Cisco and VMware eat their anticloud words

VMware once tried to rally the troops against Amazon by dismissing it as a 'bookseller.' Now the old guard has been forced to change its tune

Cisco and VMware eat their anticloud words

Competing with Amazon Web Services is rough. Just ask VMware and Cisco, both of which have been made to eat cloudy humble pie in recent days.

Both companies sneered at AWS for being a low- or no-margin commodity player a few short years ago, one that would never touch their "higher value" products. Now? We'll let them speak for themselves.

Networking the cloud

Cisco sells billions of dollars worth of networking gear and has been the dominant networking vendor for what feels like centuries. It's a great company with a storied past. It's also seriously at risk thanks to AWS, Microsoft Azure, and other public cloud vendors that encourage enterprises to rent essential infrastructure.

Two years ago, Cisco hired Nick Earle as its senior vice president of cloud sales and go-to-market. At the time, Earle wasn't concerned by AWS. "Commodity riffraff!" seemed to be the thinking that went into a statement he made to CRN:

If you look at what [AWS is] doing, it's clearly a line grab and they are cutting prices and strategically losing money. Cisco does not believe in strategically losing money.

Instead, Earle posited, "ACI and dynamic programmability of the network allows us to have differentiated and higher-value services." Allegedly low-margin vendors like AWS are "shaking because this is a really expensive game. To keep on building data enters and to keep on dropping prices is not the strategy we believe in."

Unfortunately, it is a strategy that AWS, Microsoft Azure, and Google Cloud customers believe in. Oh, and it turns out it's pretty darn profitable, with AWS notching healthy margins that are big enough to carry Amazon's overall operations well into the black.

Cisco, to its credit, has noticed.

Last week Cisco's European, Middle East, Africa, and Russia president Edwin Paalvast took the stage at the Canalys Channel Forum and told them to dig for niche markets because "no doubt [AWS has] won in mass startup [markets] like very big data applications. They are the norm and can't be beaten any more." Hmm, "can't be beaten"? That doesn't sound good.

Yet Cisco remains convinced that the AWS model is likely unsustainable. Paalvast argues: "AWS is a gamble. If you really look at their financials they leased everything out; if they keep growing like they are today, they'll win." However, he goes on, "If they have a hiccup, they will be bankrupt."

With all due respect, Cisco, I wouldn't bet on a strategy based on praying for hiccups. It hasn't worked for VMware, after all.

Beat the bookseller

First it was VMware President and COO Carl Eschenbach, who in 2013 took stock of VMware's brand and ecosystem strength and declared, "I find it really hard to believe that we cannot collectively beat a company that sells books." Not to be outdone, VMware CEO Pat Gelsinger went a step further and insisted that AWS's victory was everyone else's defeat: if "a workload goes to Amazon, you lose, and we have lost forever."

The "we" Gelsinger referred to was VMware and its partners. He was sounding an alarm about the public cloud's threat to VMware's domination of the datacenter:

We want to own corporate workload. We all lose if they end up in these commodity public clouds. We want to extend our franchise from the private cloud into the public cloud and uniquely enable our customers with the benefits of both. Own the corporate workload now and forever.

Gelsinger finally, decisively changed his tune last week when he got on stage with AWS chief Andy Jassy to announce a partnership in which VMware software will be offered as a service on AWS. The Register snarkily headlined it this way: "Amazon AWS: 'Hi there!' VMware: 'We submit. Please, save us.'"

Gelsinger, a bit humbler now, said it thus: "This is the result of our customers telling us what they needed." He's right, but he would have been equally right to admit this three years ago.

The reason VMware fought reality for so long is all about self-preservation. As InfoWorld's Eric Knorr suggests, "This is ultimately an on-ramp [to the AWS public cloud] without an off-ramp." It's a great way to extend the private cloud, which VMware controls, into the public cloud, which is AWS' strength. Don't expect AWS to pave the way back to the private cloud.

A very cloudy Hotel California

This is the problem for all these legacy heavy-hitters, those that Wired has called "the walking dead." They can no longer explain away the gravitational pull of public clouds like AWS or Microsoft Azure, yet they don't have a way to stop them, either.

Analyst Chip Chowdhry, speaking of hardware incumbents, makes it clear that something profound is happening across the enterprise IT landscape, a trend that doesn't affect hardware vendors alone:

We attend 8 to 11 technology conferences every month. We have not come across a single customer who is increasing their enterprise hardware spend. Actually every customer who we spoke to is decreasing their enterprise hardware spend. Every customer we spoke to continues to increase their workloads on AWS and Microsoft Azure by more than 100 percent.

This is only going to accelerate. At least Cisco and VMware now admit it, however painful it may be.

Copyright © 2016 IDG Communications, Inc.

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