Cover Story
Transformation @ Cisco
The networking giant is transforming itself from a technology provider to a business solutions provider. While this presents the biggest opportunity ever for Cisco, it also poses its toughest challenge yet
By Dhaval Valia
Big changes are taking place at networking giant Cisco. The company is changing its positioning, focus and go-to-market strategy, and is in the process of transforming itself from a technology provider to a business solutions provider.
Beginning August 2009, Cisco’s start of the fiscal year, the company has reorganized its business around three focus areas or what it calls architectures—borderless network, collaboration and virtualization.
Explains Naresh Wadhwa, President and Country Manager of Cisco India and Saarc: “Cisco has always been the first to catch market transitions. Over the years we have evolved from a products’ company to a systems’ company to a platform company, and now we are moving to architectures. Each architecture represents a technology framework for providing business solutions that help customers to achieve the next level of growth. Cisco is taking the leap from providing technology solutions to end-to-end business solutions that impact the business outcome of customers and help them transform their business.”
Analysts say that the Cisco remodeling was expected. For a company which has dominated the networking space—with 65 percent of its $36 billion annual revenues coming from products such as routers and switches—Cisco requires market expansion for future growth.
“Cisco’s architectural play is not a move from the bottom to the top of the infrastructure stack, it’s about expanding the company’s footprint in the IT environment,” comments Chandranshu Singh, IT Infrastructure and Integration Technologies Analyst, Ovum Butler Group. “The networking market, which Cisco has ruled for years, is maturing and getting commoditized. Also, Cisco is seeing increased competition from other players, primarily from HP ProCurve, competition which will intensify with the 3Com acquisition. The architectures that Cisco has chosen, virtualization and collaboration, are still emerging and have immense scope for growth.”
Three pillars of growth
Each architecture Cisco has chosen represents a multi-billion dollar market capable of providing the company with double-digit growth over the next several years. The new architecture-led strategy has been in the works for quite some time as evident from the acquisitions made by Cisco over the last couple of years. (See box: Architecting the future through acquisitions)
For instance, the company’s collaboration portfolio has been built entirely ground-up from technologies it has gained since 2006 through the acquisition of companies such as Jabber, PostPath and WebEx. Cisco estimates the collaboration market to be in excess of $35 billion—and just emerging.
Over the past six months Cisco has rolled out a collaboration portfolio of more than 60 individual products including the first-ever hosted messaging platform, WebEx Mail with native support for Microsoft Outlook and email on mobile; an updated version of the UC platform with enhanced support for video, Wi-Fi enabled Cisco IP-phones and mobile devices like BlackBerry.
The company also launched the Cisco Enterprise Collaboration Platform, an application which allows users to create team spaces, communities, wikis, customizable dashboards and Web 2.0 content. In addition, there's Cisco Pulse, which allows users to tag and search for content across the network; and video transcoding tools that allow video to be viewed on any type of device and include speech-to-text video transcription.
“Our overall goal is to offer the fullest possible portfolio of collaboration products so that enterprises can focus on network architecture and not a collection of point products. People don’t want to invest in point products that don’t inter-operate with each other. Our architecture allows the customer to preserve the existing environment while moving into a much more collaborative world,” says Minhaj Zia, National Sales Manager, Unified Communications, Cisco India and Saarc.
Analysts are impressed with Cisco’s collaboration portfolio. “Cisco’s move into application areas such as enterprise social networking, unified communications, mail and messaging is notable,” opines Singh. “It already has a significant share of the Web conferencing segment through WebEx, and the vast range of integrated products it has rolled out, combined with its expertise in networking, puts Cisco ahead in the race.”
Similarly, data center virtualization is another area where Cisco had little presence a couple of years ago. However, by using the acquisition route and by striking strategic partnerships, Cisco has managed to create a compelling end-to-end offering in this space.
The Unified Computing System (UCS), Cisco’s core offering in this segment, combines servers, storage access, virtualization and the network into a single fabric managed by one system. In addition, to create a full-on virtualization offering, Cisco has struck a strategic partnership with EMC and VMware to provide a complete virtual data center product set that draws on the three companies’ strengths. The product packages, dubbed Vblock, are a series of preconfigured, pretested solution sets based on Cisco’s UCS and networking switches, EMC’s storage arrays, and VMware’s server virtualization platform.
“Our VCE (virtual computing environment) offering, in partnership with EMC and VMware, is at least 12-18 months ahead of what our competitors offer today. We believe we are far better prepared in the VCE market than any other company,” states Wadhwa.
Cisco is not alone in believing that its platform is better. Analysts and technology reviewers have given a thumbs-up to UCS and its virtualization strategy. A few have actually called it a game changer, so much so that it has forced even IBM and HP to rethink and realign their data center strategies. Since the launch of UCS, IBM and Dell have signed OEM agreements with Brocade and Juniper, while HP has launched its own converged infrastructure architecture, and acquired 3Com.
Remarks Yankee Group’s Vice President, Zeus Kerravala, “In order to leverage the true potential of virtualization, there needs to be more intelligence between the network and the computing infrastructure of the data center. Cisco’s UCS solution does exactly this by linking data center compute and storage infrastructure to network infrastructure. To date, Cisco and best-of-breed vendor Liquid Computing are the only two vendors who really have a solution to address this need. I believe this new approach to data center architecture and virtualization could potentially reshape the vendor landscape over the next five years.”
Strong words, but Singh agrees. “By virtualization of the network, Cisco is offering a completely new value proposition to customers. Present-day IT environments demand convergence and simplicity. With newer and newer technologies, it is becoming increasingly complex to manage IT functions, provide the required levels of service to internal and external consumers, and cut costs at the same time. Cisco’s virtualization approach aims to address this very gap to enable effective management and provisioning of resources, thus providing greater control and better service at low cost.”
