A Dispatch from Cloud City – 2014 Retrospective

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In an effort to make this an annual event, here is a plumbing-palooza stream of cloud consciousness. Last year’s broad themes remain intact though my Rackspace call didn’t pan out.

Cloud Infrastructure

  • Public cloud has won. Thanks Target. Thanks Sony. Thanks Kim Jung Un. If your public cloud gets hacked, you get to blame someone else and will have company in your misery. Public cloud will absorb vast quantities of enterprise on-premises IT spending and thus be an enormous pot of gold.
  • Docker – everyone likes Docker. Even people who don’t.
  • There are two and a half big league public cloud providers vying in what John Connors has dubbed the (WTO-free) “Battle in Seattle” (Google does a lot of cloud work in Seattle too):

Amazon remains the leader with incredible execution and is relentlessly pushing up the stack. They are on the same “enterprise journey” that Microsoft went through beginning in the late ‘90s (with some of the same people in fact), in an effort to get IT comfortable paying them vast sums of money. Amazon seems to have abandoned price leadership as they find themselves in a price war against competitors who have vastly more money than they do. Frittering away valuable cash on hardware misfires and TV shows is a growing opportunity cost. If Amazon’s stock price doesn’t recover, expect their employee retention problems to grow and discussions of spinning out AWS to get more serious. But they’re not going to yield their leadership in 2015.

What I said last year about Microsoft still works:

“Azure has become the clear challenger to AWS. The much maligned Mr. Ballmer is not getting credit for Microsoft’s embrace and execution on cloud. Unlike most of its cohorts rooted (mired?) in previous generations of technology, Microsoft is well on its way to making the cloud transition.”

Microsoft is executing like old school, taillight-chasing Microsoft with the added advantage of glass-half-full perceptions about the company for the first time in nearly two decades under the regime. The open source embrace (sans extend) is real after enactment of the strategy tax cut. If you’re still having cognitive trouble with this, the best analogy I can offer is Microsoft has become Intel and just wants to soak up all those datacenter compute cycles (a pithy analogy for what Intel has become eludes me, but it could be a fun exercise).

Google I don’t give a full big league integer to because cloud is still basically a hobby for them. In technology terms, they are in many respects the leader, but they’re just not serious about the non-technology investments they need to make to really compete for that broad enterprise transition to the cloud (they too need to embark on an “enterprise journey” as opposed to hoping those enterprises beat a path to their door). The company seems more interested in n+2 or n+3 opportunities (self-driving cars! life extension! an air force!) than mundane n+1 opportunities like cloud (which gets interesting if you believe we’re seeing weakness in Google’s search cash geyser for first time – will the further out new businesses spin up soon enough to offset slowing and/or deteriorating desktop advertising?). Presumably all those robotics investments are so they won’t have to hire humans to do enterprise sales and support. Google is the Crazy Eddie of cloud (note Eddie didn’t have much of an enterprise business and but did have a fraud problem. But far be it for me to suggest that the ad business is anything but squeaky clean). They will continue to push prices down which is a great way to push Amazon to the wall. But Google needs more than just technology and lowest price to really compete for the enterprise cloud jackpot.

  • Docker – did I mention Docker?
  • Below the big boys we have a bevy of wanna-bes, characterized by varying levels of self-delusion about their ability to really play this game. The old school announcements of “one billion dollar” multi-year investments aren’t even table stakes – Google spends that on capex in a couple weeks. IDC slyly and without elaboration predicts “75% of IaaS provider offerings will be redesigned, rebranded, or phased out in the next 12-24 months”, which brings us to this group:

IBM has been my poster child for the existential threat cloud poses to old school IT vendors. I’ve been pontificating about the peril they face and their clueless response for quite a while (here, here, here, here, here and here as a start). I took a lot of grief about this view when I first wrote about it but now their plight is widely understood and even conventional wisdom:

Bloomberg Businessweek (US)

My inner contrarian even wants to go bullish on the company just to flout the crowd except I can’t see any path that looks like clear success. Even the best outcome, where IBM keeps all its market share, still results in a dramatically smaller company (in terms of revenue, workforce and stock price) due to the deflation of cloud computing. IBM’s fundamental problem is it is their traditional customers who are being disrupted by technology wielding upstarts and they are going to have to show customers can actually use IBM technology and “business consulting” to be successful against competitors who don’t have that burden. Good luck with that. IBM’s streak as the worst performer in the Dow Jones two years running may not be over.

