Cisco Reaches For The Sky With A Global Intercloud

| About: Cisco Systems, (CSCO)

Summary

Cisco to invest $1 billion in the next two years to power cloud.

Cloud can help Cisco become #1 IT vendor.

Partner centric approach should minimize channel conflict.

Cisco's (NASDAQ:CSCO) Partner Summit kicks off this week in the warm weather of Las Vegas. The annual event is geared at CSCO's massive reseller base and is generally a great venue for the company to unveil new opportunities for its channel, and this year's event kicked off with maybe the most significant announcement by CSCO in years.

This morning CSCO announced its plans to build the world's largest network of interconnected clouds - an Internet of clouds is a good way to think of it. A vision I remember the company's CTO, Padma Warrior, taking about several years ago. Over the next two years CSCO plans to invest over $1 billion in what the company is calling a "Global Intercloud," the next step in cloud computing. The investment by CSCO should make its position in cloud as hot as Las Vegas in the summer time and put the company in a position to lead this emerging business market.

This cloud service will significantly expand the numerous cloud offerings CSCO already has including the market leading WebEx, Meraki, Cloud Web Security as well as the cloud building block the company currently sells such as VCE Vblock, NetApp Flexpod and Hosted Communication Service (HCS).

The vision behind Intercloud is that CSCO will deliver branded cloud services with and through its partners. All of these cloud services will be built to precise specifications to ensure interoperability and federation between them. Customers that use services from one of the many Intercloud partners can build a cloud strategy using one or more of these services and be assured of a consistent experience that offers full interoperability between the various cloud nodes. The larger the number of Intercloud partners, the more valuable the service will be for CSCO, it's partners and most importantly, the customers of CSCO and its partners.

At time of launch, Cisco announced the following Intercloud service partners:

  • Telstra- Australian service provider
  • Allstream - Canadian service provider
  • Canopy - European cloud company
  • Ingram Micro - Technology distributor
  • Logicalis Group - Managed service provider
  • OnX Managed Services - Enterprise data center solution provider
  • SunGard Availability Service - Business continuity
  • WiPro - Global consulting firm

One of the notable points of the list above is the breadth of different types of service providers listed. It includes traditional network operators, consulting firms, distributors, managed service providers and some specialist firms. Cloud is something that should be embraced by all of CSCO's partners so it was good for the company to show that diversity at launch.

The CSCO Intercloud services will include the following:

  • PaaS / IaaS - Virtual compute, storage, and networking
  • SAP HANA as-a-Service - Business analytics platform
  • Collaboration - WebEx suite of collaboration applications
  • Security - Cisco Scansafe managed threat defense
  • Network Infrastructure Management - Cisco Meraki (cloud managed networks)
  • Virtual Desktop-as-a-Service - Desktop virtualization solutions from Cisco, VMware and Citrix
  • Unified Communications as a service - Partner-branded Cisco Hosted Collaboration Services
  • Cisco Videoscape Cloud DVR - Cloud resources for content ingest, recording and playback
  • Cisco Virtualized Mobile Internet - Premium data delivery service
  • Virtualized Managed Services - Virtualized service functions for faster time-to-market, using pay-as-you-go billing model
  • Remote Management Services (RMS)
  • Compliance and Configuration Management Services (CMCS)
  • IT Service Management Services - ServiceGrid-as-a-service
  • Energy Management Services - Energywise-as-a-service

While there are many cloud offerings on the market today, the CSCO Global Intercloud differs in many ways. The first and most meaningful difference is that while all current cloud offerings exist as one off solutions, the Intercloud is a network of clouds. If you understand Metcalf's Law, also known as the network effect, it states that the value of a network is proportional to the square of the number of nodes on it. The more connected nodes, the more value the network has. A single cloud service obviously has value, but a collection of connected clouds has exponentially more value. The CSCO OpenStack enabled clouds are designed to allow customers to combine or move workloads between public clouds or between a private and public cloud. Since all of the clouds are built off the same blueprint, the customer can be assured that the migration of data or applications can be done securely and easily while maintaining any policies across cloud domains - something that's near impossible to do today.

I believe the cloud services such as Amazon (NASDAQ:AMZN) Web Services will remain of high value to some small and midsize organizations but global enterprises and government organizations that want to leverage the cloud as their future IT platform will greatly benefit from a series of interconnected clouds. Without something like Intercloud any business looking to leverage the cloud globally would either have to try and build the connectivity tissue themselves, a extremely difficult task, or pick and choose cloud services for specific, tactical use cases but could not build a long term, strategic roadmap.

Another differentiator is that the Intercloud service is designed to be partner friendly. CSCO entering the cloud market could be viewed as a threat to its massive reseller base but the cloud services are designed to be partner-centric. Even if a partner does not have the resources to build its own cloud, it can resell one of the many Intercloud services. The industry is shifting to cloud and without an initiative like this many of the company's resellers may have had a difficult time transitioning their own business. Partners that embrace this can rapidly accelerate the transition of their own businesses to take advantage of shift to cloud services.

Additionally, the "Cisco Powered" program will now include all of the above cloud services. Cisco Powered has been, by far, the most successful technology program offered by a vendor. The program provides a prescriptive formula to build a service ensuring consistency and quality. The program also includes co-branding and co-marketing activities that are often used to kick start a service. For smaller resellers Cisco Powered provides customers a degree of comfort that the service is backed by CSCO and will perform as expected. For larger resellers, SIs and service providers, the program includes a number of co-marketing and lead generation activities to help differentiate them. For years now, many customers I have worked with have often sought out Cisco Powered services. In fact, I have seen many RFPs where the customer would only consider Cisco Powered services.

This move by CSCO should prove to be a significant growth engine for the company as it aims the cross hairs and become the world's #1 IT vendor. As I mentioned before, there are many cloud offerings on the market today but this strategy is unique as it creates economic and strategic value for itself, its reseller base and of course its customers. Anyone can build a single cloud node, but the work of creating a global network of connected, federated, interoperable clouds is a massive undertaking that requires a strong architectural foundation. This is certainly the right time for CSCO to launch such an initiative as the cloud has certainly been legitimized a viable alternative to traditional IT models.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: I have a business relationship with CSCO through ZK Research