There’s a report circulating that Cisco’s long-time, charismatic, and some-say too-long-standing CEO John Chambers may be stepping down this fall. Financial sources seem generally pleased with the notion, given that Cisco’s stock seems to be “range-bound”, offering little opportunity for either regular “long” investors or short-sellers. There’s little question that Cisco is mired in something, but is it something of Chambers’ making? What could Cisco do?
It’s been clear for almost a decade that networking wasn’t the hockey-stick marvel it was in its heyday. The Internet dealt traditional service provider business models a series of major blows. The unlimited-usage model meant incremental traffic didn’t generate any revenue at all, but it did demand capacity expansion. The OTT players were able to leverage their greater agility to jump quickly into new market opportunities, leaving the transport providers with their creaking declining revenue per bit. Even mobile services was hit by Apple’s device-centric vision, and Apple made sure that the Internet model dominated mobile services too.
One could look at this, as I and others did a decade ago, and note that Cisco and other vendors really had only one choice. That was to climb the food chain, to focus on transforming their customers’ businesses with improved service-level products. The problem was that this view meant accepting the commoditization of network equipment, and there was little chance that service-layer gains would offset switch/routing commoditization. In any event, the Street rewards you for the quarter not for the future. It’s disingenuous for the Street to now say Chambers should have done something different, because they’d have punished Cisco’s stock had he tried.
He did try, sort of. Chambers oversaw attempts by Cisco to enter consumer networking, consumer devices (Flip video) and most recently information technology. All of this was at one level a realistic attempt to create additional “total available market” or TAM by expanding into symbiotic spaces. But Chambers is a sales guy and not a strategist, and I personally think he’s always had a salesperson’s skepticism about strategy. Cisco was sales-driven in what should have been strategic moves. But, truth be told, I’m not sure what could have been done that wouldn’t have raised the howl of those Wall Street wolves.
So let’s forget the past, Cisco. What now? Whether Chambers stays or goes, the status quo is not a survivable choice and you probably realize that by now. The UCS success is coming at a time when the giant of giants in IT, IBM, is getting out of the space you’re betting on. There are hosts of players in the industry making formal progress toward open platform models that will only make servers a worse business. But somehow Cisco, you have to make servers and IT work because networking is never going to work for you in the long run. You’ll shrink too much. Even at the expense of margins, you have to increase sales and servers and IT are the only place there’s a chance that will happen.
You also have to look to the IT giants for inspiration. IBM is running from servers but not running to anything that’s obvious. HP, on the other hand, seems to be taking the stance that the transformation of networking could be a benefit to server/IT players because servers are what get consumed by centralized SDN control or NFV hosting. It’s hard not to see HP’s aggression in NFV as anything but an indicator that they think their own sales and margin risks could be at least partially covered by big wins in servers for the telco market.
And they could be right. My model says that carrier server consumption created by cloud computing, SDN, and NFV could be the largest single source of server growth, building over a hundred thousand new data centers globally. If you, Cisco, could get a big chunk of that you’d be settled in as an IT giant, perhaps even one bigger than IBM and HP. You’ll not be the sales-and-margin shining star you once were, but nothing will ever bring that back. Redefine success here, Cisco, or experience failure.
You can take inspiration from your own Visual Networking Index, not as “proof” that somehow everyone has to buy more routers because there’s more traffic, particularly stupid pet tricks traffic, but as proof of a demand revolution of another kind. Mobility changes everything because it makes our information consumption contextual. Instead of immersing ourselves in the desktop-search cocoon we drag our gadgets into the wide world and use them to support us at whatever we’re doing. That means our gadgets have to know what we’re doing. The traffic these gadgets create doesn’t matter, the nature of the experiences they support is the key.
We are trying to transform the industry with the longest capital cycle in all of technology—networking—into something that supports not enduring relationships or services but something that is completely extemporaneous. We have no architecture to build the applications this network will support, no conception of services that will support the interchanges these applications will create, and no tools to efficiently deploy or manage these applications. All three of these things are difficult problems, and the combination could seem insurmountable. But, Cisco, if you want to be the “Number One IT company” then you’ll have to solve them. Because, and trust me on this, somebody will. Then they’ll be number one.
HP and Alcatel-Lucent are your big threats now. Both of them realize that NFV and the carrier cloud are the critical low apples of the transformation to contextual services, critical because they can bridge the present to the future by justifying initial deployments as augmentations of current services and preparing the framework of the future at the same time. Some of the real NFV visionaries, like Don Clarke who was the editor of the seminal material on NFV, have seen this larger role of NFV perhaps from the first. HP and Alcatel-Lucent see it now, perhaps not clearly but clearly enough to be taking steps to own those critical first stepping-stones across the river. You, Cisco, have to push them both off and pursue a carrier cloud/NFV framework that will inspire the market. If you do that, you won’t need a super-salesman to run you.