To their credit, IBM woke up this year and is no longer downplaying cloud or attributing their woes to simply poor execution of ye olde business model. I am amused that IBM’s leadership has expressed far more public concern about their prospects than the normally curmudgeonly IT industry analysts and pundits who evidently are telling IBM’s customers not to worry about generational transition risk.

Beyond their cloud wanna-be status, it is hard to get enthusiastic about their big initiatives of Watson and becoming an iPad reseller. After what seems like decades of hype, Watson is being devoured by hundreds of much more focused machine and deep learning startups. And it is uncanny how iPad seemed to flatline just as IBM got interested in it (and if you contend IBM’s apps are just what the iPad needs to reestablish growth, I ask only that you name an IBM app, and if you can do that, name one that you’d like to use). Delusion factor: low. The dubious marketing underscores their desperation.

HP (sorry Hewlett Packard Enterprise) trails IBM significantly in terms of existential angst and has a massive internal distraction in splitting themselves up. Helion: they only wish they had another L. While I have been assuming a “better than Autonomy” bar would lead to acquisitions like Box or Rackspace, their efforts to get their hands on VMware suggest there may be some sanity lurking somewhere. Delusion factor: medium.

Cisco is the company with the biggest gap between reality and their own cloud blather. While they are one of the few growing server vendors, their reckoning approacheth on multiple fronts. Delusion factor: highest

Rackspace – my prediction last year was they would not be an independent entity by the end of 2014. They did put themselves up for sale, but had no takers (HP let me down). They have realized they can’t play with the big boys and have retreated to their old hosting turf. OpenStack was a huge distraction for them. But their stock price supposes there is still an acquirer out there. Delusion factor: low. They touched the hot stove, and will not make that mistake again. 

Telcos – CenturyLink (also in Seattle) is executing the best here while the others are too busy chanting “cloud is our birthright” to do much. Delusion factor: medium to high.

OpenStack – another year where the number of press releases probably exceeds the largest number of nodes in production in any instance. They lost ground this year as public cloud continues to outpace private cloud and OpenStack public clouds aren’t very public. A pivot to Docker is coming, even as they perhaps settle to be a telco supplier. Delusion factor: high.

  • Docker – the most interesting aspect of Docker is it works because Linux has won as the operating system of the cloud (and having written those words, a new operating system must surely be upon us imminently). If you don’t need to virtualize multiple operating systems, you can push application isolation up above a single OS. But while Linux has won, Red Hat has lost. They just don’t play any material role in cloud infrastructure. They’re a legacy, on-premise operating system company. Maybe this year the markets will ask why they’re trading at a multiple of over 70.
  • Digital Ocean – while the old school vendors huff and puff, I’ll just note this is increasing where the cool kids run their apps. The problem with taking the “enterprise journey” is it almost always leaves you somewhere developers don’t want to be.
  • Docker – they really mishandled their first competitive blitz, which was actually pretty minimal. But good practice for when VMware finally gets around to announcing vCenter will manage both VMs and containers (and I have no inside knowledge here, it just seems like an obvious thing to do).

Cloud Platform

  • PaaS is still a zero billion dollar market, but there are signs revenue is ramping to the point where we can have a serious discussion about this threshold next year (note I define PaaS narrowly to net new, general purpose application platforms and don’t subscribe to xPaaS speciation/inclusion of decades old code) I still think this is the only layer at which most companies should be doing private cloud.
  • The Cloud Foundry Foundation – not sure if I’m more disappointed that it exists or that it wasn’t called the Foundration.
  • DevOps is a distraction and something you want other people to do on your behalf: if you’re actually doing DevOps, you’re doing it wrong. (That sentence will probably bring me more grief than any other in this post).

