Cisco Lays Their Trap

I must admit that I had a good chuckle when I read the reports of Cisco’s financial analyst conference on Tuesday.  After all these years at the helm, it’s amazing to watch Chambers discuss subjects ranging from Flip to Cisco’s projected long-term growth rate.  However, it is clear to me that Chambers’ relishes dominating the next chapter in communications.

Cisco understands that fighting a two flank war against powerful advisories like HP and IBM is fraught with danger, could lead to slower adoption of their vision, and may yield lower than projected growth rates.  So what’s a company to do?  Divide and Conquer.  How?  You lay the trap.  HP had their chance and chose to go in a different direction; lost cause.  IBM had their chance and turned Cisco down but maybe they should reconsider; Venus Flytrap,

Lost Cause:  HP is determined and ready to take on Cisco head-to-head.  They have spent billions of dollars creating a software and services powerhouse while quietly making inroads within enterprise networking.  Additionally, HP has consumer brand recognition and acceptance which Cisco craves.  Finally, HP has Michael Hurd; a driven CEO who is ready and willing to lead this industry.  There is little Cisco can do here to sway HP’s momentum and vision.  Therefore, the best Cisco can hope for is to continue collecting purchase orders from the HP channel.

Venus Flytrap:  IBM has almost everything they need to take on Cisco but they have taken a more cautious approach than HP.  After-all, IBM has dominant research and development capabilities and are the fathers of autonomic computing.  IBM has always concentrated on high margin / high value products while tying everything together with their vaunted services division.  Perhaps IBM is in a quandary; while services, storage, virtualization, software, servers, mainframes, etc yield high margins, enterprise networking computing has become commoditized while datacenter networking equipment remains a question mark.  Cisco aims to help IBM with their quandary by offering a truce of sorts; work with us and we won’t go into storage or services! 

If you believe that, then I have some Ocean Front Property in Arizona to sell you.  Cisco has already chosen sides on the storage and virtualization fronts by aligning themselves with EMC and VMware.  A combination of Cisco and EMC would give them a foothold within those areas as well as security and management software; all of which would threaten IBM. 

Also, Chambers claims Cisco won’t be going the route of HP’s acquisition of EDS to buy their way into services.  In the short term this is a great strategy, in the long term they are going to buy someone like CSC, ACS, Unisys, or even McKesson (I’ll leave that to a future post).  Again, Cisco offered IBM an olive-branch of sorts in exchange for a tighter partnership that Cisco craved in beginning.

The million dollar question is; what will IBM do?  Does IBM continue to throw jabs at Cisco through their partnerships while Cisco throws power punches?  Does IBM acquire Juniper or Brocade to battle Cisco and HP?  Or, does IBM take a wait-and-see approach?

Personally, I’d like to know what the heck is going on at Dell and Oracle.  I’ll give Oracle a bit of a break as they battle the EU for control of Sun but Dell has got to wake up and fast.  They have a chance to crash this party by innovating and commoditizing the industry faster than everyone else can recoup their costs.  This sounds like when Michael Dell revolutionized the PC industry by introducing direct purchasing and just-in-time assembling. 

For now, Cisco has laid the trap and they await the fruits of their labor.  Once again, Chambers continues to impress as this is better than any reality TV series; brilliant.


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