Cisco: The Game ChangerBy Lawrence Walsh | Print
Cisco's entry into the server market is shocking but not surprising. What may be surprising and shocking is how this move may signal the networking company's higher ambitions.
Last week, I wrote about the lessons U.S. automakers could learn from Cisco (read: What Cisco Could Teach Carmakers), a company that rebounded from its dot-com bust pain by diversifying into new and emerging technologies such as telepresence and physical security. Now Cisco is taking on the new role: game-changer by announcing its intentions to field enterprise-class servers to compete with the likes of HP, Dell and IBM.
Cisco’s entrance in the $50 billion server market should come as no surprise. Over the past several years, Cisco has gradually rolled out technologies that complement its core networking router and switch technologies, including video conferencing and a vast array of infosecurity offerings. Cisco’s creation of its Emerging Technologies Group created an incubator of new initiatives that had only two prerequisites: that the technology could become a billion-dollar business and that it complemented Cisco’s networking technology foundation. If you own the pipes and you’re building new offerings that hang off the pipes, servers that manage the data are the missing component.
Cisco servers seem like a logical complement to existing technologies, but it’s also setting Cisco up to be a tremendous game-changer and a boon for solution providers.
The server market has been commoditized for years. According to the Channel Insider 2009 Market Pulse survey, only 8 percent of solution providers say servers will drive their profitability over the next 12 months, and only 5 percent say that their customers deem server hardware and software as an "exciting" technology. And, informal polling of solution providers by Channel Insider found that many companies are pushing the operational service of their servers and desktops to five years and longer (read: PC Refresh Cycles Stretch to Five Years and Longer).
The server market, though rich in its breadth, has been under pressure for years. In the Channel Insider 2009 Market Pulse survey, 31 percent of solution providers said hardware pricing declined in 2008, while another 38 percent said hardware prices were flat compared to 2007. Dell’s share of entry-level and midrange servers has been eroded by HP, Sun stalked its ground in the unenviable high-end server space, IBM and HP have been battling out in the midrange and enterprise-class servers. Eating away at market share and channel love is Super Micro with its cost-conscious, efficient white box servers.
All of this adds up to a server market not only ripe for disruption, but begging for it.
Cisco is wise enough not to go head-to-head on commodity hardware with the likes of HP and IBM. Instead, it’s positioning itself well by declaring its servers will be built with virtualization software in mind, and that’s where its partnership with VMware comes into play. These two titans present a formidable challenge to Microsoft’s ambitions with Hyper-V and adds a viable alternative virtualization-ready hardware market.
But you can already probably see where this is going – this won’t be the last shocking announcement to come from Cisco. Why stop at servers when there’s still so much more to the "network is the computer."
If I were a gambling man, I would watch what moves Cisco makes in the storage market. While Cisco has Fibre Channel switches, storage management software and storage data encryption products, it lacks the heavy iron for storage all the data that traverses its network. Analysts have speculated that Cisco would swallow up a storage vendor, such as NetApp or perhaps Sun’s storage unit, to complete its iron curtain.
Next thing to watch for is the desktop. I doubt Cisco would ever want to venture that far down the hardware stack, but its newfound love affair with VMware could signal some long-term vision for thin-clients and the delivery of applications to mobile devices. That would open new fronts against HP, Dell and Wyse Technology, as well as present a new challenge to Microsoft.
And don’t think Cisco is done in security technologies. It continues to acquire companies—such as IronPort—that complement its existing network security offerings. Its tight partnership with Trend Micro is a tacit recognition that it still lacks critical antivirus, Web security and endpoint security software. Expect more security buys in Cisco’s future.
All of this adds up to Cisco’s clear intention of becoming the dominant vendor in the technology market. Swift moves to disrupt, overtake and innovative commoditized technologies could reposition Cisco beyond its networking pipes roots. If its history in the security market is any indication, Cisco will combine a build, buy and partner strategy to get the technologies and market share it needs to become a top player in the markets it choose.
Of course, Cisco’s other secret weapon is its channel. Cisco is proving quite adept at building and managing both integrated and segregated channels. Should it choose to expand its technology sets through organic development or corporate acquisitions, it will need its channels to expand the reach of its empire.
Lawrence M. Walsh is vice president and group publisher of Channel Insider.