Cisco, EMC, VMware — Living Together Isn’t the Same as Married

In the last fif­teen years, I have seen so many part­ner­ships that come and go, and delivered very little. I take a long view of busi­ness part­ner­ships and if you meas­ure accord­ing to cus­tomer time­frames, that is — years (not quar­ters), then most of these ‘part­ner­ships’ are a fail­ure. Lets look at the Cisco/​EMC ‘part­ner­ship’ and give it a cyn­ical going over.

If you aren’t famil­iar with the Cisco — EMC love in, you might want to have a look at this Cisco Press Release, this more hypetastic piece of trash video Cisco Data Center blog for some detail.

Merger or Buyout

EMC is too big for Cisco to buy and Wall St doesn’t look favour­ably on mer­gers of IT com­pan­ies at the moment. The HP /​ Compaq mer­ger proved that mer­ging big com­pan­ies isn’t a great idea.

There is little to no over­lap between the com­pan­ies, Cisco already owns 5% of VMware stock (and Intel owns a goodly per­cent­age of VMware as well) and EMC owns some­thing like 80%. VMware is the golden nug­get in this partnership.

Servers don’t make a lot of mar­gin, and Storage mar­gins are under threat

Cisco likes big fat mar­gins. EMC loves big fat mar­gins. Servers make very little mar­gin. . I take the view that Cisco is selling serv­ers because HP is selling switches, and can see the mar­ket is cur­rently mov­ing away from Cisco’s strength in the network.

Cisco doesn’t own the smarts in their serv­ers, Intel does. Cisco just glues the latest Intel chip­sets to a board like every other server man­u­fac­turer and Intel makes the big profits. This is a big change for Cisco’s busi­ness strategy and sig­nals how des­per­ate they must be to enter this mar­ket. Specific con­cerns around the HP ProCurve and it’s pen­et­ra­tion into their exist­ing mar­kets must be very wor­ry­ing.

Cisco has product dif­fer­en­ti­ation strategy for UCS is mostly built around a hybrid stor­age strategy using FCoE– a tech­no­logy that isn’t ready for full mar­ket adop­tion yet. FCIP and sig­ni­fic­ant mar­ket pen­et­ra­tion of FCoE is still years away, and the sup­port­ing Ethernet stand­ards (not even soft­ware and hard­ware) won’t be ready until the middle of next year.

Sure, Cisco can build metal boxes, power sup­plies and mar­ket­ing mater­ial like any­one else. But they also mar­ket their abil­ity to make their own sil­icon in their routers and switches and how this is ‘com­pet­it­ive advant­age’. When they don’t have their own sil­icon, what is their value to customers ?

Whither EMC ?

EMC owns a fairly good sized chunk of the Storage mar­ket, but their pos­i­tion is being threatened in the long term by com­mod­it­isa­tion in the stor­age mar­ket. The cost of ganging hard disk drives together with some metal­work and a power sup­ply is now within reach of a mod­er­ately well fun­ded star­tup, and the speed of soft­ware devel­op­ment means that EMC’s core busi­ness is being mar­gin­al­ised. Witness Lefthand and 3Par as examples. At the very least, EMC profits are going to a lot slim­mer over the next five years as their tech­no­logy becomes commoditised.

VMware is the magic sauce

EMC owns VMWare which is the glue. They did a deal with Intel for some­thing 10%, and Cisco got 5% a while ago. Now we know why.

But there are altern­at­ives to VMware. Microsoft’s Hyper-​​V, while gen­er­ally laughed at, is a con­tender and the Citrix XenSource could still make a comeback from it’s cur­rent position.

Balkanisation

EMC needs to make sure they don’t ‘choke the chicken’ here. By align­ing with Cisco, altern­at­ives to VMware could become viable. That’s an unlikely scen­ario, and VMware must be pray­ing that cus­tom­ers con­tinue to demand VMware, and not turn to HP/​IBM for other vir­tu­al­isa­tion sys­tems. Even Sun Microsystems has a very good vir­tu­al­isa­tion strategy (of course, no one’s gonna touch that until Oracle comes up with a con­vin­cing message).

If the vir­tu­al­isa­tion mar­ket sep­ar­ates into a two sided battle, VMware on one side and every­one else on the other then we could see HP/​IBM act­ing as frenemies with VMware, but really focus­sing on some other product that meets their own product goals.

