Cisco's Chambers: Architecture Is The Future11:00 AM EST Fri. Feb. 18, 2011
You don’t so much interview John Chambers as intercept him. When CRN grabbed its 30 minutes with Cisco’s chairman and CEO early this month, he was fresh from the World Economic Forum in Davos, Switzerland, and finishing up partner, customer and analyst visits in the United Kingdom. On the dance card for the day were an interview with “60 Minutes” and who knows what else. This is not an executive easily scheduled.
More From CRN On Cisco's John Chambers
But tucked into his cozy but unremarkable office in Building 10 of Cisco’s sprawling San Jose, Calif., headquarters -- TelePresence, yes, window, no -- Chambers is happy to expound. Having just entered his 16th year as Cisco’s top executive, he’s as affably intense as ever, anticipating questions and subquestions and follow-up questions: a mind percolating before your eyes even as, in conversation, he politely waits for you to finish your thought.
“At the 10,000-foot level, what’s most exciting is that many of the market transitions we anticipated happening are happening,” Chambers told CRN. “The network is becoming the platform not just for all forms of communications and IT, but it’s going to enable a different generation of productivity around collaboration, it’s going to change the data center, it’s going to change health care, it’s going to be at the center of everything from security to video. The exciting thing about Cisco and its partners is we’re going to play there together. We are better together.”
The Cisco of 2011 is no longer just the king of networking vendors. The two-year-old Unified Computing System -- its major server and data center play -- ensured that, with Chambers noting “there hasn’t been a new hardware player in the data center for decades, and contrary to all the prognostications, we are breaking away there.”
Cisco’s next big gambit will be getting its partners to fully embrace the cloud. To help them get at that opportunity, executives at next week’s Partner Summit in New Orleans will roll out cloud partner programs that give VARs multiple avenues into the cloud, from building clouds to operating clouds to reselling clouds.
The rollout could be huge not only for Cisco partners but for the channel as a whole, since Cisco is widely viewed as the leader in delivering innovative channel programs that bring partners big profits in tough-to-tackle markets.
The cloud initiative is at the heart of Chambers’ vision, which is far beyond that of a networking and infrastructure vendor with a nifty server play. These days Chambers is asking solution providers to invest heavily in his vision of network architectures: the idea that the network is the center of platforms and frameworks for all forms of communications products and services, as opposed to just siloed, product vs. product sales.
The architecture play, as Cisco sees it, is all-encompassing, with the cloud as the next frontier. It extends from network core to network edge -- data center to mobile device -- and serves as an organizing principle for everything from switches and routers to video, servers, wireless access points and security.
Cisco can, and does, do them all. And what Chambers is asking partners to do isn’t to be everything to everyone and attempt to sell everything but, in essence, see the architectural forest for the product trees and map the way they sell Cisco to that strategy.
“If you’re selling a single, stand-alone product, you’re ignoring perhaps the strongest thing Cisco does, which is an architectural approach, which protects their investments, allows them to move into new markets relatively seamlessly,” Chambers said.
“Many of our partners will say what level of differentiation they want to add. So there’s room for just making the architectural stack work well together. There’s room for saying, ‘We need to go sell that in a given geography or industry vertical.’ And that’s much better than their counterparts that are selling stand-alone unified communications, stand-alone security, stand-alone wireless, stand-alone routers and switches -- which, by the way, were designed to work together,” he said.
NEXT: Market Transitions Don’t Wait
Market Transitions Don’t Wait
Five years down the line, Chambers said, IT and business processes will be so entwined they’ll be practically one and the same. It’s Cisco’s architecture vision that will best accommodate that trend, he said.
“In people’s minds that might have been a stretch three to five years ago, but when I talk to the top 5 percent of CEOs in the world, they not only get it, but when you sit and listen to them, you can’t tell what’s IT and what is their business,” Chambers said. “It’s starting to occur and plays extremely well for Cisco and our partners.”
