By almost any measure, Cisco Systems is the biggest fish in the networking pond. Thanks to more than 130 acquisitions, a brisk pace of internal development and a much-discussed new organisational structure that the company is using to attack a slew of new markets, Cisco’s reach extends from the consumer to the enterprise and deep into service provider networks. The company offers everything from personal video cameras to high-end telepresence systems, set-top video boxes to, lately, servers for the data centre, in addition to more traditional network gear like routers and switches.
But, in reality, Cisco wants no less than to take over the world of technology, according to CEO John Chambers. Excerpts from an interview.
Q:This goal of being the number one IT company puts Cisco into a different market. People know you as the network company because you are selling against, say, Juniper on point products. But now you’ll be selling a vision of IT against the HPs and IBMs of the world. That’s a very different thing.
A: [We’re] one of the top architectural players, as well as the top communications company; on which you could argue we’re in pretty good shape. We’ll play architecturally on both technology and on business.
We’ve had a track record in whatever markets we’ve entered, becoming the number one player. Even our toughest critics would probably give us credit for that. The first generation of competitors we took on were very good companies: SynOptics, Wellfleet, 3Com, Cabletron. Only, none of those now exist. And, the same thing could happen to Cisco if we don’t get market transitions right.
Secondly, we have a healthy paranoia. We know we could be left behind, too. Make no mistake about it.
Third, when we started in the service provider market, people said we didn’t understand service providers. It’s a different set of competitors – Nortel, Lucent, Alcatel, Siemens, Ericsson. To think you could even play there is probably a stretch. To think you can become the number one player – forget it. And yet, we did. Those were tough competitors. But we got our market transition right. We moved in a way they did not. We did it on architecture.
In the data centre, I did not want to compete against IBM and HP. I tried to partner with both of them. I would have preferred that. But we knew going in — and the decision was made five years ago — once we started down the path with virtualisation, that if they would partner we’d prefer it, and would have actually given them a large part of our technology. But if not, it was too important strategically to us, because it wasn’t a question about moving into new markets. I’m not after servers. I’m after virtualisation, where you don’t know where your processors are, your information’s stored, or the application resides. You don’t care. If done another way, the network becomes dumb pipes, commodity like. So we had to move into this in terms of where the market was going. We focused on market transition, not competitors. And I think, we’re off to a good start in mind share, vision and strategy. But it comes down to how well we do on our first pilots
Q: What is it about the data centre that Cisco gets that you think these other big companies don’t get?
A: It isn’t a question of ‘gets’. It’s all about virtualisation in the cloud and the role the network plays in it. We think the network is the central piece. It’s not the data centre or the end user device. It’s any device to any content wherever it is in the world over any combination of networks wired or wireless to the home, to an Apple device, to a Microsoft device, to an IBM device, HP. Doesn’t matter to us.
Secondly, it is not going to be about voice or data. It’s going to be about video. Now, you can say that’s a big stretch. But, remember again, we said before it would be all-in-one data, voice, video. [We] made that decision a decade-and a half ago and we began building them to architecturally work together.
So, is it a stretch? Perhaps. But we’ve done this multiple times before. We do it through innovation. We can acquire companies. We’ve done 137 acquisitions. The vast majority of them have exceeded what we told our board we would do. This is innovation. This is our game. I don’t fall in love with technology. Most every move we make, including this virtualisation focus, was driven by customers. It was the customers’ grasping what we needed to do. Then, it’s usually internal innovation or an acquisition that kick-starts you into it. Much like buying three switch companies kick started us into switching, which is now 40% plus of our revenue.
Q: How do you respond to the three most common things that competitors say about Cisco? Cisco products are proprietary. They come at a premium. When you can’t get win with IT, you go around them to the business side and create a stir.
A: First, let’s deal very much with proprietary. We are an open standard company, period. The Internet is open, any device to any content. When we moved into telepresence, we got huge market share on the high end – 64%. Yet, we made it an open standard. We made it an industry standard available to others, not just for a Tandberg-type of interface, but anybody who wanted it. All of our base is off an open, standard net — the Internet. We don’t have a proprietary operating system that only operates in our products. The Internet, any device can interface to it. And we want it to. First, it allows us to move in markets faster. Secondly, customers are protected. They don’t lock in to a device operating system, a device, or in the data centre.
The second part of your question about whether we sell the technology to the business side at the same time? Of course. If you’re really going to be a successful company, it isn’t about how you just work the technology side. You’ve got to be able to develop the confidence amongst the business leaders, the CEOs and the IT organisation at one time. IT is no longer about managing this complex data centre and making it run. IT is about enabling the business strategy of a company, using it to differentiate yourself versus your peers, drive productivity. I would argue [it’s about] even embedding IT into your core capability, whether it’s how you do services, product development or sales. In fact, at some point you won’t be able to tell the difference between what’s my business strategy and my IT strategy, they’ll be so deeply intertwined.
What about the middle point about the Cisco price premium? They call it the Cisco tax, that people pay a big Cisco tax.
A: Well, that’s a little bit unfair. Do we come down Moore’s Law at tremendous speed? The answer is yes. As long as you do that, customers don’t have a problem with you making a premium, because if you don’t make a premium, you don’t develop new products. You don’t protect their investment. They’ve all been through that.
Do I believe there’s a rapid industry consolidation taking place? Absolutely. Do I believe that part of the decision for who’s going to win is based upon your innovation, based upon your ability to catch market transitions, based upon making your products play architecturally together, protecting the customers’ investments, and an open architecture? Yes. Will customers pay a premium for that? Absolutely. But, I would argue it’s not a premium.
I’d say [it’s about} your total cost of ownership versus your productivity. It costs a lot less. The key is how you work toward common goals.
Q: How do you see both private and public cloud rolling out from an enterprise perspective? What do you see as the ultimate intersection of these two?
We think the ultimate intersection will be a confederation, where it is completely transparent to the end user, the CIO and up. Completely transparent to the end user what combination of physical, virtual, public clouds and private clouds it is. That is perfect for us, because that’s what networking’s about.
The first thing I asked Padmasree [Warrior, CTO] when she came to Cisco was to outline our cloud strategy. She went and got the best engineers, worked with them, came up with the approach. Now we’re driving it with tremendous speed and efficiency, and expanding the partnership with VMWare and EMC, who are our best partners. But we’re also getting close to Net App and other players within the industry and getting back to the open standards type of question. We’re off to a real good start here.
Now, having said that, do you know who our best partners will be in public and private clouds? The service providers, because it’s in their interest that the pipes are not dumb pipes and they’re not commoditised by the edge players or by the content players. We have a common opportunity here.
Q: What’s the bigger market sooner, private cloud or public cloud?
A: Public cloud, in the short term. Longer term, the private and the combination, the federation, whatever you want to call it. By the way, we’re already doing that ourselves. We’re already doing our own clouds and we’re interfacing with other peoples’ clouds. It’s classic Cisco. We do it ourselves. Understand the strengths and limitations of it. Then share what our moves will be.
Q: Based on this and other discussions with Cisco executives, it sounds like Cisco’s making a huge bet on service providers and the cloud. Would you characterise it that way?
A: We made the huge bet on service providers back in 2001. A lot of people at that time said we ought to focus on enterprise, we ought to focus on commercial. Service providers are a separate business, not as healthy in direction. We respectfully said we can do the ‘and’ here. And you’d have to argue that we did pretty well in enterprise, pretty well in commercial and very well in the new market — the service provider. They are the logical step for our first real cloud build-outs, and there’s not a major service provider that I’m aware of in the world that isn’t at least thinking about