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
11/18/2013 | 12:40:13 PM
Re: Don't Underestimate Cisco
Rob, thanks. I shudda said Chambers thinks SDN overlays are "impossible" because Cisco's army of 25,000 programmers hasn't been able to make that work.  (Naturally, the company wants to promote a proprietary system.)  

I still think it's too early in the SDN game to say anything is impossible. What do other readers think?

 
RobPreston
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RobPreston,
User Rank: Author
11/18/2013 | 12:25:54 PM
Re: Don't Underestimate Cisco
In response to Murphy et al, Chambers isn't quite saying "it already tried" SDN. It's saying its SDN implementation, in which both the hardware and software matter, is the superior way forward. Some will disagree, of course, but Cisco isn't just dismissing SDN. 
jgherbert
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jgherbert,
User Rank: Ninja
11/17/2013 | 4:36:37 PM
Re: Don't Underestimate Cisco
"What do others think: was Cisco's vision for video conferencing just ahead of its time?"

Perhaps, but I also get the impression that they have an idealistic view of how people will take to videoconferencing in its many forms. The Cius was a ridiculous product trying to merge video conferencing, tablet computing and more into a device that you could dock on the desk. Unsurprisingly it didn't succeed. Telepresence is fantastic, without question. The Flip was a genuis device; it met a market need perfectly, and even when Cisco was busy removing Flip from their portfolio, the demand was still high. And then there's the Ava 500 which leaves me sighing and saying "WHAT WERE YOU THINKING?" Or perhaps they really do know the market better than I do, and Robbie the Robot is selling like hotcakes. 

The sad reality is that Flip was a consumer product, and Cisco shoud not have tried to play in the consumer space where you stack 'em high and sell 'em low (cf: Linksys), because that just isn't how Cisco works.
jgherbert
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jgherbert,
User Rank: Ninja
11/17/2013 | 4:30:31 PM
There Will Be A Battle Here
"There Will Be a Battle Here"

No kidding; and battles are bad for business. Customers have a habit of hanging back when there's not a certainty about the technology of choice going forward, and right now there are so many options on the table, it's hard to know which to select in order not to be left out of the game 3 years down the line. You've only got to look at the BluRay/HD-DVD mess to understand why sometimes choice might be a bad thing. The one thing Cisco has going for it is that "nobody ever got fired for buying Cisco" (a saying that used to be ascribed to IBM).

Is ACI a sufficient play to keep them in place, especially when they've effectively done yet another bait and switch on the "platform of the future" by introducing the Nexus 9k?
kelleyd1
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kelleyd1,
User Rank: Apprentice
11/17/2013 | 3:13:54 PM
Re: Don't Underestimate Cisco
I agree. The industry almost revels in Cisco's missteps. But Cisco quickly reacts, makes the tough choices and admits to mistakes much faster than any other industry leader. About three to four years ago they had a big supply chain issue where customers couldn't get their core products. They quickly mobilized the right people and rectified the situation. When they entered into too many adjacent markets (like the Flip) and lost their focus, they refocused on their core strengths. I think Chambers will go down as one of the greatest high-tech CEOs. 
virsingh211
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virsingh211,
User Rank: Strategist
11/16/2013 | 4:25:07 PM
Re: SDN intriguing but challenging
I am with you on this point aditshar, Cisco is no more limited to single domain now they expanded themselves to lot more industries after netwroking, Juniper no doubt is doing good in netwroking devices,

What do [customers] want out of SDN? Programmability, virtualization, and the ease of bringing applications.


At this point of time, this is even question for customers i.e. what they want out of SDN, so i dont think any point to be in hurry whats required is education on SDN to make customer understand the need and realize the importance.
aditshar
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aditshar,
User Rank: Apprentice
11/16/2013 | 3:43:20 PM
Re: SDN intriguing but challenging
I read a report couple of days back, wherein according gartner, cisco's ACI delivers tactical benefits but lacks strategic value of SDN, and here i feel Juniper take one step win from cisco.
Tom Murphy
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Tom Murphy,
User Rank: Author
11/15/2013 | 5:57:27 PM
Re: Don't Underestimate Cisco
Sue (why do I feel like we should be teleconferencing?),  I think we're on the same wavelength.  Any form of networked video shows the power of Cisco's systems -- something they must have realized years ago when designing the first Flips.  And until further notice, video starts with a video camera.

It reminds me of when Sun started playing around with PDAs, many many years before the first iPod prototype was built by Apple.  They were on the right track, just a decade or so too soon.
Susan Fogarty
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Susan Fogarty,
User Rank: Author
11/15/2013 | 5:33:50 PM
Re: Don't Underestimate Cisco
Tom, everything you say about the Flip is true. It's a great device and I still use mine, both for work and home. However, I don't think it fit into Cisco's overall strategic plan or helped enterprise videoconferencing. Telepresence, now that's another matter...
Tom Murphy
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Tom Murphy,
User Rank: Author
11/15/2013 | 4:35:18 PM
Re: Don't Underestimate Cisco
Hey, don't knock the Flip! Not only did it inspire a lot of imitators and phone cams (I have a remarkably good Flip-lookalike made by Kodak. Yep, that Kodak.), but it cudda-shudda been a contender for the explosion in video networking.  That revolution is still rising, and I wouldn't be surprised to see Cisco back in the Flip business before long. 

Flips work in ways that phones can't, and they are in hot demand among indy media devotees. Here, for example, is an aging Flip selling for $120 on Craigslist. What would you pay for, say, an iPhone 2? Nothing)  That's not bad considering an iPhone 5 fetches about $100.

What do others think: was Cisco's vision for video conferencing just ahead of its time?
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