The architecture strategy is part of what takes Cisco beyond its legacy as a network plumber and pushes it into the upper echelons of tier-one IT vendors: a long-haul competitor to the Hewlett-Packards and IBMs of the world.
It’s also driving Cisco’s ambition to be the ruling technology power in 30 or more “adjacencies” -- Chambers’ preferred term for market and product segments such as health care, smart grid and video, where he believes Cisco can be the No. 1 player, and where challenges are solved in the network.
“Have we spread ourselves a little bit thin? I’ve always spread us thin at Cisco,” Chambers said. “The key is market transitions wait for no one. This verticalization, whether it’s good or bad, is happening. And unlike our peers that we’re competing against, we share the majority of our direction with our partners, including even the services level where I would expect our partners to generate five, 10 times the services revenue we do, even though we’re all needing to move to a services-led sell and services-led implementation.”
NEXT: The Financial Picture
The Financial Picture
Cisco skeptics say the company’s expansion hasn’t solved the increasingly competitive pressure on its core businesses. In its most recent earnings announcement, for the second quarter of its fiscal 2011, Cisco’s profit declined 18 percent year over year, switching revenue was down 7 percent year-over-year (11 percent sequentially), and routing was up 4 percent (down 7 percent sequentially) -- less-than-encouraging numbers for product categories that together still make up about 46 percent of Cisco’s overall revenue.
On the second-quarter earnings call, which took place after CRN’s interview, Chambers said Cisco was going through “a period of transition” that was happening faster than Cisco anticipated, and that newer and future Cisco products would compete far better at the level of price performance. Cisco has no intention of competing with vendors on price itself, he said. And beyond the routing and switching declines, the story of Cisco’s newer products -- notably data center virtualization, up 59 percent year over year, and collaboration, up 37 percent -- was definitely a bright one. But along with softness in its consumer business and concerns for public sector, the numbers served to amplify a third straight quarter of disappointing results. Cisco’s gross margins also tightened to 60 percent, from 65 percent a year earlier.
“Cisco believes its 2011 fiscal year revenue will grow somewhere in the 9 percent to 10 percent range, which raises the question as to whether the company’s growth prospects are as bright as they were a few quarters ago,” Scott Dennehy, engagement manager/senior analyst at Technology Business Research, wrote in a recent research note. “While TBR believes Cisco’s overall strategy is solid, the company may simply be too large and dispersed to achieve growth rates comparable to smaller and more-focused competitors.”
When it comes to its key networking competitors, many are looking to exploit Cisco’s aggression as hubris. HP, for example, has been relentless in touting HP Networking wins vs. Cisco and in December launched a trade-in program through which VARs can save 20 percent on HP Networking gear if they trade in certain Cisco Nexus or Catalyst switches.
Many of Cisco’s other competitors, from Juniper Networks and Brocade on the data side to the marquee names in wireless, videoconferencing and WAN optimization, have also stayed on the attack against Cisco, painting Cisco’s end-to-end architectural vision as too expensive, too closed, too proprietary.
Some analysts have taken up that mantle as well. A much-circulated November 2010 report by Gartner took specific aim at Cisco and the idea of single-vendor dominance in networking and infrastructure.
“After interviewing various organizations that have introduced a second vendor into their Cisco infrastructures, it is clear that in most cases today there is no financial, operational or functional basis for this argument,” wrote analysts Mark Fabbi and Debra Curtis. “The reality is that a single-vendor Cisco network isn’t necessarily less complex, easier to manage or more reliable than a network with multiple vendors when implemented with best practices.”
But in the interview with CRN, Chambers insisted that Cisco’s architecture approach -- its flexibility and its variability -- will be what preserves partners for the long haul. More importantly, partners who want to survive have no choice but to adapt, especially with market transitions happening so quickly, he said.
NEXT: Will Partners Follow?
Will Partners Follow?
For the most part, Cisco’s top partners are willing to go down the architectural path.
