Is Amazon Cisco's biggest threat? When I first heard that theory, I thought it was crazy. People buying toothpaste and shampoo aren't going to put a 100Gbit/s switch in the shopping cart too.
But then it made sense: If enterprises move to the public cloud -- which Amazon.com Inc. (Nasdaq: AMZN) predicts is inevitable -- enterprises don't need to maintain a complex IT infrastructure, which means they don't need to buy a lot of networking equipment from Cisco.
That theory has been bouncing around in my head since I first heard it at the Cisco Live conference in Las Vegas last summer. I ran it by Cisco Systems Inc. (Nasdaq: CSCO) recently to hear what they had to say.
Not surprisingly, Cisco was dismissive. But they made a good case why the public cloud doesn't have to be a threat. After five consecutive quarters of revenue decline, Cisco sees cloud as an opportunity.
First off, the majority of Cisco's switches don't go to data centers. They go to the campus and edge. "We're fortunate that networking is something you can't completely virtualize and send to the cloud. You need switches and access points and firewalls in an enterprise network," Kip Compton, Cisco vice president cloud platform and services engineering, tells Enterprise Cloud News.
"And even when the customer wants to go and move to the cloud, we are here to help them," Compton says. Cisco provides networking, security, management and orchestration. "We are confident that at the end of this process, they'll need top-line orchestration on prem, because they have to optimize their existing infrastructure."
Cisco sees opportunity in helping enterprises manage multiple cloud providers, as 84% of enterprises will connect to multiple providers, Compton says. (The so-called "multi-cloud" is also a strategy for other companies, including Google, Hewlett-Packard Enterprise, and Rackspace.)
And Cisco has been building up its own cloud portfolio. Cisco bought AppDynamics, a provider of cloud monitoring technology for improving application and business performance, for $3.7 billion in January. (See Cisco Buying AppDynamics for $3.7B.)
The deal is part of Cisco's transition from a provider of networking and infrastructure hardware to software and cloud. (See Cisco's AppDynamics Deal Goes Beyond Cloud.)
A big part of Cisco's cloud strategy is providing hardware, and Cisco -- along with Dell and HPE -- have the lion's share of that market. (See Dell, HPE, Cisco Top Cloud Infrastructure Market – Analysts )
Cisco provides hybrid cloud solutions, as well as its own cloud apps (including Spark collaboration and WebEx conferencing), networking, professional services and security.
Security in particular is a strong focus for Cisco. "If Cisco's security was a separate company it would be the largest security company in the world," Fabio Gori, Cisco senior director, cloud marketing, said. Security revenue for the six months ending January 28 was $1 billion, up 13% year-over-year.
But despite Cisco's countermeasures, the public cloud remains a threat, says Heavy Reading senior analyst Roz Roseboro.
"If a large number of people decide to use a public cloud, yes, they would have less reason to buy from Cisco," she says, adding that the public cloud is also a threat to Cisco's competitors.
Next page: Fighting the revenue decline