In this installment of IDG Enterprise’s “CEO Interview Series,” Cisco Systems (NASDAQ: CSCO) CEO John Chambers talks with IDGE Chief Content Officer John Gallant, Computerworld Editor-in-Chief Scot Finnie and InfoWorld.com Editor-in-Chief Eric Knorr about Cisco’s changing relationship with IBM (NYSE: IBM), HP (NYSE: HPQ) and others as it forges ahead into new enterprise IT markets.
Your goal of being the No.1 IT company puts Cisco into a different market. People know you as the network company because you are selling against, say, Juniper on point products. But now you’ll be selling a vision of IT against the HPs and IBMs of the world. That’s a very different thing, no?
[We’re] one of the top architectural players, as well as the top communications company, which you could argue we’re in pretty good shape on. We’ll play architecturally on both technology and on business.
We’ve had a track record in whatever markets we’ve entered, becoming the No.1 player. Even our toughest critics would probably give us credit for that. The first generation of competitors we took on were very good companies: SynOptics, Wellfleet, 3Com, Cabletron. Only none of those now exist. And, the same thing could happen to Cisco if we don’t get market transitions right.
Secondly, we have a healthy paranoia. We know we could be left behind too. Make no mistake about it. While we have no fear, we have a lot of healthy paranoia about what can go wrong.
Third; when we started in the service provider market, people said we didn’t understand service providers. It’s a different set of competitors, Nortel, Lucent, Alcatel, Siemens, Ericsson. To think you could even play here is probably a stretch. To think you can become the No.1 player, forget it. And yet, we did. Those were tough competitors. But we got our market transition right. We moved in a way they did not. We did it on architecture.
If you were at the Mobile World Congress, you ask any service provider who is your most likely business partner? And who’s your most likely technology architecture partner? We’ll get the answer the majority of the time. Now, that was something you would have said five or six years ago was not possible.
In the data centre, I did not want to compete against IBM and HP. I tried to partner with both of them. I would have preferred that. But we knew going in – and the decision was made five years ago – once we started down the path with virtualization, that if they would partner we’d prefer to do that, and would have actually given them a large part of our technology. But if not, it was too important strategically to us, because it wasn’t a question about moving into new markets. I’m not after servers. I’m after virtualization, where you don’t know where your processors are, your information’s stored, the application resides. You don’t care. If done another way, the network becomes dumb pipes, commodity like. So we had to move into this in terms of where the market was going. We focused on market transition, not competitors. And I think you’d have to argue, we’re off to a good start, both in mind share and vision and strategy. But it comes down to how well we do on our first pilots.
What is it about the data centre that Cisco gets that you think these other big companies don’t get?
It isn’t a question of ‘gets’. It’s all about virtualization in the cloud and the role the network plays in it. We think the network is the central piece. It’s not the data centre or the end user device. It’s any device to any content wherever it is in the world over any combination of networks wired or wireless to the home, to an Apple device, to a Microsoft device, to an IBM device, HP. Doesn’t matter to us.
Secondly, it is not going to be about voice or data. It’s going to be about video. Now, you can say that’s a big stretch. But, remember again, we said before it would be all-in-one data, voice, video. [We] made that decision a decade-and a half ago and we began building them to architecturally work together.
So, is it a stretch? Perhaps. But we’ve done this multiple times before. We do it through innovation. We can acquire companies. How good are the large companies at acquiring companies? How many times have they acquired a company, kept the top leaders, kept the top engineers, brought out the next generation product and gained market share? The answer is: not very often. We’ve done 137 acquisitions. The vast majority of them have exceeded what we told our board we would do. This is innovation. This is our game. It’s about market transformation. It’s about being customer driven. And, I learned that the hard way at IBM and Wang. I don’t fall in love with technology. Most every move we make, including this virtualization focus, was driven by customers. It was the customers’ grasping what we needed to do. Then, it’s usually internal innovation or an acquisition that kick starts you into it. Much like buying three switch companies kick started us into switching, which is now 40% plus of our revenue.
You said you would have preferred to partner on this data centre initiative, but isn’t one natural consequence of wanting to be the No.1 IT company that you have to burn some bridges? There certainly is the perception that that is happening now. Is there a risk of Cisco becoming isolated?
I think to look at the models that have tried to go it alone, that’s a fair question. But Cisco is a partnering culture – we’ve been rated No.1 in terms of resellers and partners for almost a decade. Doesn’t mean we’re perfect, but we’re pretty good. And secondly, you partner with the players that you have to [have] to win the long-term architecture. So, service providers align very tightly across the board. And it isn’t just about selling routers and switches to them. Or doing technology. If you talk to [AT&T CEO] Randall Stephenson, I’d be surprised if he didn’t say we were his best business partner too. Who would have thought?
Is that important to an enterprise CIO? The candid answer is that it’s probably not as important now as I think it will be three, four, five years from now. But it’s something they would not want to bet against because I think service providers will play a different role in terms of the enterprise CIO three to five years from now vs. where they are today. But I’m not asking the CIOs to commit. We’ll provide that capability. We’ll take the lead. We’ll partner with the players like AT&T or Verizon. And then if their role expands as I expect, we’re right. If it doesn’t, we’ve got the customers covered on it. Our ability to catch a market transition has been very good. It’s a new generation of players. Who would have thought that Intel would be a strategic partner for me like they are today? Or EMC or VMware? Or Net App?
You probably wouldn’t have thought that our key services partners would be Accenture, Wipro [Technologies], Infosys, Tata Consulting. Yet if you watch who the new movers and shakers are in this industry, it’s them. If you’re going to compete on services, I don’t want to be a body shop and have to compete against all those players. I’d much rather do the project management and use our partners to implement, because I couldn’t staff it even if I could afford it.
We didn’t burn bridges. Instead we formed new partnerships. I never burned the bridge. Is the bridge still there at IBM? Absolutely.
You burned one recently with HP.
Question of who burned the bridge. Very simply, there’s a point in time where you’ve got to be realistic about what’s going on in the market. Your customers see it. Your partners see it.
When we [decided not to renew our systems integrator contract with] HP, my customers were pretty much unanimous saying it was about time. You can’t be giving your partner your product plans, your directions, your evolution and then compete.
So that was less about you and more about their increasing aggressiveness in your market – in your core market?
Well, I think it had to do with the way that we would partner, sharing information was not constructive, in terms of giving them product plans and directions. And, for our existing customers and partners, it made no sense to be doing that.
At the heart of this is Cisco’s Unified Computing System. It’s tuned toward a segment of the market that understands the data centre transition and can afford to make that kind of transition. How do you make it a bigger market opportunity?
The answer is pretty simple. You have to make the first major installations go well. Will most CIOs really look hard at our strategy for virtualization? Absolutely. Will they adopt UCS if the initial couple dozen accounts, the majority of them are really satisfied? Yes, they will. You’ve seen the volumes. We announced the [Nexus] 7000 is growing, year-over-year, at 150 per cent. The 5000s, which are the key elements of implementing UCS, grew at 450 per cent. UCS, in terms of number of customers, is off to a great start. But it’s like anything you do. You’ve got to make your initial pilots, first 50 systems work well. If they do, then I think we’re in good shape to get pretty excited about it.