Cisco still has some more reorganization to do, but its most recent quarterly results pointed to a company which had steadied its ship after a couple of turbulent years, and now needed to start executing strongly on its growth plans. That was the theme of its annual Cisco Live event, particularly two of its most important areas of focus for the future ‘ predictably enough, those two ubiquitous acronyms, SDN (software defined networking) and IoT (internet of things). The company not only has to create a clearly differentiated offering for each of these, but maintain its basic model ‘ providing an end-to-end, fully controlled platform ‘ in two very new and fragmented areas. If it succeeds, it will have expanded its carrier business significantly, especially in mobile, since these will also be the key areas of growth-oriented investment for operators in the coming few years. But it has a huge task, to adapt its architectures and philosophy to, on the one hand, SDN, which seems to go against all Cisco’s founding principles; and on the other, to IoT, whose deeply varied and fragmented nature may defy the attempt to create a single solution.
CEO John Chambers was in no doubt of the hostile climate in which vendors are working out their enterprise and carrier strategies for SDN and IoT. “You’re going to see a brutal, brutal consolidation of the IT industry,” he said, with many big names ceasing to exist over the coming decade. But he claimed Cisco is putting the pieces in place to ensure its own survival, investing in elements which will be essential to all kinds of new platforms ‘ security, cloud services and virtualization among them.
Acquisitions like security firm Sourcefire and cloud-managed WiFi company Meraki initially seemed to fit into traditional Cisco enterprise markets, but will in fact be important starting points for bigger efforts in IoT and SDN and will feed into a far broader platform. Chambers insisted, in his keynote at the event, that the whole-architecture approach would enable Cisco to lead the SDN market. Companies that produce standalone products will get ‘squeezed between Cisco and white labels’, he said. He acknowledged that white-box hardware with an overlay of open source software, or VMware’s abstraction-based NSX, will initially be cheaper. But he insisted a unified hardware/software architecture will be simpler to manage, and so cheaper to run, and will allow companies to transition at their own pace from traditional networks ‘ one of the company’s key themes in most big network transitions, from IMS a few years ago to SDN now.
“We will be the best implementer of SDN in the world,” Chambers said. “It will not only benefit Cisco. We will lead this industry.” He added: “Watch how we bounce back’, not by selling more routers but by building full architectures for enterprises, governments and carriers.
However, the hardware-centric ACI (Application Centric Infrastructure) , which underpins these efforts, has been criticized for its limited embrace of open SDN principles, clinging to the need for the specialized hardware on which Cisco’s power was built.
Apart from underlying hardware, the more profitable glue holding Cisco’s SDN and IoT platforms together is a redoubled focus on security. Both types of network bring huge new security issues with them, and this is an area where Cisco has a genuine opportunity to stand out. Mala Anand, SVP of software and service platforms at the company, said there were three main elements in the IoT (or internet of everything, as Cisco calls it) ‘ M2M; machine-to-people; and people-to-people (social). Each has different levels of complexity and different ecosystems, but all are characterized by their hyper-distributed nature and need for interoperability and security.
For this last essential, Cisco announced the acquisition of ThreatGrid, a US anti-malware and threat intelligence firm. This will be integrated with its new parent’s Advanced Malware Protection (AMP) suite, based on last year’s purchase of Sourcefire.
As well as security, a well controlled applications and partner ecosystem will be a strong route to turning the kaleidoscope of IoT products into an end-to-end architecture. Anand said that, in the coming months, Cisco would launch an application enablement platform for IoT, as an important stepping stone to highly distributed computing, helping developers create apps in which data is collected and processed in many locations. One of the firm’s points of difference from some rivals is that it does not see all data being collected and stored in the cloud, but thinks the IoT will be driven by edge-based data processing.
Therefore it is developing its end-to-end platform to support hyper-distributed activity, as seen in January when it unveiled Cisco IOx. This architecture provides routers and switches with the computational capability to manage huge amounts of unstructured information from millions of connected devices. A great deal of the data will actually be computed on those devices and sensors, reducing the load on the networks themselves in order to reduce cost and boost efficiency ‘ though highly distributed IoT systems raise further security and management issues.
The bid for cross-industry leadership is also seen in the cloud, where the vendor recently announced its Intercloud strategy, to provide a ‘cloud of clouds’, spanning its own and those of partners – not just targeting traditional enterprise customers, but providing a platform on which telecoms or vertical market operators can run services for their own customers.
Intercloud also provides an important building block for future IoT strategies. Cisco will invest about $1bn over the next two years in expanding its cloud platform, buying in ‘ perhaps grudgingly ‘ to the IT sector notion that in the next network architecture, only two things will matter – the infrastructure to support the mobility of users (some of that virtualized in data centers), and clouds where services are centralized. Cisco’s hopes for recovery in its operator business, and dominance in IoT, will rely on service providers needing a lot of help to make that transition, and being willing to entrust the leap to third parties.
That will see Cisco, almost inevitably, becoming a far bigger supplier of managed services than it currently is, going up against the giants from the IT and telecoms sectors ‘ IBM, Ericsson, HP ‘ and the cloud majors like Amazon, Google and Microsoft, which are also targeting enterprise and carrier business. The future pattern was illustrated in the breakdown of its most recent quarterly revenues by category. Product revenue was down 8% year-on-year while services sales were up 2.6%. For fiscal Q3 as a whole, Cisco reported a 5.5% year-on-year fall in revenues to $11.5bn, but this was a less sharp decline than Wall Street had expected. Net profit was down 12% to $2.2bn and earnings per share dropped 8.7% to $0.42.