Cisco is expected to announce a major strategic shift into software and services today. Why? “The days of boxes are over.” That’s a quote from Cisco’s Chambers that’s welcome from my perspective because it’s true. Of course, it’s been true for a while and Cisco has only now embraced that reality, but at least they are finally seeing the light. That’s more than can be said for their competitors. The bad news is that while Chambers is right about the twilight of the boxes, he’s wrong about motivation. That leaves those competitors with a way out.
According to Chambers, the thing that’s driving the future is what most would call the “Internet of Things”, the expansion of the Internet from serving human clients to autonomous devices. Call it M2M if you like. Respectfully I disagree. It’s not that M2M isn’t real, but that it’s like video—it happens to the extent that it doesn’t cost much. We need to look to a revenue future based on things that can provably generate revenue. Thus, the agent of change is mobile broadband and the way that always-on empowerment impacts the behavior of consumers and workers. I think Cisco wants to see the other side of the picture because some of its competitors have strong credentials in the mobile space, credentials Cisco lacks. Cisco not only needs to devalue these credentials, it needs to be able to promote its own story unfettered by the rest of the network vendor masses. “We wouldn’t be getting into wiring oil rigs if we didn’t think we could get 40% share” says it all. It would be impossible for Cisco to get that kind of market share in mobile broadband.
That doesn’t meant that Cisco is walking away from the mainstream network apps, though. They’re just looking first at the unoccupied spaces. You don’t have to invade your own territory, after all, and Cisco has a dominant market share in switching and routing. The trick is to get a new market for new TAM, but at the same time start edging over toward the valuable parts of the mobile broadband space. And remember that I’ve said the driver was mobile/behavioral symbiosis and not mobile services per se. While there are plenty of incumbents in the latter, Cisco’s competitors have been weak in developing the former. That huge space is still on the table, and Cisco I think is planning to go after it but not in a frontal assault. It’s going to do an end run.
I think Cisco wants to make IP networks application-responsive, not by eroding the value of routing and switching with stuff like OpenFlow but by adding features and capabilities within the context of existing (read, “existing CISCO”) devices. I think Cisco wants to create an architecture in which devices can spawn the applications that support them and process their data, which is valuable not only with M2M but also with appliances. I think they have been doing M&A to support those goals, and will do more. And if they succeed they do have a shot at challenging the giants of IT, of being the “next IBM”. If they succeed at THAT, they leave all their current competitors in the dust.
So how do competitors respond? Not by playing Cisco’s game, but by hitting the weak part of the story. M2M is still not a big-ticket item today, and the stuff that supports it best could just as easily—or more easily even—evolve out of mobile/behavioral applications as the other way around. If Cisco’s competitors lock down the architecture for the mobile cloud, then they cement themselves in the current richest space and they can still easily evolve to cover Cisco’s M2M target. Furthermore, a real and open SDN story makes it harder to tell an opportunistic and proprietary one. A competitor who has both a mobile/behavioral architecture and real SDN can make Cisco’s transition to an IT company a lot harder. Particularly if Cisco is really still clinging to traffic, not software.
That’s what generates all those “ifs” about Cisco’s own course. The big risk for Cisco is continued self-delusion. Chambers may have said that the days of boxes were over, but you can read Cisco’s comments so far as a bit of “fingers-crossed promising”. Is Cisco looking at M2M simply as a traffic-generator, as it has always seen telepresence as being? Down deep, does Cisco want to kiss software babies while continuing to bet under the covers on more bits to push? If it does, then this initiative will be a monumental failure. If competitors avoid going over the same cliff as Cisco, if they make boxes the story of the past, then Cisco could be one of the “IT companies” that Chambers says could be casualties in the future.