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Cisco's Chambers: Rival White Box Model 'Fatally Flawed'

In a wide-ranging interview, the Cisco CEO acknowledges an industry battle ahead but insists his company's architectural approach will prevail.

John Chambers loves to talk about "market transitions" and Cisco's uncanny ability to anticipate and prosper from them.

Cisco was founded to lead the market transition to multiprotocol routing in the late 1980s. In the 1990s it correctly called the transition from shared to switched local area networks while placing its big bet on Ethernet to the desktop (rather than ATM), and then it bet on IP as it moved into voice and video communications later in the decade. Now it sees the datacenter worlds of networking, storage, and servers coming together under a single architecture and strategic vision it calls Application-Centric Infrastructure, the centerpiece of a slick product, partner, and customer event at New York's Waldorf-Astoria hotel on November 6.

Cisco has a lot on the line with this market transition. By some accounts, what stands to happen in Cisco's core router and switch markets is similar to what has already happened (to some extent, at least) in storage and server hardware: commoditization. Network virtualization and software-defined networking (SDN) make it easier for customers to deploy cheaper white box alternatives to Cisco's high-end hardware, as the networking intelligence moves to software overlays. Google already builds its own switches using commodity hardware.

(Cisco's share price fell by more than 10 percent on November 13, after the company reported first-quarter financial results below analysts' expectations. Cisco also cut its revenue and earnings forecasts for the current quarter. Chambers blamed a "hard to read" economic environment and the chilling effects of the US government shutdown, among other factors, for the softness.)

Meantime, the Facebook-led Open Compute Project, whose members include Goldman Sachs, Fidelity Investments, and other companies with huge, highly sophisticated networks, is looking to extend that model to the masses, promising to share designs for low-cost network hardware that third-party manufacturers can bring to market. Vendors such as Intel, Mellanox, and Broadcom have announced open switch specifications via the Open Compute Project.

Cisco's November 6 New York City product announcement was intended to show it taking a leadership position in SDN while protecting its high-margin systems amid all the talk of commoditization. Cisco announced an SDN platform, developed under a company "spin-in" subsidiary called Insieme Networks, consisting of two main products.

[Chambers talks "speed bumps," competitors, Internet of Everything, and more. Read Chambers: Cisco Will Win Tech's Next Elimination Round.]

The Application Policy Infrastructure Controller (APIC), running on Cisco's UCS servers, will create profiles for all the resources an application calls on, including bandwidth, storage, QoS, compute and load balancing, and then configure the network to provide the required resources. Cisco also introduced two switches under the new Nexus 9000 line: The Nexus 9508 is a 10/40 Gigabit Ethernet, 13-rack-unit chassis for end of row or aggregation; and a pair of Nexus 9300 switches, offering a mix of 1-, 10- and 40-GbE ports, are for top of rack. As my colleague Andrew Conry Murray noted in his coverage of the Cisco announcement, the APIC works with both a physical underlay and a network overlay. Currently, the underlay requires a Nexus 9000 switch as the spine node in a leaf/spine architecture.

Chambers: 'This is the biggest move we've made and will have the most industry impact.'
Chambers: "This is the biggest move we've made and will have the most industry impact."

Cisco's and Chambers' message to customers: Bet even bigger on our integrated networking-server-storage architecture and we'll help you cut your operating costs (more on that later) and "future-proof" your IT systems.

"There will be a battle here"
In an interview with InformationWeek following that announcement, the Cisco CEO adamantly dismissed the white box, commoditization threat and insisted -- as he did in an interview with InformationWeek in September -- that Cisco will win tech's next elimination round. He said:

There will be a battle here, which is fine, in terms of people pushing the white label approach or people who will push an SDN overlay. That [model] to me is fatally flawed. That's one we should have knocked off earlier. We have 25,000 software engineers. If this could be done in software we would have already done it. When you overlay networks, it becomes dramatically more expensive.

There are huge operational costs involved, no future-proofing whatsoever, and it's a problem for reliability and information security. It's impossible. What do [customers] want out of SDN? Programmability, virtualization, and the ease of bringing applications.

So what happened in the storage and server hardware markets won't happen in routing and switching? I asked. He responded:

The technologies you outline, storage, and servers, those technologies were dramatically underutilized. They were not integrated tightly into the network or tightly into applications or differentiated. And who gets the huge premium for providing network storage? Cisco-EMC, Cisco-NetApp. And who's the only one who gets a premium in the server market? Cisco UCS.

