2010: The War of IT has Begun; Cisco delivers blow to HP

In school, we are taught important dates or periods within history.  I’ll never forget a history professor asking, “who fired the first shot?” in the American Revolution or detailing the sinking of the Lusitania by the Germans.   Within the history of high technology, yesterday’s announcement by Keith Goodwin, Vice President Cisco’s Worldwide Partner Organization, is such a date.  With one statement, Cisco changed the IT landscape as they ended a lucrative and important relationship with HP by failing to renew HP’s System Integrator Contract that strips HP of being a Cisco Certified Partner and Reseller.

Effectively, HP is now on the outside looking-in at Cisco’s Empire.  HP loses access to Cisco’s proprietary information including product roadmaps and reseller initiatives.  Additionally, Cisco no longer offers HP “protection” as they begin to untangle their complicated business relationships including software and hardware sales.  While HP may believe they are prepared for this action, competing against Cisco head-to-head is very different from maintaining a competition/cooperation arrangement; yet HP is very different from past competitors.

With HP’s size and market power, are we poised to answer the question, “What would happen if an unstoppable force strikes an immoveable object?”  HP has amassed a powerful software and hardware portfolio via acquisition and partnerships.  Also, HP has something Cisco needs, a large, growing, and competent services division (EDS).

Of course, Cisco counter’s EDS with their relationship with IBM but how long will that last?  After-all, IBM is in a similar position as HP with one intriguing difference; IBM is not a network equipment manufacturer (yet).  Can Chambers convince Palmisano to maintain the status quo?  Or do they look beyond partnerships to acquire Juniper, Brocade, or perhaps ZTE to fill their product holes.  Would Palmisano stand for Cisco acquiring a services company?  Or, would that be the final straw that opens a new flank in the war against Cisco.  What would happen if Cisco purchased Liquid Computing or the new SGI?

Finally, let’s not forget Larry Ellison and Michael Dell.  Oracle didn’t just spend billions of dollars on SUN to sit on the sidelines.  Oracle now sports an impressive list of hardware and software assets especially in the realms of file systems and virtualization.  Meanwhile, Dell has opened up their pocketbook and has entered into the services business while radically expanding their relationship with Juniper.

Look for three things to happen:

  1. Heightened M&A Activity (large and small)
  2. Heightened Partnership Activity and Alliances
  3. The rise of an unexpected and/or new competitor

We are watching history in the making as its; Chambers vs. Hurd vs. Palmisano vs. Ellison vs. Dell vs. Klayko vs. Jonhson vs. ?

2010: The War of IT

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.