"The days of boxes are over."
So says Cisco chief John Chambers.
In a December interview, Chambers announced a seismic shift in strategy. Rattled by growing competition, the world's largest networking equipment manufacturer says it's leaving the box world behind and adopting a new software-and-service model.
Cisco's massive new marketing campaign introduces "The Internet of Everything." According to Cisco, we're all connected — just one big, happy family of smiley people. Those that aren't already connected will be, and sooner than you might think. It's Metcalfe's Law on steroids.
In response to this demand for connectivity, the need to reach out and give the world a virtual group hug, Cisco says they're changing. No longer simple box builders, they're going to design solutions that do everything. They're going to work with civil engineers and governments to create optimal traffic patterns, clean water, you name it.
On the Internet of Everything, trees will talk to networks. Networks will talk to scientists about climate change. The power of multiple connections is a sexy, mind-blowing concept. Much more interesting than boring old boxes.
Boxes are dead. Service is where it's at, says Chambers.
Only he left out one small detail…
Many, many, many boxes.
Boxes sold by Cisco.
Cisco's making a change because they've been bleeding talent. Some of the best SDN innovators used to be on Cisco's payroll, and now their startups are taking over the hardware space. Chambers may deny feeling the heat, but he's definitely looking over his shoulder. And seeing some familiar faces.
Cisco products are no longer unique or innovative enough to compete. You can do more with open-source or in the cloud for less money. Hardware has become a commodity, one with lower prices and even lower profit margins.
Cisco needs to differentiate.
So they're taking a page from IBM's book. Faced with competition that's more nimble, they're investing in the future, a future in which, thanks to SDN, you can change things on the fly, in an instant, across the board.
But even changing things on the fly requires boxes. And Cisco's certainly banking on all of the happy, connected people of the world buying Cisco boxes while they're enjoying their smooth traffic patterns and clean drinking water.
You can operate in the cloud, but you have to come back down to earth sometime, and when you do, there's a bunch of boxes down there. You still need hardware. Architecture. Infrastructure.
Cisco's going to use cloud services to attract new box business. New customers might not be end users. They might be cloud providers. Cisco's hoping they can use services to create ongoing relationships that increase client retention, a strategy with the potential to be infinitely more lucrative than just hoping for return hardware business.
Boxes are not dead. But Cisco's right about one thing.
We're amassing new connections at the speed of light. Innovation is moving at an insane rate. We're going to need the right boxes to keep the "everything" running, and Cisco knows that. Every time we buy a box so we can talk to the trees, the networks, and the scientists, Cisco makes money. They'll expand into markets they haven't been able to tap before. Box customers will become service customers. Customers that pay licensing fees and recurring service fees. And Cisco will build ongoing relationships with them.
Which will help them sell more boxes.
Hardware vendors like Cisco are not getting out of the box business. They're just figuring out new ways to make money on the box business. Adopting a new service model will help them move more product.