One Throat to Choke

HP and IBM are a one stop shop for hard­ware, soft­ware and ser­vices. The “one throat to choke” or “one arse to kick” means that HP and IBM will be con­sidered the strongest con­tenders for Private Clouds. Neither Cisco or EMC are get­ting trac­tion with cus­tom­ers because they can’t guar­an­tee and end to end solu­tion. Remember we are talk­ing about multi-​​million dol­lar pur­chases here and typ­ic­ally hap­pen when a stra­tegic shift occurs. The CIO/​CTO isn’t going to sign off on a hugely polit­ical choice unless they are com­fort­able with the vendor.

One thing to note — Public Clouds don’t mat­ter here. Most com­pan­ies are years, and prob­ably a dec­ade away, from look­ing at actu­ally using Public Clouds for any­thing ser­i­ous. Don’t let a few art­icles on pop­u­lar web­sites lead you astray, or a few Tweets from some loud mouth bone­head in a mar­ket­ing team give the feel­ing that Clouds are any­thing but a bright idea. Things like reli­ab­il­ity, liab­il­ity, pri­cing, legal own­er­ship and title are not even being dis­cussed yet and solu­tions are a long way off. Customer accept­ance and use, jeesh, not any­time soon. At least, not in a big way.

Resellers should be very worried

HP and IBM will be work­ing dir­ectly with cus­tom­ers and reas­sur­ing them that they will have the full atten­tion. Given that HP and IBM already man­u­fac­ture and sell the most vis­ible assets of a cloud (serv­ers and stor­age) they have a very cred­ible pitch.

When the price war starts, Cisco/​EMC will HAVE to remove the reseller from the sale to remain com­pet­it­ive. The reseller needs between five and ten per­cent mar­gin and many cus­tom­ers don’t see the value of a reseller in any case. Most cus­tom­ers have their own expert­ise and don’t need a reseller for ongo­ing main­ten­ance. The value and influ­ence of the reseller is dimin­ish­ing at the top end of the market.

And resellers don’t have a mar­ket in pitch­ing external clouds because that is a spe­cial­ist busi­ness well fun­ded by the VC mar­ket or covered by exist­ing play­ers such as Amazon or Rackspace.

Resellers will con­tinue to eke out a liv­ing work­ing with Medium to Small Businesses, but there prob­ably isn’t enough money for many to sur­vive. Indeed, Cisco’s will­ing­ness to part­ner has made them pop­u­lar in the reseller com­munity, but Cisco isn’t really giv­ing them enough profit to survive.

Living together isn’t the same com­mit­ment as being married

No mat­ter how much a couple of fancy CEO prance around claim­ing to have partnered to someone, pro­claim­ing their unend­ing love for each other, I frankly no longer believe it. The last ten years of ‘part­ner­ships’ showed how tran­si­ent, tem­por­ary and down­right false that is.

The only way two com­pan­ies can show they are ser­i­ous about the rela­tion­ship is to get mar­ried. Living together does work for some people, but mar­riage shows a real commitment.

Frankly it won’t matter

HP and IBM are going to run rings around Cisco/​EMC/​Acadia when it comes to clos­ing deals. They are going to be spread­ing Fear Uncertainty and Doubt in the minds of customers:

Who is going to be the sales­man ? Which engin­eer will do the design ? Who do I sue if it goes wrong Cisco or EMC ? Who do you call for tech sup­port ? What is the escal­a­tion strategy ? Who is hand­ling the train­ing ? Do you want to be a three way argument ?

These ques­tions are false of course. Acadia will have infra­struc­ture and resources so,ewhere, but the emo­tions will res­on­ate and be taken ser­i­ously when you decid­ing to spend a couple of mil­lion kwacha on a 1000 serv­ers in a vir­tu­al­isa­tion farm.

Think about this:

Your typ­ical CIO is com­fort­able buy­ing serv­ers and ser­vices from HP and IBM, and is going to want a much bet­ter story about min­im­ising the risk of choos­ing Cisco/​EMC.

CTO: “Yessir, I’m buy­ing serv­ers from Cisco“
CEO: “Cisco, who are they ? We haven’t used them before. Don’t they do fire­wall and routers ? “
CTO: “Umm, yes. Forget I men­tioned it.“

So, until Cisco and EMC can find the guts to merge in spite of Wall St, or Cisco buys EMC out­right, it hard to see how this is going to go well.

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