Customers look at total cost of ownership... What customers are after is time-to-applications and future-proofing their environments, whereas the majority of the cost is combining vendors that weren't designed to work together. And the only thing worse than vendors that weren't designed to work together are white boxes that weren't designed to work together.

Cisco has been making that case for some time, a case that Gartner called into question in a November 2010 report which argued that multivendor networks are less complex and ultimately less expensive to run than all-Cisco networks. Cisco continues to maintain that the Gartner report focuses too much on acquisition costs and not enough on long-term TCO.

Chambers continued on that theme:

The cost of operations in the average enterprise account is 60 to 80 percent, compared to capex, which is 20 to 40, probably 20 to 25. So your big savings is in the opex… Ask the operational person who has to tie together all of these individual white label boxes that were not only not designed to work together, but you have to be the one who troubleshoots across them, you have to be the one who understands the architecture, you have to be the one who knows the lifespan of those products will be only a couple of years -- not like the average Cisco product, which is five to seven years… This is giving your problem to someone else at a lower cost, and then five years later your IT organization gets the problem dumped back on them. And now they have to go clean up the mess.

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Tom Murphy
Tom Murphy,
User Rank: Author
11/15/2013 | 4:25:13 PM
Re: Don't Underestimate Cisco
SueNWC:  I hear you. The way Chambers downplays SDN by saying Cisco has already tried that reminds me of the way Kodak said digital cameras would never undermine its film business (after EK invented the digital camera.) 

Hey, Mr. Chambers, have you tried to buy a roll of Kodachrome lately?
Tom Murphy
Tom Murphy,
User Rank: Author
11/15/2013 | 4:22:42 PM
Re: CEOs Vs. Politicians
I'm with you, Lorna. I'll give Chambers an Academy Award for most consistent performance by a CEO.  But out in the real world, where savvy tech-sector analysts are betting trillions of dollars of our retirement savings, Cisco has a tough audience. Sure, the stock is up about 50% from it's 2010 low, but that's not exactly a rocketship in the tech sector.  And, besides, it has only climbed back to the low 20s -- about where it was in late 2009.  In the markets, that's called "dead money" and the company's Nov. 13 admission that revenue is soft isn't helping. 
User Rank: Strategist
11/15/2013 | 3:46:50 PM
It's Cisco versus the cloud
Cisco keeps coming up with sophisticated hardware to solve another layer of the problem. The Application Policy Infrastructure Controller is a software controller for the hardware of a UCS system, which combines compute and networking for a given, virtualized UCS rack. This is an evolutionary step when we appear to be in the midst of a revolution. We're building cloud systems out of components, then we're treating compute, storage and networking as flexible parts of a single whole. The single whole Cisco is talking about, hardware constrained as it is, is the largest unit of UCS it can produce. Theoretically, with a cloud architecture, hardware isn't allowed to impose that constraint and we can assign the appropriate network to as many applications as we need to.(We're not there yet but stay tuned.)
Lorna Garey
Lorna Garey,
User Rank: Author
11/15/2013 | 12:06:26 PM
CEOs Vs. Politicians
At some point, do you feel that a CEO on the level of Chambers (or Ellison, or Meyer) is ever going to go off script? Often listening to them reminds me forcibly of the politicians on Meet the Press who cannot be lured awy from their talking points. Essentially you're getting a summary of the company's press releases, delivered in a smooth and practiced way. They could deploy a robot to do the same thing.
Susan Fogarty
Susan Fogarty,
User Rank: Author
11/15/2013 | 10:57:18 AM
Re: Don't Underestimate Cisco
Insightful piece. Cisco has done remarkably well keeping ahead of the game, especially when you consider the dramatic technology changes and economic challenges of the last decade. I think Chambers may be underestimating the importance of software here, however. It's interesting that Cisco pooh-poohed the concept of overlay networks, but then included them in ACI anyway. Customers will be slow to go fully SDN, and I think overlays and white boxes will be fairly popular to try it out.
David F. Carr
IW Pick
David F. Carr,
User Rank: Author
11/15/2013 | 10:50:40 AM
SDN intriguing but challenging
He may have a point that the wave of open technologies for SDN and network architectures will require more effort to implement and more "being your own systems integrator" than most organizations want to take on. Google, Facebook, and major financial services firms may be willing to put the effort into defining a custom network architecture that gives them a few extra percentage points of efficiency. How much of the rest of industry will go that far?
User Rank: Author
11/15/2013 | 8:45:06 AM
Don't Underestimate Cisco
People have underestimated Cisco before, and almost always its vision and execution prevail. It has certainly made mistakes (like the Flip dalliance), but it realizes its mistakes and moves on better than most big IT vendors.  
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