Big Data

  • FOMO is the biggest driver of big data in the enterprise. Lots of data is going into the lake, but not much is coming back out yet.
  • Hadoop, or more accurately HDFS, has won based on storage cost advantages and addressing the administrative and governance needs of IT. The programming model can charitably be described as unsettled, which is one of the factors hampering the realization of material value from big data. A big question for 2015 is how quickly Spark matures.
  • The most amusing announcement of the year was Google sucking it up and announcing full support for Hadoop, which they view as an obsolete and decade-old Google technology laundered through Yahoo.
  • The hype around big data will shift to the Internet of Things in 2015. IoT-washing will make cloudwashing look modest, as every data player adds at least those three letters to their home page. Some are doing more and actually building for specific IoT needs. Samsung is the biggest threat to IoT as they feel the urgency to ship half-baked spec sheets devices and crummy software that could set the whole market back significantly.
  • Get ready for data protectionism, as the EU (as a front for European manufacturers) decides they need to control their own data exhaust and not let those evil American technology companies squeeze all the value out of precision metal bending. We could see some very strange big data acquisitions by German manufacturing companies.

What else should we be watching in 2015?

Boxed In

Caged Wild Man by gillfoto, on Flickr
Creative Commons Creative Commons Attribution-Noncommercial-Share Alike 2.0 Generic License   via Flickr

The oft-repeated explanation for Box’s failure to IPO is that they somehow filed at a bad time and “missed the window”.

As usual with Box, the sound bites are better than the substance. They filed on March 24th of this year, a year that has seen the most IPOs since 2000. Since Box’s filing date there have been over 40 technology IPOs (with at least one in every month). These have included various software, SaaS and subscription companies like Hubspot, Yodlee and ZenDesk as well as HortonWorks and New Relic this week. What window exactly is closed?

Meanwhile, the stock market is not far off all-time highs, even as oil plunges, China slows, Russia invades and retrogrades, the Middle East burns, Europe self-immolates, and Ebola spreads, so it isn’t a macro problem.

The “Wall Street just doesn’t get it” argument is that because Box is a subscription business, they should get a free pass for their huge losses, because “lifetime customer value” means it will all turn out fine in the long run (this is of course counter to the Keynesian orthodoxy that in the long run we are all dead).

The people who generously have taken the time to educate us all on this topic (who coincidently often happen to be investors in Box) never seem to want to use Box’s own numbers to illustrate the virtues of a subscription business. Instead, they walk us through companies like Workday and imply that Box is somehow comparable in its subscription economics. They’re not.

There are good subscription businesses and bad subscription businesses. The spreadsheet-wielding denizens of Wall Street, despite their innumerable flaws, understand this quite well. They’ve been running the numbers on Salesforce, Workday and others for years, as well as subscription businesses in other industries.

High customer acquisition costs (traditional top-down enterprise sales model) combined with low revenue per customer (commodity file storage) doesn’t make for a good business. Add seemingly moderate churn and it can get ugly. There are some really crummy subscription businesses out there (TiVo and Vonage come to mind though it has been a while since I looked at their financials).

Add the very real cost of goods sold for petabytes of storage and the overhead of a freemium model (90% of Box customers don’t pay), and it gets even worse (I’ve wallowed in the storage economics and it can be ugly). To own Box stock, you have to believe they will retain their customers for a really long time to pay back the acquisition costs and/or significantly increase their revenue per customer. It is hard to make this case and Box notably doesn’t make much of an effort.

