At first glance Cisco Systems' latest announcement that it's entering the server market seems like another boring corporate IT announcement, but take a closer look. The company's long-term vision of a "virtualized" data center could eventually revolutionize how consumers will one day access new services via the Net.
First, let's look at what Cisco actually announced. On Monday, the company unveiled a new data center architecture it's calling Unified Computing. This new architecture includes new hardware from Cisco, namely blade servers, an interconnection "fabric," a chassis for the blade servers, Fabric extenders and network adapters. It also includes coordinated support and software integration from several partners, including chipmaker Intel, software maker Microsoft, storage gear maker EMC, and virtualization partner VMware among several others.
On its own, this announcement is a big deal for Cisco. The company, which has spent the last 20 years building infrastructure equipment, is now competing in the computer server market against some of its current partners like Hewlett-Packard and IBM. But as the company's executives pointed out during a press and analyst event to unveil the new strategy, Cisco never announces just a product.
"We don't announce point products," CEO John Chambers said during a telepresence session to announce the new strategy. "What we are talking about today is the next market evolution and an architecture that will allow us to go after a new market."
So it shouldn't come as a surprise that the company's new data center server strategy announced Monday is fueled by a grand vision to not only help its corporate customers improve efficiency and reduce costs, but also transform how average consumers can access loads of cool new applications on cheap devices.
In almost every respect, Cisco sees the future as one in which every device is connected to the Internet, where even the simplest and least expensive devices can access information via an IP network. This vision of the future requires not only fast connections so that individuals can access content quickly, but also intelligent and efficient data centers where information and applications can be housed and processed.
"Virtualization to us means any device connecting to any content from anywhere," Chambers said. "Eventually, we see the data center carrying all the way to the home. Consumers won't know if it's a set-top box or an iPhone processing the data. They just want the application. We are outlining a vision of the future here. That's why I get so excited about it."
Cisco has long been at the forefront of building faster and higher capacity networks. As the world's largest maker of gear that shuttles traffic throughout the Internet, the company essentially built the information superhighway.
Virtualized data center
But a highway isn't worth much without something to transport. So Cisco is now looking at helping content producers house and provide access to content and applications via an IP network. At the heart of Cisco's vision is the virtualized data center where a super-efficient collection of technologies will not only store content, like movies, music, and pictures, but will also process complex applications, like social-networking interactions, allowing simple devices easy access to both the content and the applications.
In essence, Cisco's new strategy could allow it to pave the way for consumer electronics makers to make cheaper, simpler devices that connect wirelessly to a network-based data center. So instead of device makers loading products with high-performance processors and gigabytes worth of memory, they will be able to provide simple, inexpensive devices that access rich content and complex applications from the network. All the heavy lifting, so to speak, will be done in the network instead of on the device.
Yankee Group analyst Zeus Kerravala said that Cisco's vision of the data center could eventually shape a new era in consumer electronics products.
"You'll be able to use a less complex device to access more complex information and services," he said. "So it's the difference between buying a $300 Netbook and a $3,000 laptop. You won't need all the memory and processing power in a regular laptop. And at that price I can buy one for each of my kids. Ultimately, it means more content on more devices for more people."
This is good news for consumers, who could eventually see more devices connected to the Internet at a lower cost. Even products like Apple's iPhone could be seen as overkill in a virtualized environment. Today, applications are downloaded onto the iPhone, which means the device must have robust processors and sufficient memory to store data and process the data. It also needs more expensive battery technology to ensure the device can handle all the processing. But in a virtualized world, those applications could be accessed through the network and data, like video, music, and pictures, could also be accessed via the network.
Of course the problem with doing this today is that the network is not fast enough. There isn't enough capacity on AT&T's 3G wireless network to handle this amount of activity. But as carriers roll out 4G wireless broadband networks, this idea of virtualization could become a reality. It's already starting to become a reality on the wired network. Many people today already enjoy media that is streamed from services like Hulu.com to their PCs at home.
Cisco believes that it can greatly reduce the cost of delivering these kinds of services to consumers. In fact, the company says it can reduce current data center costs by about 20 percent and reduce complexity in the data center by about 30 percent.
"Almost every customer we talk to is looking to save money and increase business agility," said Rob Lloyd, senior vice president of Cisco Worldwide Operations. "And almost all of them have been looking at virtualization. There has already been a lot of progress, but we think we've solved some of the big questions."
Data center virtualization is by no means a new concept. Cisco's competitors HP and IBM have already been selling solutions to help companies do this. And many others are also getting into the market.
But Cisco believes its solution, which includes new hardware, like blade servers, can be packaged together with hardware and software from partners to provide companies of all sizes a one-stop shop for all their virtualization needs.
"It's like offering to sell someone a kit to build a car or actually selling them a car," David Lawler, Cisco's VP of platform product marketing, said in a phone interview after the event. "Anyone could build a car from a kit. But we sell the car right off the lot."
While Cisco says that it will help its customers become more efficient and consumers may eventually benefit from access to new applications on cheaper devices, Cisco also benefits from the strategy. For one, Cisco will benefit from selling its data center products to companies and service providers, which offer these virtualized services. But it also benefits because putting more content in the "cloud" will also increase traffic on the network, which means that Cisco will sell more of its IP routers and switches.
The company has taken a similar approach in other markets. For example, in the voice over IP market, Cisco built its own telephone products that turned voice communication into an IP service. Now, Cisco is the No. 1 maker of corporate VoIP equipment. And when companies add voice to their network, they generally need to upgrade their corporate IP network, which generates even more business for the company.
The same is also true of the telepresence products and services. Cisco put together the telepresence solution to help its customers improve collaboration, but putting video on an IP network also generates more video traffic on the network, which ultimately translates into more business for the company's core products.
"Cisco has done this already," said Kerravala. "They have done this in VoIP and telepresence, and they've proven that they can push the market in their direction. But a lot of their success in terms of delivering true network-based services will happen in concert with other things, like the digitization of content and the build-out of new wireless networks."
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