Cisco takes on server OEMs

Cisco’s recent interest to enter into the server market has certainly put the spotlight on the battle for data centre dominance with the traditional big four server vendors namely HP, IBM, Dell and Sun Microsystems hinting they are ready for war.


From the top four data centre players, HP has been the first to respond to Cisco’s ambitions of developing a common data centre architecture. To this end, HP has responded to Cisco’s plans by cutting prices 30 to 50% on its network equipment – a shot across Cisco’s bow.


There is no doubt in my mind that this battle for data centre supremacy will benefit CIOs and their IT departments across the globe as there will be wider choices, options and better pricing on data centre solutions as a direct result of Cisco’s entry into this market.


But, reading between the lines, I don’t believe the battle field is level between Cisco and the traditional vendors in the data centre space.


However, one thing is certain: with US$30 billion in the bank, Cisco is a force to be reckoned with and the other companies will have to get busy to refine their own go-to-market strategies.


How, exactly, will the new Cisco server look? How will it be differentiated? We’ll know soon enough. Probably the most astounding aspect of this is how well Cisco has kept its real strategy and many of the important details out of the mainstream.


The media coverage that Cisco received in January 2009 after its CTO Padmasree Warrior blogged that Cisco is looking at ways to develop a common data centre architecture, touches the surface. How will a Cisco-branded server with virtualisation technology compete in this cutthroat server business?


And while Cisco’s interest to finally enter the server market has long been coming, there’s got to be much more to the networking giant’s ambitions to play in this market serious.


Certainly for me, questions that immediately come to mind are Will Cisco’s servers be sufficiently differentiated to command a premium in the server market that has seen price wars being fought between HP, IBM, Dell, Sun Microsystems and others? Will the Cisco systems be cheap enough to manufacture to be priced competitively against the incumbent server vendors, who know all too well about the need for massive scalability and squeezing costs out at every opportunity?


It’s a tricky play for Cisco as the vendor on the networking side has never been known in the IT industry for low cost volume products except for its consumer-oriented products like the Linksys range.


Given that Cisco has never been known for its low cost networking solutions or optimised manufacturing how will it compete if and when it does enter the server business? Is this the beginning of the end of a long standing relationship with HP, IBM, Dell, Sun and other OEM server vendors who for some time have served as Cisco’s primary go-to-market channel for its networking and SAN array of products.


Although Cisco has a channel in place, resellers typically purchase their Cisco products through Cisco’s OEM partners, although Cisco does also work with its own distributors as well.


Of the OEM vendors, HP already competes directly with Cisco with its HP ProCurve line of networking products while also offering Cisco products to its channel but will this continue now that Cisco wants to bring its own server line?


Will Cisco’s entry into the data centre with its own server brand cost it the dominant position it has held in the networking arena?


Although I don’t see this as a profitable move for Cisco in the short term, it’s most certainly looking like it will in the long-run payoff. After all, if there’s one place Cisco should be able to succeed in the server market, it’s with central IT and the data centre is a good place to start. This is where Cisco is strongest and expanding from a position of strength certainly makes sense.


Now suppose Cisco succeeds in the server market. What will that mean for the other gorillas of the data centre IBM EMC, Sun Microsystems and other?


While Warrior was more philosophical in allaying competition fears with Cisco’s OEM partners, she admitted that “Collaboration among competitors in the tech industry is nothing new. Our responsibility as leaders of the technology industry is to constantly pioneer new ways to enhance our customers’ IT needs. This new environment will require even greater cooperation among major industry players. Our customers expect that and we are committed to them."


Shifting product strategies is nothing new for Cisco. The company has over the past couple of years become a major supplier of storage networking products even as leading SAN vendor Brocade Communications has moved into Cisco’s networking market and enhanced its offerings with the recent acquisition of Foundry Networks.


Over the years Cisco’s Chairman and CEO John Chambers has stated that the company has been laying the groundwork for an expansion of its product focus to encompass a wider range of data centre technologies. This is probably the foundation and groundwork that Chambers has been preaching about.


Networking giant’s entry into the server market raises some interesting questions about the battle for data centre dominance

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