How will Box extract significantly more revenue per customer? They have neither moat nor unique technology (unless you count their “which one of these things isn’t like the others” participation in the Linux Foundation’s Dronecode Project). They don’t have an operations at scale cost advantage. Their “platform ecosystem” is superficial at best. They face giant competitors like Apple, Google and Microsoft with untold billions in the bank who are happily giving cloud-based storage away as a complement to their other services, as well as Dropbox which continues to ooze into the enterprise with a bottoms-up strategy which has dramatically lower customer acquisition costs. Box is still doing the same thing it always has, even as the market has evolved. They no longer have the luxury of just highlighting SharePoint’s inadequacies. Some argue Microsoft’s refusal to support Android and iOS has been the singular Box value proposition – obviously, that is a window that has closed.

The implicit financial bet/hope is Box will find a new and better business soon. But if you read the S-1, you discover Box doesn’t really know who they are or where they are going (though they do claim they’ll be really agile getting there). They’re happy to make a few jokes and compare themselves to all of Apple, Facebook, Zappos and Salesforce with a straight face, yet can’t describe their own raison d’etre (beyond giving good soundbite which I yield to no one in my respect for but tragically that competence is not a foundation for spending hundreds of millions of dollars a year):

We design our software with the passion and attention to detail that you’d expect from leading consumer companies like Apple. Similar to Facebook, we release updates to our product continuously, which allows us to act on user feedback to improve the Box experience and respond to opportunities with agility. We support our customers with the greatest care and attention, delivering Zappos-like support. And we’ve created an open ecosystem much like salesforce.com [sic], leveraging the talents and skills of tens of thousands of developers outside of our corporation to build value on Box.

What would it mean for someone to describe their company as “like Box” in a positive way?

Which brings us to their updated S-1. The good news is Box has reduced their burn, but with it their growth. Box has been a poster child for the recent “excessive burn rate” startup critique. But this is not entirely fair, as Box’s massive spending is not sumptuous employee benefits or other discretionary items, but rather is baked into the business model for customer acquisition.

Then there are the details of the Series F (as in “F#&ked”) financing Box raised this summer when it became clear an IPO was not in the cards while they were still burning mountains of cash. The private equity investors dictated stark terms and will get “theirs” well before any other investor.

Given the Series F investor preferences ratchet up even further if Box doesn’t IPO by July 7, expect an all-out push to get this turkey over the finish line. Amid that push to ring the bell, I hope Box’s fans will explain to us how the company will become a viable and even decent business in the future as opposed to just chanting “LTV FTW” because they really want to get it out of their portfolios. Customers and investors beware.

Segmenting Virtual Reality

When you say virtual reality today, most people think of Oculus VR. They singlehandedly resuscitated the ‘90s flash-in-the-pan that was virtual reality (with no small help from Moore’s Law). But the space is developing quickly and there are multiple segments emerging with very different capabilities, price points and challenges:

  • PC VR – the Oculus Rift DK2 headset famously utilizes mobile display technology but still relies on a PC to do the processing. The fact is it requires a very beefy, high-end PC to deliver the buttery smooth frame rates so important for great VR experiences. So while the headset is only $350, in practice you’re looking at out-of-pocket cost of over $2,000 unless you’ve bought a high-end gaming machine very recently. The Rift actually drove my first new desktop PC purchase in over five years (take note Intel and Microsoft). Ironically, even the latest generation game consoles may not have enough oomph to be competitive with PC-based VR, which explains Sony’s ambivalence around their Project Morpheus VR headset.
  • Smartphone VR – meanwhile the immense volumes of smartphone have driven rapid advances in CPUs and GPUs in addition to displays. The latest smartphones are very capable on the graphics front, though still materially behind PC GPUs (smartphones simply can’t consume the same kind of power). And as is typical of all things smartphone, there is a strong urge to get the PC out of the equation altogether. Google kicked things off with Cardboard. Even with Google Glass going the way of being “Segway for your face” (i.e. the uses are more mundane and commercial than consumer), they could not resist taking a shot at rival Facebook who had recently purchased Oculus for $2 billion. This cheap cardboard kit let you somewhat awkwardly affix an Android smartphone to your face. Suddenly overcoming their previous disdain for mobile VR, Oculus responded by partnering with Samsung (or perhaps found their display supply taken hostage until they agreed to partner) for what became Samsung’s Gear VR, a $199 headset to which you add a Samsung Galaxy Note 4 phablet. Unlike other Samsung spec-driven sprints to be first to market without pausing to entertain so much as a single use case, the Gear VR is actually a surprisingly good product (no doubt due to Oculus’ deep involvement, which also means this is another class of device where Samsung is relying on someone else for the software). It eliminates the wired tether of the PC-based headset but is inferior to the Rift in performance as well as a number of functional dimensions (e.g. no positional head tracking). The big problem is it requires a new (and probably unsubsidized) phone, so it still has close to a four figure price tag. But why require a new and specific model of phone at all? Why not let people use their existing, recent model smartphones (say iPhone 5 and up as well as comparable Android phones, which quickly gets you to hundreds of millions of devices)? I invested in MergeVR which does exactly this, getting the price of smartphone VR down to $99 for a headset and controller that work with your existing phone. The test of this whole category is whether you can you run a “good enough” experience on a smartphone. Because of both the Gear’s 2014 ship date as well as Samsung handing out cash to developers, the center of gravity for VR software development has shifted to the smartphone.
  • Venue VR – while smartphone-based VR solutions are driving down the price by sacrificing quality of experience, there is another trajectory moving up-market to offer the most immersive experience possible. It turns out there are all kinds of industrial applications using vestiges of ‘90s VR technology that are ripe for upgrades. These venue-based experiences tend to use the Oculus headset as well as full motion capture systems (think a dedicated room full of Kinect-like sensors) that track all your movements. With no tether, they allow complete freedom of movement, unlike the headset-only solutions which while immersive for your field of view, suffer from an “arms and legs” problem (it is like you’re sticking your head through a hole into another world while the rest of your body remains awkwardly seated). The team at AtomicVR has built an incredible venue-based system that is far and away the most immersive virtual reality I’ve experienced. The freedom of motion is amazing. You put on the headset and you’re transported into another world (beware: there are drones out to get you…). These venue-based solutions have a wide range of entertainment, commercial and industrial applications and will sell for upwards of hundreds of thousands of dollars.

I am amazed at how fast this market is moving. Oculus, the uncontested leader in VR just a few months ago, backed by billions of Facebook’s dollars, is already in a bit of a strategic quandary. They have acknowledged PC-based headsets are too expensive for a high volume consumer product, while reversing their earlier antipathy to mobile-based VR. The Gear VR partnership with Samsung halves the cost but still requires a phone that very, very few people have (or will have). After years of selling the dream of the “consumer Rift”, Oculus has gotten very vague about when if ever we will see that oft-promised device. I suspect they are seriously contemplating an OEM business model whereby they license their technology to any and every interested manufacturer on the planet as opposed to building their own devices. The division of labor and branding around the Gear VR certainly supports this theory. Oculus has incredible talent and has set an extremely high quality bar for themselves as well as their competitors (they don’t want inferior products ruining the category for everyone). The risk is “good enough” smartphone VR trumps Oculus’ perfectionism.

Thanks to Nat Brown, Mike Lenzi and Franklin Lyons for reviewing a draft of this post.

Ballmer vs. Chambers: A Corporate Cage Match

Amidst adding Cisco to Dinosaur Row, I asked someone “If Steve Ballmer got run off by Wall Street, how does John Chambers still have a job?”

Both are/were long-tenured, non-founder CEOs of two of the biggest technology companies. Both have presided over erosion of prior dominance during the course of the 21st century, even as revenues and profits kept growing. Neither has been shy about making sweeping calls about the future, yet their predictions have stubbornly refused to come to pass. Both found themselves increasingly reacting to rather then driving key industry trends (although Ballmer will eventually get credit for not missing cloud computing, which is coming for Cisco, even as Chambers continues to ply ye olde enterprise playbook in response). Ballmer’s tenure as CEO began January 1, 2000 while Chambers took the CEO chair in January 1995.

