Strategic CIO // Executive Insights & Innovation
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11/15/2013
08:00 AM
Rob Preston
Rob Preston
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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.

The foundation
I asked Chambers to put the Insieme announcement (though the Insieme name barely came up during the two-hour press conference, as Cisco is now bringing the spin-in fully into the Cisco fold) into historical context. Where does it stand in the pantheon of big Cisco announcements over the years? He said:

What this announcement represents is our leadership in redefining IT, our leadership in focusing on the application economy and our leadership in the Internet of things. These will completely transform business, and this [product/roadmap announcement] is the enabler of that. This is the vehicle, the foundation to allow us to make these other moves, which will allow us to become the No. 1 IT player.

We made important moves when we were a router company and went into switching, when we were an enterprise switching company and we went into service providers, when we went into video and voice, and when we went into the datacenter. This is the biggest move we've made and will have the most industry impact.

Chambers later clarified what he means by "No. 1" IT player. "As measured not by volume, but by value to the customer, achieving their top business goals," he said. So he's not saying Cisco will be the biggest IT vendor in the world? "The biggest often doesn't have the profitability," he said.

Chambers continues to say that half of the top six or seven IT players won't even be around in "a meaningful way" in three to four years. While Chambers wouldn't be drawn out on which of the big vendors he's betting against, he did say this: "It goes back to their ability to deliver innovation to their customers."

If I'm a Cisco customer, I asked Chambers, what should excite me most about this latest announcement? He responded:

It all comes back to applications. If you watch what occurs in today's IT budgets, they're getting squeezed because [IT organizations] aren't able to move quickly in providing applications to their customers. That's why budgets are going out in part to business units as opposed to IT.

The environment today is very complex and very inflexible. And if you don't mask that complexity through an architecture from a strategic partner you trust… you're being a systems integrator for a whole bunch of white label boxes and a whole bunch of different vendors. First, that's not a core competency of a company and second, it's unbelievably expensive and third, it adds no value to the customer. Contrast that to an architectural play that comes as close to future-proofing as I've ever seen.

We had to change our company to go after this internally. We had to change our company from developing products in silos to thinking horizontally, and we're not there yet. We're making very good progress. We had to change our consultancy group from providing consultancy for the data center or collaboration mode or security mode to an architectural consultancy, and we had to do that throughout the whole company.

Chambers, always with an eye to Wall Street and shareholders, emphasized the robust profitability of Cisco's new SDN product line. "If you watch, the new products coming out all have very good margins," he said. "So I've learned from my mistakes. We've designed our products with very high margins from the beginning. We can't do it like we did a few years ago, where you bring out a product and it takes you three years to get to 50 percent gross margins."

So you don't feel threatened by the Open Compute Project and the commodity SDN switch it plans to open source? What do you make of that effort?

"First off, I don't allow [our people] to fall in love with technology," Chambers said. He continued:

I was at IBM with mainframes and Wang with minicomputers. We will constantly evolve. And just as we did with ATM versus Fast Ethernet, our customers told us Fast Ethernet would win, but we also bet on ATM, though not as much. If we miss an area, we can adjust very quickly.

Watch each time we've made a move. How many people thought we could seriously win in the data center? The largest company in the industry said we'd be gone in 12 months. The voice and telephony market players said we couldn't even spell telephony. Well, they may have been right, but we knew how to get 60 percent market share.

We're a member of these open standards group, so we will absolutely play there. What customers are after: Vendors, you're too complex, you're too costly, you take me too long to make a difference. The IT organization is too slow achieving business objectives. So go back to what they're after -- applications faster, quicker, future-proof. There's not a CIO in the world, if you told them you could change their top line by 1 or 2 percent, their bottom line by 1 or 2 percent, they wouldn't say: Sign me up. We can do that. In fact, the Internet of Things by itself can do that.

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Tom Murphy
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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
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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. 
cbabcock
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cbabcock,
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
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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
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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
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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?
RobPreston
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RobPreston,
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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