Cisco has, finally, signaled its intention to enter the server market. Predictably, Cisco is not talking about a “me too” product but rather one that incorporates a key disruptive technology, virtualization. Much of the early Wall Street discussion has focused on the negative impact servers will have on Cisco’s margins. (HP and IBM only generate about 40% of the profit margin in servers that Cisco has been able to generate in its core markets.) I’m sure in the short term, Wall Street is right…but as is so often the case, this misses the long-term implications which make this an essential move for Cisco.
Why is this right for Cisco?
- While the communications gear market still is a good market, with strong growth driven by new and higher bandwidth-intensive uses of the Internet, inevitably Cisco’s growth rates in this space are going to slow.
- Cisco is going to face competition in its core markets from IBM and HP. Why is it unreasonable, therefore, for them to compete in HP and IBM’s core markets?
- Cisco has played the co-opetition game as well as any and better than most. If anyone can “play nice” with Microsoft, HP and IBM while also competing with them, it’s Cisco’s John Chambers.
- Disruptive technologies create opportunities for new market entrants to redefine the rules of competition. I expect Cisco will not take a “me too” approach to solutions in the “server market.” I instead expect them to continue to blur the distinction between computing and communications, much as has been going on for the better part of a decade or more.
This move has the fingerprints of new CTO Padmasree Warrior all over it. I was famliar with Warrior when I was at Hill & Knowlton and Warrior was CTO at Motorola, an H&K client. She had an expansive vision of technology but clearly the product issues at Motorola hamstrung her ability to deliver on the vision. At Cisco, not only does she not have such constraints, she has certainly found a comrade-in-arms in Chambers. Soon, Cisco will have as broad a portfolio and ambition as any company, extending from communications to servers to operating systems to applications, in business as well as the home.
This is just another inevitable step in Cisco’s moves and ambitions to become a total computing and communications technology and solution provider.