I’ve related this story before, but Steve was acutely aware of the consequences of taking office almost exactly at the top of the dot com bubble. He would bellow, not proudly, that “I’ve lost more market cap than any CEO in history”. After a couple years, he could amend that with “Thank god for John Chambers”.

Lets look at their performance during their shared tenure (January 1, 2000 to February 4, 2014). Revenue and profits are generally up and to the right, but stock performance is negative – presumably their future performance was already priced into the stocks. Microsoft’s total return is better with all the dividends, but still in the red over Ballmer’s tenure.

Total Return: Advantage Ballmer (Microsoft -15.3% vs. Cisco -56.8% )

CSCO Total Return Price Chart

CSCO Total Return Price data by YCharts

Market Capitalization: Advantage Ballmer (Microsoft -49.7% vs. Cisco -68.2%)

CSCO Market Cap Chart

CSCO Market Cap data by YCharts

Revenue Growth: Advantage Ballmer (Microsoft +333.5% vs. Cisco +156%)

CSCO Revenue (Quarterly) Chart

CSCO Revenue (Quarterly) data by YCharts

Profit Growth: Advantage Ballmer (Microsoft +175% vs. Cisco 75.12%)

CSCO Net Income (Quarterly) Chart

CSCO Net Income (Quarterly) data by YCharts

Bigendian Suit: Advantage Chambers

John Chambers, chairman and chief executive officer of Cisco Systems

(A picture of Steve in his red v-neck sweater — or worse, forthcoming Los Angeles “America’s Team” Clippers garb — is omitted as a matter of common courtesy).

Now you may say “but lets look at Chambers’ full tenure”, as he assumed the big boy chair five years before Ballmer. And you’re welcome to do that, even in our what have you done for me lately culture, but the record is uglier than that of the much derided Microsoft (I won’t even start digging up all those acquisitions everyone has rightly forgotten about). Will Chambers declare victory and head for the exits before the future pain becomes more evident at Cisco, or will he overstay his welcome until the hounds of Wall Street start baying for his head? Stay tuned. And then we can have a discussion about whether Cisco’s next CEO should be a product guy or another sales guy…

Tweetstorm Digest: July 10, 2014

Reprising today’s @charlesfitz Tweetstorm:

1\ Some quick reactions to @satyanadella morning Microsoft missive (sprawling, like the company).

2\ A first step to answering the biggest question about the company: why does it exist beyond just perpetuating its past?

3\ Shift from vapid (realizing potential) or means (devices & services, cloud-first/mobile-first) to end (productivity) is long overdue.

4\ Company has been at a loss wrt mission since achieving BHAG of computer on every desk and in every home.

5\ Productivity is Microsoft’s core but still some awkward stretching to cover full portfolio

6\ Still waiting for major deviation – addition or deletion – from Ballmer’s Microsoft. Bing and Xbox not going away (and rightly so).

7\ HailStorm vision is back: individual as hub for all the technologies in their life. Should have done it a decade ago.

8\ Microsoft’s disastrous embrace of the ad economy remains unresolved (devalued personal computing franchise, got none of the upside).

9\ Privacy paeans weaker than Apple; lumping with security feels like afterthought. Privacy path fundamental question for company.

10\ Still no answers for the Windows business, Company must pivot from personal computer to personal computing.

11\ More changes coming soon, including probably some layoffs. Marketing rationalization has been deferred for long time.

12\ My preference is still to break the company up. Would unlock a lot of value.

13\ Satya continues to endear himself to literate press with literary references ;-)

(Somehow periods seem more necessary here).

Dinosaur Row

IBM’s cloudy predicament is now widely understood.

