vice president and group publisher of Channel Insider.
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