Cisco CEO Predicts ‘Brutal’ IT Consolidation
enterprisetech.com
enterprisetech.com
"You see," he says "Thats exactly how an Open Source solution on white label hardware will end up costing your company AT LEAST 25% more! Once you've got a few UCS chassis installed, you start to see how things work because you don't even install servers or switches anymore! There's not even a choice. It's just blades and fabric interconnects. Imagine all the time you'll save worrying about compatibility, proof of concepts, the support costs, training..."
Not a bad strategy.
I find it funny that Cisco loves to paint itself as prescient when they're actually pretty erratic and consistently late. They're just huge, yet nimble enough to consistently make the podium in some sense.
Cisco bought Tandberg as the world was moving on with Skype, Hangouts and Facetime. Cisco brought forth converged infrastructure as the world was shifting out of the datacenter. Cisco started making sizable investments in private/hybrid cloud in the last year when it would have meant a lot more in 2010. You've probably never heard of Cius, Quad or SDN (in relation to Cisco) but they were keynotes 4, 3 and 2 years ago respectively.
>'And if you look at three years ago, Huawei, Avaya, and Juniper were the worries, and they were going to eat our lunch.'
Cisco didn't fend off Huawei so much as the government blocked them from competing on the premise that China would do exactly what it turned out the NSA was already doing.
It's a pretty amazing business, when you think about how much you pay per Ethernet port to run your business, and how much goes to Cisco, and what it costs to make that equipment. Think about what you pay for a firewall, router, switch vs. a server.
But software-defined networking seems like a paradigm shift that will be rather disruptive. Just makes no sense to buy all those firewall, router, and switch boxes, when they could all be virtualized and integrated (like VMware did to servers, and they want to do to networks with the Nicira SDN acquisition).
Meanwhile, Cisco makes a lot of acquisitions, many of which seem pretty stupid: Scientific-Atlanta and NDS, just when cable TV is about to get its lunch eaten by over-the-top; Flip video camera (Pure Digital) just when it's about to become an iPhone feature (and I guess they couldn't turn it into GoPro)
Then they bought back $70b worth of stock since the dot-com crash, distributed a rather hefty chunk of that to management. Enterprise value down to $96b.
So...could be a great business but not sure it's a great strategy or great management.
True story from this weekend: I have been setting up some Cisco branded devices. 'Hidden costs' were mentioned in the presentation... I found plenty with Cisco's stuff: the fact that their reams of documentation are almost designed not to get you moving, the fact that they insist on using RS232 console cables in this era of zero RS232 port availability, the fact that they constantly software-license features that complicate getting anything done, the fact that they want you to use some kind of ridiculous Java interface (that won't run on most versions of the JRE, on most platforms), the fact that their systems take minutes to tens of minutes to reboot despite being built for purpose... I'm sure I could go on. I've wasted hundreds of hours on Cisco kit in the last 20 years, and quite frankly I'm happy to avoid it whenever possible.
Huawei is kicking ass, Cisco is bullshitting everyone in this presentation as far as legally possible.
We are in an age of increasing connectivity. The king can make it's share of mistakes.
Cisco's bet seems to be that they can't do anything about hyper scale data centers (AWS, google, Azure, Facebook etc) since they will have the scale to design their own hardware.
So- they are going after large enterprises that want to still have their own servers. In this market they seem to be growing.
But - their strategy reminds of me Of trying to provide the most efficient newspaper printing machine just before the printed newspaper itself gets killed.
Two points supporting the newspaper analogy:
1) If the applications themselves (SalesForce, workday, Successfactors etc) are moving to the cloud & delivered from their own servers or AWS, Then won't the overall demand for enterprise hardware Itself reduce?
2) Even if companies want their own custom Computing resources (e.g. Analytics) - won't These sub-scale enterprises themselves go with The hyper scale data centers (AWS, azure etc) ? What on earth makes these enterprise companies believe That they can take Cisco hardware & believe that they Can be more cost efficient than AWS/Azure.
AWS's calculator and the assumptions the threw into it pretty much proves they aren't cost effective except compared to other cloud providers. They basically 'made up' the self hosted numbers. At $DAY_JOB, our self-hosting costs at a colo facility are something like 33% the cost of using AWS.
But thinking about fundamentals, a few years out, why do you think self-hosting will still be cheaper? What is it in self-hosting that economies of scale of AWS/GCE can't crush?
http://www.informationweek.com/cloud/infrastructure-as-a-ser...?
They don't make that on AWS, in gross revenues. This is similarly true of most hardware inside a modern server. They can make small improvements but they can't magically take over the CPU market or any of the other core components in a 'big way'.
2) Creating all that in-house software automation is complicated, difficult, and expensive. This software isn't a requirement for in-house hosting.
So they need to crush the margins of their supplies [power; bandwidth; hardware] to the point that they can get their own margin on top of that + cover the cost of a bunch of custom in-house software development. For a stable workload...that just isn't going to happen.
AWS isn't going to cut their prices 33% after the largest price cut I've ever seen them make in April, let alone the 67% they'd need to.
Sure, in 10 years, they might manage it. I don't see it happening faster than that.