BusinessWeek made IBM’s existential crisis a cover story (a concept that doesn’t really exist any more if you read the publication online):

Bloomberg Businessweek (US)

Forbes then called out recently departed IBM CEO Sam Palmasaino for his financial engineering shenanigans with “Why IBM is in Decline”. Cringely went one better with the full Gibbon in his new book “The Decline and Fall of IBM”.

To which I say, welcome to the club!

IBM employees have been crawling out of the woodwork over the last year to defend the holy EPS roadmap (even as Wall Street tells them “um, you might stop the financial engineering games and optimize for survival at this point”). While I have listened patiently, not a single Big Blue booster made an argument based on their product portfolio or confidence in their ability to innovate or adapt. They have a bad case of assuming past performance guarantees future survival.

The most compelling argument I heard from any IBMer was “Well, at least we’re not HP”. HP is in a similar situation as IBM, except a few years behind. On the plus side, HP has less software legacy (there are positives to not being a software company period). I’m waiting for HP to buy Rackspace as their SoftLayer-like “Hail Mary”, except paying more and doing it a couple years later due to the need to rebuild their balance sheet “autonomy”. But a wise man once told me “life is too short to work with HP”, so enough about them. Unlike some other vendors, I don’t think anyone really cares whether HP make the next transition or not.

The storm clouds of creative destruction blow not just in Armonk and Palo Alto. Things also look blustery in San Jose, home of another dinosaur: Cisco (or as I like to call them, “the IBM of networking”).

Cisco has many parallels to IBM:

  • Revenue has plateaued and oscillates between flat and down.
  • Competitive threats abound including fundamental technical and economic disruption.
  • They can’t innovate and have relied on buying R&D for even longer than IBM and to a greater degree.
  • Lots of acquisitions that haven’t had much discernable impact. One can argue IBM has done better with its acquisitions, where they at least milk the installed base for revenue even if the acquired products go immediately into maintenance mode.
  • They have lost the leading edge customers who prefer to build their own switches or rely on other vendors.
  • Their biggest customers may face an existential threat by continuing to rely upon them, facing competitors who don’t have that legacy dependency.
  • Their core competencies have shrunk to browbeating the press (and watch the press pay it back that the dam has finally broken on IBM after years of oppression) and manipulating Wall Street expectations (revenue only down 5.5% – it’s a beat!!!).
  • They are dismissive of the threats they face (a la “it is early days for cloud”) and take their survival and market position for granted.
  • Their product efforts focus on trying to pull innovation back into the old way of doing things (see Cisco’s ACI, which kind of misses the whole SDN point).
  • They believe they can play with the big boys in cloud but on a bonsai budget. Cisco’s Intercloud is another “multi-year, one billion dollar investment” in cloud capex that amounts to about six weeks of Google’s capex spending.

Cisco is flailing all over the place when it comes to communicating their strategy:

  • Competitive bluster and/or schizophrenia: they plan to “crush” VMware who is “enemy number one for Cisco” (but also maintain this SDN thing is not a big deal…). Yet VMware doesn’t even make their slide of competitors today or in 2018, when it seems they plan to compete exclusively with the cream of the late 20th century NASDAQ:

Cisco competitors prediction

  • Misdirection and/or distraction: “Hey, look at this $14 TRILLION dollar market over here. It isn’t just the Internet of Things, it is the Internet of Everything!” I’m a big believer in the Internet of Things (hold the “Every”) but am hard-pressed to understand what Cisco is going to do to capture any disproportionate part of that. Cisco’s IoT executives are so impressed with the opportunity they keep bailing out.
  • Safety in numbers: they would like you to believe their challenges are not unique to Cisco, but plague the whole “industry” (aka Big Old Tech with no appearances from the companies taking share). John Chambers forecasts “brutal” times ahead and provides this handy chart by which to track his self-selected cohort’s misery:

Cisco Chambers Keynote 5 Tech Revenue

Cisco picked the right peers with HP and IBM (aka Dinosaur Row), but Microsoft and Oracle are in a different class as I am sure this time series will prove out over time. We’ll be tracking the “Chambers Chart” going forward.