There is no ‘Death by PowerPoint’ for those bearing witness to a presentation by Cisco CEO John Chambers. Addressing resellers at the Cisco Partner Summit in San Diego in March, the Texan paces through his congregation like a Southern preacher, fixing audience members in the eye as he calls on them to follow the networking giant through yet another period of upheaval. “You have to move four or five years before the transitions become obvious,” he says. “[Market] consolidation will be brutal through the next few years.”
It’s tough love, but Chambers has to convert this audience if his company’s latest vision, the “service-oriented network architecture” (SONA), is to succeed. Cisco is almost entirely dependent on its partners for selling its products – 93% of its business goes through the channel. The first year of any new product release requires new skills, the consumption of technical resources and a high degree of monetary risk. Chambers is asking his partners – and customers – to take a leap of faith that SONA is going to pay off.
SONA is Cisco’s attempt to bring the philosophy of the service-oriented architecture (SOA) and virtualisation into the network. The network is already ubiquitous, its logic goes, so why not take middleware functions to that platform rather than have the software sitting in a central server? If SOA promises flexibility to business applications, SONA also brings it to the operational side of IT – network management, authentication, service levels maintenance and the like. Just as it brings the network’s functions further up the stack, so too is it designed to position Cisco’s importance higher up the IT management food chain.
Application-oriented networking (AON) – confusingly launched before the SONA vision – is one way Cisco routers can interact with applications at the network layer. AON can prioritise certain applications or enforce security policies by looking at the content of the messages it passes through the network, rather than just shifting packets. A standard middleware system, as sold by IBM or SAP, would have to refer to a computer in the data centre to understand and apply business logic to such data.
"You have to move four or five years before the transitions become obvious."
John Chambers, CEO, Cisco Systems
“Customers like it because 40% of enterprises are branches,” says Nick Earle, Cisco’s VP of customer advocacy in Europe. Previously, businesses could not run business applications in branches without investing in on-premise servers, he says. Now, SAP business intelligence software can run on an AON ‘blade’ inserted into an existing router – taking advantage of an installed base of some 20 million Cisco routers and switches. “It’s not that the network becomes more intelligent,” adds Earle, correcting Cisco’s previous marketing message, “it’s that everything that touches the network becomes more intelligent by touching it.”
The first SONA-based product is Unified Communications, a desktop collaboration package which uses a central ‘unified presence server’ to share users’ status and communication preferences between different applications. It also sees Cisco at last ditch its proprietary standards in favour of the widely adopted session initiation protocol (SIP), ensuring the interoperability that is vital in a service-oriented world.
But many functions of Unified Communications, such as click-to-call and desktop video conferencing, overlap with Microsoft’s Live Communications Server. This is the first of many likely confrontations with companies Cisco has long called its partners as it brings more collaboration and middleware functions down into the network.
Cisco executives argue that this will merely allow other vendors to “provide more differentiation in the marketplace than if they have to consume R&D with message handling, which the network can do better than middleware anyway.”
Resistance may also come from smaller partners who don’t plan four or five years ahead – or indeed fully understand SONA. Many are happy selling less fancy equipment, and why not: analyst group Infonetics says the enterprise router market will grow by around 40% annually between 2005 and 2009.
So Cisco intends to pass on much of its “other IP” – intellectual property – to help resellers provide consultancy-based “lifecycle services” on architectures and change management as well as more mundane technical matters. It hopes this will ease the transition for both partners and customers.
Many market watchers have predicted Cisco would go the way of IBM and start selling services to accompany its products, in order to continue the double-digit revenue growth its investors have become used to (last quarter, sales grew by a below par 9.3% to $6.6 billion). But Chambers candidly admits that the margin on services cannot compete with the 67% return it sees on networking equipment and its associated software, so it is leaving that services role to its partners.
However strategic Cisco intends to be, that statistic sits somewhat uncomfortably next to the $93 million of stock options Chambers has traded in since August 2004, and Cisco also faces price undercutting from challengers like Huawei. Cisco’s equipment is going to have to work harder for that margin – and SONA will have to earn its keep.
Further reading on Information Age
More on Cisco:
- Cisco's $7 billion acquisition of Scientific Atlanta. (November 2005)
- Cisco brings application integration to the network with AON. (June 2005)
More stories on SOA and web services can be found in the SOA briefing room