The only advantage of scale is being able to oversell, e.g. running one customers workload during their peak hours and another customer on the same kit at theirs.
real estate - don't they explicitly look for cheap real estate and tax breaks?
electricity - cloud providers save a lot on electricity by choosing carefully their locations. Facebook built a datacenter in the Arctic, I don't see your average enterprise doing that.
- x86 hardware. They're spending a lot less by having their own custom hardware
- engineering talent. They should be saving by using local talent from elsewhere, not Silicon Valley or NYC wages. IBM does that.
http://www.slate.com/articles/technology/the_efficient_plane...
http://www.businessweek.com/articles/2013-10-03/facebooks-ne...
The question is, what happens when the cloud is cheaper than doing it yourself?
Checkout online.net vs. any of those ;)
The cost comparison is usually skewed in the cloud's favor because people tend to compare "server-quality" local hardware with cheaper-than-basic-PC level hardware in the cloud. The real win here is that you don't need super fancy hardware to run fairly reliably. It's not just the hardware costs, it's that when you run "unusual" hardware, you're going to have to do more administration/training. Beyond that, the cloud's advantages are trickier.
I think commoditization of computing - which is what the cloud is all about - is a valuable trend. But the benefits of specific clouds are often vastly oversold, suggesting that it's somehow magic pixie dust that avoids all sysadmin duties; or that it's the only or best way to limit those costs. Also, there's this idea that you really, really need multiple redundant servers for ever menial website out there, because that three-hour outage of your cats pics is going to be terrible. And that presumption makes the cloud more attractive, since presumably outages there simply mean you spin up a new instance (even though that is also not always so simple).
One of my duties as an IT manager in a big enterprise a few years back was running an install group. 7-10 FTEs, two trucks and lots of budget for rental vehicles and expenses. Most of their job was installing servers in the field and arguing with landlords about specific requirements we had (ie, 30 amp electric service, a/c in the closet, certain types of locks, etc)
Today? The office's admin calls whomever the preferred telco partners are and gathers quotes for internet service. That group is gone.
Also, never underestimate the cost of bureaucratic waste. In the place I work in now, I can probably jot down 6-10 names whose main work functions could be replaced by pull down menus on a webpage. When you outsource parts of your business, those functions tend to go away.
I've done some analysis for a large company that spends about 500 million a year on IT infrastructure. Biggest expense? People, second network, after that trails mainframe and Microsoft OS licensing as well as Oracle. Server hardware cost everyone loves to talk about but actually was quite low.
Things like AWS cut network, people and can commoditize vendors such as Oracle and MSFT. Biggest savings is on not wasting time on racking hardware.
I never said it was worthless, just for alot of cases it doesn't make sense.
In my experience, it's a combination of fear, bad math, effective sales reps and a strong sense of self-preservation.
There are undoubtedly places that self-hosting is more efficient or a simply superior option, but the typical enterprise is unlikely to fit that bill.
Trying to enact change in enterprise IT is like playing the Game of Thrones. There are all sorts of entrenched interests and alliances at play.
Even as CTO, shifting a decent sized environment to the cloud surely costs your reseller more in margins, and possibly your account manager more in commissions than you make in a year. It also likely means cutting staff.
Regardless of their level, people get very nasty when you 'mess with their money.
It's a hell of a lot easier to just keep up the status quo and keep everyone happy. Furthermore, when the shift becomes truly unavoidable, the people powerful enough to have made the move earlier aren't going to be the ones losing their jobs.
What's really tragic is that recent history suggests that the shops which are slowest to transition will be eaten by their current allies in the end.
All of the big enterprise companies will gladly sell the executives on managed services - conveniently funded by removing entire swathes of staff.
Effective sales people and existing relationships
There's a fairly long list of the products/services here: http://www.zdnet.com/ciscos-big-cloud-play-why-it-had-little...
Reminds me of EA's (computer games) latest Sim City. They stated that the player's city would be saved on the cloud, when in reality players logged onto various regional servers ie Europe1 Europe2 etc. The player's saved city were only available on the server they were created on. This was just really naive explicit horizontal scaling and not the seamlessly scaled client/server arch their marketing implied.
So yeah 'Cloud' mostly a marketing term.
They also consider webex and some UC stuff (Jabber, some voip, etc) "cloud".
The more interesting long term question is how much IT infrastructure will organizations want to own and how much they will want to push off to service providers. I think Cisco will find it hard to maintain their margins and growth if enterprises make a major shift to off-prem cloud infrastructure.
I think spydum's comment refers to the difference in the effect on the balance sheet. If you outright buy servers, you incur a capital investment in a fixed asset, which increases your balance sheet but doesn't hurt your EBITA. If you instead contract out to a 3rd party cloud provider, you incur an OPEX-- which shows up on your income statement and lowers your EBITA.
I'm not sure how investors favour this difference, but I do know that airline companies love to move aircraft purchases off their balance sheet, probably for cash flow reasons. They do this by leasing a/c instead of outright purchases.
You've now gotten me curious as to why firms behave different when it comes to buying aircraft vs servers.
Paying someone to rack it, sure.
I enjoyed the brutal comment though.