What’s more, Cisco has rolled out B-series blade and C-series rack-mount versions of the UCS server, and will soon sell them through distributors, thus taking on server players such as HP and IBM, and making a bid for the $20 billion server market.
The third architecture, borderless networks, combines Cisco’s core networking business of routing and switching with application acceleration, mobility, wireless and security. It’s seen as a natural progression by the market leader to up the ante for its competitors by introducing the next-generation network in a market that’s increasingly getting commoditized and competitive.
According to Samir Kumar Mishra, Regional Manager, Advanced Technologies, Channels, Cisco India and Saarc, the borderless networks architecture breaks down boundaries between locations, devices and applications. “As applications and services are increasingly offered and consumed from beyond the enterprise perimeter, a new approach will be required. Enterprises today are used to having their employees work within a perimeter, but the trend is of mobility where the location border has to be overcome. Today’s workplaces have all types of devices that access the network, hence the challenge is to overcome the device border. Similarly, applications which earlier used to be housed in data centers are now located at any place with cloud computing.”
Singh believes that borderless networks will benefit Cisco as well as its customers. “Cisco’s intent is to become a one-stop-shop for all networking needs. For Cisco, it means more business. For its customers, it means a single connectivity framework and simplified management. This is in keeping with trends in the market such as the integration of wired networks, wireless networks and the applications that manage them into a single but scalable platform with inbuilt security.”
Go-to-market plans
While Cisco’s new strategy of focusing on architectures may sound good on paper, executing it will require aligning the internal organization, getting partners ready, and getting the right message to customers.
The company has already aligned its internal sales and channel organization to its new business model, and engaged with strategic enterprise customers for the adoption of its new architectures.
On the channel front the company has adopted a two-fold go-to-market strategy—to upgrade existing partners to build an architectural practice, and to tap new partner segments that have an existing specialty in the area of compute infrastructure, virtualization and collaboration.
“The new architecture play will help partners increase their customer relevance, increase their share of the customer wallet, and create a more intimate relationship with the customer,” opines B Raghavendran, Vice President, Channel Operations and Commercial Strategy, Cisco India and Saarc.
Since August 2009, Cisco has focused on aligning key partners around the new architectures. “We have already profiled and segmented leading partners based on their existing skill-sets and certification. To educate and train them on the architectural play we have held several boot camps and workshops in major cities. Our focus now is to engage and train a larger partner network. We have scheduled several training and boot camps over the next six months,” informs Arun Dharmalingam, Regional Manager, Distribution Channels, Cisco India and Saarc.
The company has also enhanced several of its existing programs to reward partners who promote architecture rather than products. Cisco’s most popular Value Incentive Program (VIP), which so far covered products under four major technology tracks—unified communications, security, wireless and data center—has been enhanced into VIP 14 to combine existing and new technologies into broader architectural plays of collaboration, virtualization and borderless networks.
VIP 14 includes new technologies eligible for rebates. For collaboration, TelePresence has been included, while for the virtualization beat, unified computing products and other virtualization products, in addition to the existing data center products, will also be eligible for VIP 14 rebates. For borderless network architecture, VIP now includes routing, switching and application acceleration, in addition to wireless and security.
“Instead of rewarding individual technologies, the new VIP aims to reward multiple technologies that contribute to the architecture. Partners who upgrade and specialize in architectures will receive greater benefits than those who sell only products,” informs Mishra.
Besides, Cisco has strengthened its engagement with distributors in order to deliver a consistent message to the broader channel on its new business model. “We have increased our engagement with distributors multifold, and have set up a separate marketing team to jointly work with them to run innovative partner campaigns,” informs Dharmalingam.
Challenges for Cisco
It’s clear that Cisco is betting big on its new architecture play. The outcome of the play will decide if Cisco can grow beyond being just a networking major into becoming an end-to-end technology player.
“Cisco’s challenge remains execution and market perception. Although Cisco has a unique offering in the form of UCS, displacing incumbents such as HP and IBM will not be an easy task. Customers will also have to be convinced that Cisco’s UCS is robust and enterprise-proven,” points out Singh.
Analysts believe that UCS would appeal most to those customers who are building data centers from scratch, and hence it would be a while before Cisco is able to gain traction in the market.
Cisco will now compete against HP and IBM who have been their key partners. But with these two companies now turning foes, Cisco might lose the business contributed by the systems integration arms of HP and IBM, which is significant. It is estimated that globally, IBM does $2 billion of Cisco business, annually.
Further, there are a few who believe that Cisco’s entry into new technology verticals could also impact its focus on its core networking business. The company is already facing competition like never before in the networking market.
HP ProCurve has been making inroads into the switching market with its aggressive price points, lifetime warranty, and wide channel support. Further, HP’s acquisition of 3Com has enhanced its footprint in the enterprise LAN market, and the company will move from edge to core with the help of core switch technology from 3Com.
Observes Singh, “With 3Com, HP is ready to take on Cisco in the enterprise networking segment. Cisco will face greater competition, not just in terms of available functionality, but also in terms of supply chain, service delivery and pricing flexibility. No other vendor, apart from HP, can match Cisco’s network of distributors, resellers, etc. Cisco will have to raise its game to match HP’s service and support, and give resellers and distributors more leverage to offer discounts on equipment list prices.”
Cisco realizes that it faces its toughest challenge and also its biggest opportunity ever. John Chambers, Chairman and CEO, himself admits this fact. “HP is a competitor, and we’re going to have fun competing. We’ve never had a $110 billion competitor before. The last time we had this type of opportunity in front of us was with Nortel, Lucent and Alcatel: great companies, but we held our own pretty effectively.” |