Long View Systems, Calgary, a Cisco Gold partner, has invested heavily in Cisco’s data center and virtualization side and its collaboration and video side, and expects to see its Cisco business grow significantly in those areas this year. “It’s been a mutual investment. They’ve been driving advanced selling through their internal organization and also through our sales team,” said Kent MacDonald, vice president of business development.
Long View, for example, recently folded its UC, video, TelePresence, Show and Share Webcasting and Cisco Quad collaboration platform businesses into a new practice it’s calling Collaboration. It’s also taken advantage of training opportunities Cisco offers via consultants and Cisco learning partners like Atlanta-based Firefly, MacDonald said.
There will be continued pressure from competitive vendors on Cisco’s core product lines, MacDonald said (Long View’s HP practice, notably, is also growing). But Cisco has proven its worth to partners behind the portfolio play.
“It’s a drive to that architectural sale vs. a siloed technology play,” he said. “Cisco’s tack is to change the game and make it a data center play vs. a price-per-port comparison. The ecosystem [around Cisco] is very active.”
Troubadour Ltd., a Houston-based Cisco partner, also has invested heavily in Cisco’s data center vision, and the solution provider added EMC and NetApp to its line card in the past year to take advantage of UCS-led data center deployments with each. Troubador’s services business with Cisco is also expected to double this year, according to Jay Kirby, executive vice president of sales and marketing.
“We’re investing in the data center space because it’s a relevant place where a lot of things are changing,” Kirby said. “People are really doing virtualization, and Cisco comes along and offers a UCS platform that extends the value and the connectivity. It’s become a reality. We believe in it. I think the customers believe in it too.”
The complexity of UCS is a hurdle for some customers, Kirby noted. But UCS and Cisco’s data center architecture presents a compelling endgame for customers. It lets solution providers sell behind a road map, he said, not just product speeds and feeds.
“Without a doubt our discussions have gone quickly up the food chain at customers,” Kirby said. “We hear from the top guys, ‘I want to fully understand what you’re talking about here because it’s different than in the past.’ ”
Solution providers that don’t make the leap to architecture selling have limited room to grow, Kirby reasoned.
“Integrators who don’t change will not win in this game,” he said. “Cisco wants everyone to change, but in this case, I don’t believe Cisco is going to wait. This is the first time we’ve seen architectural changes and consumption models change at the same time. It’s a lot to swallow.”
IVCi, a Hauppauge, N.Y., Cisco partner and video and A/V specialist, signed on with Cisco for video a few months before Cisco acquired Tandberg. IVCi had been one of Tandberg’s largest U.S. VARs, and Robert Swing, IVCi’s CEO, applauded the work Cisco has done to map IVCi into its new Authorized Technology Provider program for TelePresence Video.
IVCi has sizable practices behind both Cisco/Tandberg and Polycom, which Swing said were both needed. But he agreed that Cisco’s program -- and its collaboration architectural vision -- is well suited to the convergence of video and A/V solution providers with the broader UC channel.
“I don’t know how many enterprises are getting into it now, but three, four, five years from now, it’s going to be, ‘Can you deploy my videoconferencing, my VoIP, my messaging?’ It’s a move toward a total UC play,” Swing said. “We’re looking at acquiring or investing in bringing those complementary technologies on board.”
All three partners were united on one thing in particular: Cisco’s channel program will need to continue to adapt along with the move from products to architectures, and if partners specialize they need safeguards to protect their margins and reward them for their architecture focuses, be they data center, or video, or another.
“The old way of differentiating partners -- Gold, Silver -- is so ancient and irrelevant,” Kirby said. “Their portfolio is big enough that they need to start looking at the areas of their business and building around the partners that invest in those areas. I want them to look at Troubadour and say, ‘Hey, Cisco field sales, if you’ve got [a customer] looking to redesign the data center with these requirements in mind, here’s a company that focuses on that.’ Not, ‘Here’s a Cisco Gold reseller who can sell you every product in the book and might have one guy trained on data center.’ ”