Price Is A Key Issue For EMC-Cisco Cloud Venture

EMC is urging partners and customers to make the journey to the cloud this week at its EMC World conference. But partners and customers say they are grappling with big issues as they look to take that journey including the price of the EMC-Cisco solution set.

As best of breed Cadillac-class solutions, both EMC and Cisco have commanded high prices for their respective offerings. Now that they are combining on highly scalable and secure private and public clouds, customers and partners are asking just what the cost of those solutions are going to be.

"The question for Cisco and EMC as they collaborate is how do they get to a price point that makes sense for customers?" said one executive for a large systems integrator that is partnering with the two giants to deliver private cloud solutions.

That's a sensitive topic given that Hewlett-Packard, the world's largest IT company at $124 billion, is pushing forward with its converged infrastructure (servers-storage-networking) offerings and has vowed to drive down margins both in the networking segment, where it says Cisco has enjoyed 80 percent margins, and in the storage segment, where it pegs margins at 48 percent. HP has pledged to leverage its $70 billion supply chain to pressure competitors.

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EMC CEO Joe Tucci, for his part, scoffed at Hurd's claims that EMC-Cisco margins are out of line. "This is the guy that makes how much money?" he said in an exclusive interview with CRN. "EMC has 14,000 developers-engineers. Do you know how many do hardware? 300. So what are we? A software company. There is always great margins in software. So he's got it wrong. And then fundamentally when you talk about the margins, what does he make on [printer] ink? Give me a break."

A number of customers at the show, for their part, said they are glad EMC and Cisco are coming together to help them make the cloud journey. "I think it's brilliant," said a solutions architect for a drug maker. "They are the major players in each of their own areas of expertise, and they are coming together to present a cohesive set of solutions that I think is a compelling story."

The solutions architect said he is excited that the Cisco-EMC are bringing a best of breed solution. "I don't want my data out in the wild," he said, noting that he is reassured by the EMC-Cisco private cloud solution. "I haven't seen anything yet that would make me feel comfortable enough to throw our corporate jewels out in the open. This venture plays right into our requirements."

A big question for solution providers looking to play in the cloud is the services opportunity that comes with the territory. "It's all services," said one executive for a systems integrator. "That is the only place margins are being made." The executive sees Cisco and EMC dominating the private cloud in the top enterprise accounts because of their strong sales forces, but noted it would be a mistake to ignore Oracle and IBM.

NEXT: Thinking Strategically Vs. Tactically

Keith Norbie, the vice president of sales and vendor management for Nexus Information Systems, a Minnetonka, Minn., VAR 500 power, said the reality is that most customers are not thinking strategically but are struggling with budgetary issues year to year.

"The reality is IT thinks from a year-to-year budget level," he said. "There is political infighting, lots of wrangling going on and they make decisions based on tactical leverage. They look at cost modeling. The only time there is ever going to be a gigantic leapfrog against tactical decision making is when a CFO comes in and says, 'You're all fired.'"

Norbie said customers have a mixed view on cloud computing solutions. One customer he recently met with in the morning "thought cloud was the new transformation of IT" and another meeting that same afternoon with a different customer the "client thought it was a complete joke."

"Everyone already has cloud," he said. They have data centers. They are already using cloud services from IT. They just don't call it that."

Barbara Spicek, vice president of worldwide channels for Brocade, which announced a major agreement under which EMC will resell Brocade's IP networking switches, said most solution providers driving cloud are living off services margins rather than product margins.

Partners don't live on the hardware margins only, Spicek said. "But on the other hand they need them. They have businesses to run," she said. "It's a dangerous gamble to tell your entire partner community the margins will shrink if you don't at the same time offer them the services and support part of the business."

Spicek said she is pushing Brocade partners to take the service and support business to assure they have a "profitable business model."

As for the EMC-Brocade deal, Spicek said it speaks to the importance of "supporting open standards" and "incorporating other vendors."

"That's why our announcement with EMC is so important," she said. "They are showing that there is Vblock which might be right for some customers. But if they are open, they have to be offering alternatives. For me, the impact of our announcement is huge. EMC now has choice."

"There are very few customers that are going to start building a data center from scratch," she said. "They will have server farms out there. They will have storage infrastructure. What they want is the solution provider to put it altogether for them and tell them how to gradually get to the cloud."