Cisco probably didn’t surprise too many people with its announcement that it was shutting down its Intercloud public cloud business. It’s been a stretch from the first, an attempt by Cisco to get parity with other IT players like IBM and HPE, both of whom have diddled with or exited their public cloud positions. You have to wonder, though, why Cisco thought this was a good idea to start with, and also whether it should be teaching us something about the public cloud.
Vendors who sell gear into data centers have always had a love/hate relationship with the public cloud. The value proposition of cloud computing as it was first presented is simple; economy of scale would let cloud providers eat most or all of IT spending. It follows, if this is true, that the sum of sales of data center gear would have to be lower in a cloud-based IT future, so vendors would sell less. However, in the near term, cloud provider sales represent an incremental pop. In today’s current-quarter-driven financial market, short term trumps strategic every time.
Cisco also had a competitive concern, as I’ve noted. It was becoming clear to everyone that data center deployment was the strategic priority for both server and network vendors. Even WAN equipment sales tend to be pulled along by strategic leadership in the data center, leadership that Cisco comfortably held up to the cloud age. Now, with cloud servers more strategic than networks, IBM and HPE were threatening that dominance, and Cisco had to jump into the server space and then the cloud space to defend.
You could argue that these issues fully explain Cisco’s decision, but there’s more going on and it’s also possible Cisco factored in a set of more strategic points. The company is trying to realign itself, and that makes companies more forward-thinking than Wall Street pressures would normally.
The first of the “mores” is that it’s very clear that IaaS sucks as a business. The margins are low, differentiation is minimal, and it’s really hard to work up a model for “selling” IaaS in a direct sense because of all of this. You “market” the cloud, not “sell” it, and Cisco is still a sales-driven operation. This is exacerbated by the fact that Cisco, having gotten into the cloud for very tactical reasons, really never had a strategic vision for it, and that’s what you can market.
The second point is related; it seems pretty clear that the whole cloud market is going to fall to Amazon and Microsoft. Credit Suisse issued a note on the Cisco decision that said just that, and if there was any method behind Cisco’s initial cloud madness, it was that Cisco would be able to use Intercloud to boost carrier cloud sales (that, after all, is what the name implies, not just “public cloud” services). If carrier cloud isn’t going to do what Cisco hoped, then Cisco’s public cloud mission is compromised out of the box.
The third point is that even the current public cloud market is moving very quickly beyond IaaS, which is about the only kind of cloud service a company like Cisco would be able to field credibly. Microsoft’s Azure is PaaS out of the box, and is being enhanced regularly with cloud-hosted features. Amazon’s cloud is now as much or more a kind of dynamic PaaS as IaaS, with two dozen or more web services to add middleware-like features. Cisco would never be able to meet table stakes in the real cloud game that’s already developing, and the future will bring more of the same.
What can we learn from all of this, in a general cloud market sense? I think a lot, but I also think that the signals for cloud market change run back into 2015, and that the market has successfully ignored them up to now. We may see more head-in-the-sand behavior before we get to enlightenment.
The easy and obvious lesson is that IaaS isn’t the driver of cloud growth any longer. If all you had to do to compete was to push out some servers and connect them with cloud software, IT giants who make the servers (like Dell, HPE, and IBM) would be winning the public cloud game now. If lowest cost is the right approach, which it is with IaaS, then people who can get their servers from their own production lines would be hard to beat.
As I’ve noted in other blogs, what is winning is a new model of the cloud as a distributed, feature-rich, virtual operating system and middleware. This is a battle that Google, not a powerhouse in IaaS and not even named a cloud winner by Credit Suisse, is also going to be a winner. It’s a battle that Amazon has just shown us (with Greengrass) will be fought not only inside the cloud but at the edge of the cloud in private IT resources.
The cloud of the future is a new model of development first, and a public hosting opportunity second. Those who can promote application development with critical tools are the contenders. Cisco is not such a company, nor could they become one easily. But neither are most other companies. Rackspace knew that and has moved to become a cloud integrator.
At the same time, this shifts cloud momentum back to the IT players, though. You need to be strongly software-driven to be a contender in the future battle for cloud supremacy, in no small part because the battle won’t be about the cloud at all, but about how we build distributable, efficient, applications. The cloud opportunity will be geographically distributed hosting of that new development framework.
Which, ironically, could favor carrier cloud and empower an enlightened Cisco Intercloud model. In fact, Cisco could have led this initiative, an initiative that would also have subsumed SDN and NFV activity. That would have made Cisco the powerhouse in the space were the largest number of future data centers could deploy—the carrier cloud. Next year, my model says that carrier cloud could generate 350 new data centers, no tiny opportunity. In 2018 the number rises to 1,600, then to 3,300, then to 6,700 in 2020, and the growth rate doesn’t plateau till 2022. By 2030 we could add over a hundred thousand carrier cloud data centers.
“Could”, of course, is the operative word. A lot of good things have to happen to create this outcome, and cloud computing services by operators aren’t much of a factor. Even in the peak growth period from 2020 to 2023, public cloud services account for less than a quarter of the drivers for carrier cloud.
This, I think, is the big lesson. Cisco is right in dumping Intercloud because the service it proposed to promote, carrier-offered cloud computing, is not going to be a major contributor to carrier cloud at any point. They’re wrong if they don’t start thinking about their strategy for those drivers that will deploy all those data centers. So are their competitors.
There’s other news that relates to the broader question of carrier cloud. DT is getting out of the web-hosting business, a move that suggests that just being an OTT player isn’t enough to make a network operator a success in the Internet age. That makes credible drivers of carrier-cloud opportunity even more important because it proves that you can’t simply follow the trail of the OTTs and hope to overtake (and overrun) them.
The cloud is going to transform by 2021, but what we’re seeing from Cisco and others is probably more a reaction to what’s driving the change than to a recognition of what the change is, and means. IaaS was never an end-game, it was a very limited on-ramp. We can start to see the end-game emerging, or at least we can if we don’t have blinders on. It’s easy to realize the old approach isn’t working, but much harder to see, and lead, the new one that will work. Will Cisco pass that test? We’ll probably see in 2017.