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Cloud Strategies

Cisco: Software, Cloud to Be 'Main Focus'

Carrier benefit
Cisco's transition will likely be good for its carrier customers, Kerravala says. "The carrier will wind up embracing this," he says. By working with Cisco on cloud, carriers will have an opportunity to go beyond being dumb pipes and instead offer cloud interconnect services through Intercloud.

Carriers are by nature not great at selling to the line-of-business managers who buy cloud services, Kerravala says. "Carriers can get appointments with line-of-business and CIOs, but they don't know what to say to them." Carriers traditionally sell to enterprise telecom partners. Cisco will now go in with carriers as a partner and help the carriers make the sale to enterprises.

"It gives the opportunity for the local carrier, in particular, to differentiate from cloud providers," Kerravala says.

The carriers that partner with Cisco will be able to tell enterprises: "We're in a period where there are a lot of choices in the cloud. We will be the glue and help you shift workloads so you don't have to choose winners and losers," says 451 Research analyst Christian Renaud.

And the move gives Cisco a better strategy for selling to the big cloud providers -- Facebook, Google, Microsoft, and Amazon -- that are increasingly dominating the purchasing of networking gear, says Renaud, who worked at Cisco for 12 years, finishing as senior manager, new markets and technologies, in 2008. "Those guys command an amazing number of switch ports shipped. Every vendor wants to have a story there because that's too big a slice of the addressable market to just cede."

But there's a catch: Cisco itself has work to do to learn to appeal to IT buyers, says Renaud. Sales go to the incumbent vendor -- that is, to the vendor that the person in charge of the purchasing decision is most comfortable doing business with. It's all about "who's in charge of the purchasing decision. On the server team, they'll go with VMware more naturally than they go to Cisco. Cisco needs to become more relevant outside the networking team -- they need to become relevant to the cloud team and the IT team."

'Amazing' growth
Meraki is an example of the shift to software and cloud, Renaud says. Meraki is a cloud tool for automatically configuring remote WiFi access points, useful for small and medium-sized businesses and large enterprises with many branch offices, such as retail chains. Meraki is "growing insanely," and cannibalizing Cisco's traditional WiFi access point business, Renaud says.

Meraki achieved "amazing" 116% year-over-year growth and 80% growth in subscriptions, Chambers said on the company's fourth-quarter earnings call in August.

Indeed, Cisco is already a software company, notes IDC analyst Brad Casemore. "That's how they monetize their products. It's all developed as software, then they wrap it in sheet metal. It doesn't mean it has to sell that way indefinitely," Casemore says.

The big challenge from Cisco's perspective will be adjusting its sales model. "The challenge isn't how you develop the technology. The challenge is how you sell it," Casemore says. "Their channel and sales force are used to monetizing their products in a hardware form factor," he adds.

That's equally a problem for resellers, says Kerravala, and Cisco will need to bring the resellers along with it in the transition. "The reseller base has largely lived on hardware sales, since the inception of Cisco, and the change [in strategy] has implications," he notes.

"Compensation models are different, revenue flows are different. Instead of selling $2 million of hardware upfront, you sell a few thousand dollars of cloud or software per month for years. I've talked to a lot of resellers scratching their heads a little bit how to make the change."

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

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kq4ym 1/13/2015 | 12:40:21 PM
Cisco's Cloud Play Cisco has seemed to me for a number of years to be 'in the clouds' in their search for new business strategies. "With the advent of SDN and the virtualization of routing capabilities, Cisco's traditional hardware business is under threat," and it seems that's been a looming dark cloud for Cisco for some years now. Whether their growing acquistitions list will keeps profits rolling or not is the question.
Mitch Wagner 1/13/2015 | 2:12:34 PM
What it needs to do Cisco seems to be doing what it needs to do here. It takes guts for a company to cannibalize its own business, but sometimes it's necessary -- either a company does it itself, or its competitors do it. 

But it's difficult to do.
R Clark 1/15/2015 | 8:38:12 PM
Brave call A brave call to bet the company on new segments, though easier said than done. Apart from winning over customers management has to win over the company. The legacy product groups have to be incentivised so that they win from the new strategy.

I was in the new business unit of a big firm and we got steamrolled by every day by the incumbent business units because our interests weren't aligned (worse, they really enjoyed it).

But the rule holds: if you're going to get cannibalised you may as well cannibalise yourself.
t.bogataj 1/19/2015 | 4:46:29 AM
Strategy or hoax? Any chance to see Cisco's software running on non-Cisco platforms, say, white-box switch or COTS server, in the short term?

If yes, the announcement is serious. If not, and customers will still have to buy Cisco boxes, then this is pure marketing bulls**t -- and only an attempt to capitalise more on software licences.

T.
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