Cisco CEO John Chambers talks virtualization, cloud, and the "Cisco Tax," in this installment of the IDG Enterprise CEO Interview Series.
By John Gallant
By almost any measure, Cisco Systems, Inc. is the biggest fish in the networking pond. Thanks to
more than 130 acquisitions, a brisk pace of internal development and a much-discussed new organizational structure that the company is using to attack
a slew of new markets, Cisco’s reach extends from the consumer to the enterprise and deep into service provider networks. The company offers
everything from personal video cameras to high-end telepresence systems, set-top video boxes to, lately, servers for the data center, in addition to more
traditional network gear like routers and switches.
But Cisco’s real ambition, as articulated by its high-energy CEO, John Chambers, is to become the most important IT company of all. In this
installment of IDG Enterprise’s ‘CEO Interview Series,’ Chambers talked with IDGE Chief Content Officer John Gallant, Computerworld
Editor-in-Chief Scot Finnie and InfoWorld.com Editor-in-Chief Eric Knorr about the market transitions fueling Cisco’s bold strategy, what it means for
enterprise customers and how the company will compete head-to-head against the industry’s biggest players.
1. Q: This goal of being the number one 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
A: [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 number one 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 number one 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
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
In the data center, 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.
2. Q: What is it about the data center that Cisco gets that you think these other big companies don’t get?
A: 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 center 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
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.
3. Q: How do you respond to the three most common things that competitors say about Cisco? Cisco products are proprietary. They come at
a premium. When you can’t get win with IT, you go around them to the business side and create a stir.
A: First, let’s deal very much with proprietary. We are an open standard company, period. The Internet is open, any device to any content. When
we moved into telepresence, we got huge market share on the high end. Sixty-four percent. Yet, we made it an open standard. We made it an industry
standard available to others, not just for a Tandberg-type of interface, but anybody who wanted it. All of our base is off an open, standard net —
the Internet. We don’t have a proprietary operating system that only operates in our products. The Internet, any device can interface to it. And we
want it to. First, it allows us to move in markets faster. Secondly, customers are protected. They don’t lock in to a device operating system, a device or
in the data center.
The second part of your question about whether we sell the technology to the business side at the same time? Of course. If you’re really going to
be a successful company, it isn’t about how you just work the technology side. You’ve got to be able to develop the confidence to the business leaders,
the CEO’s and the IT organization at one time. IT is no longer about managing this complex data center and making it run. IT is about enabling the
business strategy of a company, using it to differentiate yourself versus your peers, drive productivity. I would argue [it’s about] even embedding IT into
your core capability, whether it’s how you do services, product development, sales. In fact, at some point you won’t be able to tell the difference
between what’s my business strategy and my IT strategy, they’ll be so deeply intertwined. Anybody who’s going to be successful here must learn to
develop the trust, both of the IT organization, the CIO, the CEO, the business leads. In fact, if you only develop the trust of the CIO organization, you
can’t help the IT organization as they begin to move rapidly in key project areas.
4. Q: What about the middle point about the Cisco price premium? They call it the Cisco tax, that people pay a big Cisco tax.
A: Well, that’s a little bit unfair. Do we come down Moore’s Law at tremendous speed? The answer is yes. As long as you do that, customers
don’t have a problem with you making a premium, because if you don’t make a premium, you don’t develop new products. You don’t protect their
investment. They’ve all been through that.
Do I believe there’s a rapid industry consolidation taking place? Absolutely. Do I believe that part of the decision for who’s going to win is based
upon your innovation, based upon your ability to catch market transitions, based upon making your products play architecturally together, protecting the
customers’ investments, and an open architecture? Yes. Will customers pay a premium for that? Absolutely. But, I would argue it’s not a
I’d say [it’s about} your total cost of ownership versus your productivity. It costs a lot less. Wal-Mart considers us at the very top of their
You would think that unlikely because they are one of the toughest in the world on cost. Yet, if you talk to the CEO or the CIO, they would say
we’re at the very top of the list. If I had told you two or three years ago BT would say we’re their strategic business partner, not just technology partner,
you’d have said unlikely. Yet, we are. If I were to have said the same thing about a G.E.
Are we tightly tied with the business group? Absolutely. Are we tightly tied with the CIO? Absolutely. Now the CEO? Yes. Does the CIO like
us doing that? You betcha. So, it isn’t a question of do you end run? In fact, if you didn’t end run, that’s usually a problem. The key is how you work
toward common goals. Do we push the envelope on productivity? Yes, because I think any company that doesn’t evolve their productivity, who
doesn’t move into new markets, regardless of industry, will get left behind. We are making people, at times, a little bit uncomfortable with how fast we
move. This will surprise you: My mistakes have not been moving too fast. It’s when I move too slowly in a market transition. Or, equally as bad, when I
moved too fast without a process behind it.
5. Q: How do you see both private and public cloud rolling out from an enterprise perspective? What do you see as the ultimate intersection of
A: We think the ultimate intersection will be a confederation, where it is completely transparent to the end user, the CIO and up. Completely
transparent to the end user what combination of physical, virtual, public clouds and private clouds. That is perfect for us, because that’s what
The first thing I asked Padmasree [Warrior, CTO] when she came to Cisco was to outline our cloud strategy. She went and got the best engineers,
worked with them, came up with the approach. Now we’re driving it with tremendous speed and efficiency, and expanding the partnership with
VMWare and EMC, who are our best partners. But we’re also getting close to Net App and other players within the industry and getting back to the
open standards type of question. We’re off to a real good start here.
Now, having said that, do you know who our best partners will be in public and private clouds? The service providers, because it’s in their interest
that the pipes are not dumb pipes and they’re not commoditized by the edge players or by the content players. We have a common opportunity
6. Q: What’s the bigger market sooner, private cloud or public cloud?
A: Public cloud, in the short term. Longer term, the private and the combination, the federation, whatever you want to call it. By the way, we’re
already doing that ourselves. We’re already doing our own clouds and we’re interfacing to other peoples’ clouds. It’s classic Cisco. We do it ourselves.
Understand the strengths and limitations of it. Then share what our moves will be.
7. Q: Based on this and other discussions with Cisco executives, it sounds like Cisco’s making a huge bet on service providers and the cloud.
Would you characterize it that way?
A: We made the huge bet on service providers back in 2001. A lot of people at that time said we ought to focus on enterprise, we ought to focus
on commercial. Service providers are a separate business, not as healthy in direction. We respectfully said we can do the ‘and’ here. And you’d have to
argue that we did pretty well in enterprise, pretty well in commercial and very well in the new market, the service provider. They are the logical step for
our first real cloud build outs, and there’s not a major service provider that I’m aware of in the world that isn’t at least thinking about potentially doing that