Cisco Systems' Next Move: Managed Services

If you want to know where Cisco Systems (CSCO) is heading next, think really big and really small. The company has big plans for the massive managed services market, but is also investing $100 million in the small business sector.

In the managed services market, big service providers such as Verizon (VZ) and Sprint (S) remotely administer, optimize and troubleshoot corporate applications, phone systems and IT security systems. So far, Verizon has managed services contracts with more than 4,000 customers. And in many cases, Verizon uses Cisco's Integrated Services Routers (ISRs) to manage and administer those networks.

During the current economic turbulence, large and small businesses are embracing managed services because they offer predictable IT costs and often eliminate the need for technology managers in branch offices.

As I look ahead to 2009, I expect Cisco to aggressively emphasize the following technologies to big IT service providers:

• Wide Area Application Services (WAAS): Think of this as application acceleration. The goal is for branch office users to access centralized applications that perform as if they were running locally. In other words, someone in Florida could access an application from a New York data center without experiencing any performance problems.
• Managed Video Surveillance: Cisco will attack that market opportunity from several directions. The company already offers video surveillance equipment. And Cisco plans to introduce more video surveillance solutions as part of a $100 million small business initiative. Stay tuned for more announcements in 2009.
• Managed TelePresence Services: AT&T (T) and other big service providers are already introducing managed TelePresence services -- which are next-generation video conferencing systems. But as TelePresence pushes into the home, I expect cable broadband providers to partner up with Cisco in this area as well.
• Application Extension Platform (AXP): Keep a close eye on Cisco’s AXP, which allows software developers to write network-aware applications. It’s a safe bet more and more of those applications will target the managed services market.

Long term, AXP positions Cisco to battle against Microsoft in the race to recruit software developers who write Voice over IP applications. Yes indeed, Cisco's managed services strategy will lead to a showdown against Microsoft.

Full Disclosure: My company, Nine Lives Media Inc., has done some consulting work for Cisco Systems for 2009.

Comments

[John Honovich:]

Hi Joe,

Cisco's expansion into managed video surveillance, even using the ISRs, is unlikely to be attractive for three reasons.

1. Video surveillance in an ISR is very uncompetitive (50-100% higher prices and lower features) to existing video surveillance offerings: ipvideomarket.info/rep...
2. Managed video surveillance demands large amounts of upstream bandwidth that is infeasible for 90% of business: ipvideomarket.info/rep...
3. Running a manged video surveillance offering requires developing software and services to run the solution. Let's assume the decide to launch this in 2009. It will still take time and further releases to mature it. Beyond that, you have issues 1 and 2 above.

I enjoyed your article. Thanks for alerting us to this.

Cheers,

John

2008 Nov 20 04:48 PM

[paul/griffo...:]

cisco's surveillance offering is a joke at this point, they bough a 1.3mp webcam level ip camera and the software to manage these toy cameras is not any better... but 100million could buy some good technology so i'm sure they will continue to buy technology and push on their existing userbase

2008 Nov 20 10:22 PM

[SM_PG:]

Joe – all good points.
Managed services are key not only for HW manufactures but also for Telecom providers who both have offerings in this space.
However Cisco is obviously not alone - Juniper for example have been focusing on managed services for years already and are ahead of the game vs. Cisco on some key networking components such are application acceleration.
The game is on, the environment is changing rapidly so the new competitors like Google will very soon needs to be taken into account so definitely work keeping an eye on the this fast growing area of networking.

2008 Nov 28 12:34 AM

[Michael Leo...:]

Joe, good article. You are right about Cisco emphasizing WAAS. In fact we had major news for WAAS with an announcement on Nov. 18 in the linked PR below where 7 Service Providers announced their managed WAN Optimization based on Cisco WAAS. WAN Optimization is a fast growing managed service opportunity and Cisco WAAS is being deployed by most of the major MSPs with 9 having announced their service so far. We are finding that customers see a managed service as a good way to save capital while also leveraging the service providers expertise to roll out WAN Optimization quickly.

newsroom.cisco.com/dll...

2008 Dec 03 10:12 PM