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By | Joe Fay 17th December 2014 16:54

Could Cisco's Intercloud give it another chokehold on the Internet?

We asked senior veep Nick Earle what it means

Interview When companies around the world are still running $40bn worth of your networking kit that is officially classified as past end-of-life, you might have to learn a few new tricks to keep the revenue coming in. Or even better, dream up a whole new strategy.

So, let’s think this through. We’ll probably need a few buzzwords. Cloud is an essential. OK, what else? Software defined? That’ll work. And ecosystem. That’ll tick a lot of boxes with the partners. We’re still having partners, right?

And just for the benefit of Wall Street, we need to show we’re not just about commodity hardware, that’s so last century. Instead, let’s make sure we’re making a big noise about software and services. You’ve gotta love annuities, right.

That is the problem facing Cisco, and it has taken the time honoured route of recasting itself as a software and services company, while insisting it will keep faith with its existing partners.

Central to this strategy is Intercloud, which the first time you read about it is such all encompassing strategy as to be almost meaningless. Crudely put, Intercloud will provide a fabric to underpin moving workloads between data centres, while promising CIOs and partners that security and policy restrictions will not be compromised.

That seems to be Intercloud with a capital I, and Cisco has actual products to back this. But there also appears to be a version with a lower case I, encompassing a whole philosophy of connecting up different clouds, and selling and shifting services between them.

We caught up with Cisco’s svp for cloud and managed services Nick Earle at the Canalys Channel Forum to see if we could wrap any more flesh on the bones so far.

Cisco’s most recent results showed the firm just scraping in ahead of expectations on revenue, but its Asian business is still underperforming. So, a bit of top line growth wouldn’t go amiss. But Cisco is in something of a bind here. Earle says the company has $200bn of installed base equipment. “The reason I know that is I ran support services and there’s a contract for every box... that’s still active, the lights are blinking.”

Put another way, that’s about seven years of shipped product, and, adds Earle, $35bn to $40bn of it is “end of still works.” That’s perhaps not a surprise when you consider the pivotal role Cisco played in the internet explosion of the 1990s, a role that was consolidated as it went on to... er, consolidate the industry.

It’s not a surprise when Earle squarely pitches Cisco’s aim with Intercloud as analogous to Cisco’s aim in the 1990s.

“We are really trying to copy the play we made 25 years ago, around connecting [the discrete networks]. If we connect, an ecosystem grows up. But we’re not mandating.”

That could be seen two ways - providing a common technology infrastructure that underpins growth for all, or grasping for a chokehold that will secure a revenue stream for years to come.

“By offering dynamically programmable infrastructure, what we are doing is offering the ability to have policy driven from the application down – the Holy Grail,” Earle continues.

“In order to do that you have to some components of the network – not all – to be the latest version of our products.”

This can simply mean the APIC controller and its 9000 switch appearing somewhere in the mix, enabling the fabled software-defined network.

“That’s massively important. The 9000 allows the underlying infrastructure to be programmable.”

And crucially, this still allows resellers and the like to sell “what’s on the truck”. Why is this crucial? Because, as any channel player knows, moving to annuities or service type revenue is all very well, but what do you do for cash flow in the mean time.

Put another way: “Right now it’s infrastructure monetisation.”

This is not the sort of instant obsoleting of product that characterised the Wintel alliance in its heyday, Earle points out – it is hard to imagine telcos and giant enterprises sucking up the overnight retirement of that $40bn of end of life kit, no-matter how much Cisco’s sales force would like them to.

So, Cisco helps partners keep their product revenue plates spinning. But what about the software and services part of the equation?

After all, Earle says, “We have accepted we need a much greater percentage of our business that’s software and services.”

Words that will always put a chill into the heart of a firm’s existing partners.

“Going forward, it’ll be services monetisation through the catalogue, but we’ve not released that. There’ll be a catalogue called the Intercloud Marketplace. The catalogue will mean that anyone who’s connected to the cloud, enterprise user or any partner, can buy or sell off the marketplace.”

If we don't help our partners, 'their financial model is going to collapse'

Earle argues that the strategy should deliver more revenue potential for partners: “What we need to do is find a way that cloud becomes an enabler of value, adding differentiation and profitability for the channel.”

Bonfire. Pic: DiAnn L'Roy, Flickr

Bonfire: Cisco doesn't want this to happen to its channel partners

Some partners will still concentrate on their competencies – and for some that is, and always will be, simply shifting hardware. Yet, Earle argues, the market place aspect of Intercloud will enable them to access services, products and the like offered by others, and vice versa.

He adds: “I think it is fundamentally important to have profitability, especially given the likely shakeout of the cloud market that’s coming due to the financial pressures we see.”

“End users will buy services because they know they’re secure and compliant, resellers will sell other people’s services because they don’t have vertical expertise.”

“Intercloud is actually a fundamental enabler of future channel profitability, because if we don’t find a way for our channel partners to make money out of cloud, then their financial model is going to collapse.”

The technology should allow this, but who operates the market? Why, Cisco, of course.

“The intent is we operate the market place on Intercloud and we will additionally have a ‘curated experience.” Aggregators - distributors and the like, resellers - will operate their own sub market places.

“As in any exchange, there’s different things, different exchanges, and they link together into a bigger exchange. So Cisco’s going to enable the big exchange. We haven’t announced any pricing or whatever. We’re just building it right now.”

“So yes, we see a world of many clouds, and a world of many market places but they’re all connected.”

If there’s a familiar ring to that, it may be that some of the Openstack promise/hype has lodged permanently in your brain. That could be secure flipping of workloads between private, hybrid, public and public clouds. Or it could be the sound of large vendors with a large stake in the status quo promising a new ecosystem model in the face of overwhelming competition from AWS, Google and Azure.

Or it could be the nagging suspicion that the cut-throat competition between the big three cloud players poses a threat to everyone in the market - including the big three.

At the conference where we spoke to Earle, Canalys chief Steve Brazier had called time on the big three public cloud vendors' capacity to continually slash their prices and build out their businesses. At the same time, the talk was of whether other providers, and partners, and vendors, could survive this three way death match/land grab.

Earle was loathe to comment directly on the economic principles behind AGA’s slugfest, and any comparisons with earlier “land grab” eras, for example 1999. He doesn’t really need to though. He was working in Silicon Valley at the time, and saw the dot com hype and eventual bust up at close quarters.

“Our view is that regardless of whether companies can attract funding, at the end of the day, a partner ecosystem is fundamental to success and you have to show a way in which partners can make money.”

“So what we’re doing is enabling everybody to get together to share the investment and to trade together.”

“Eventually, the basic laws of economics and finance win.”

“I think the history of the IT industry over 30 years has shown several cases where there was a phase two because two people strangled each other to death in their race to be the leader in phase one. It’s starting to look like that.”

If Intercloud plays out as planned, Cisco will have pulled off the incredible stunt of establishing a chokehold on phase one of the internet, and using its free hand to get a grip on phase two. ®

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