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Summary:

When Cisco Systems announced plans to enter the enterprise server market, no company stood up and took notice more than Hewlett-Packard — the HP ProLiant line of servers, after all, is a force in the enterprise market; Cisco’s entrance was essentially a declaration of war on […]

When Cisco Systems announced plans to enter the enterprise server market, no company stood up and took notice more than Hewlett-Packard — the HP ProLiant line of servers, after all, is a force in the enterprise market; Cisco’s entrance was essentially a declaration of war on its former partner. To paraphrase one of my favorite characters on “Lost,” “They changed the rules.” Now, HP must change the rules again, for in order to win this war they are going to have to first win numerous strategic battles, and for that they’ll need to start shopping.

HP needs to first realize that the focus of this war is the enterprise IT market. As far as the other markets Cisco serves, service providers are already being flank attacked by Huawei, Juniper, Alcatel-Lucent and Ericsson, to name just a few, while DLink, Netgear and dozens of others are busy in the Linksys consumer markets.

HP needs to think about the markets their enemy is headed toward, not where it has been or is today. They need to think about what the IT marketplace will look like in 2-3 years, when CIOs could actually have budgets again. Startups are where the innovating ideas of tomorrow are already being developed, and for many of these companies, their price tags may never be this low again.

So, which startups should HP acquire? If it’s looking to make gains at the expense of Cisco, the list is as follows:

Cavium Networks: This Mountain View, Calif.-based startup builds intelligent processors for networking functions such as compression, encryption and data acceleration. Notably, however, Cisco is a major customer of Cavium’s, so I imagine they’re contractually obligated to provide Cisco processors for many years to come.

Arista Networks, Blade Network Technologies or Force10/Turin Networks: While HP’s ProCurve line of switches has become a significant player in the enterprise data networking market, it needs to have a winning 10/100 gigabit Ethernet switching product line. Each of these startups have Ethernet switching technologies that could help HP aggressively attack Cisco at the core of the data center network.

DataDomain, StorWize or Ocarina Networks: Storage optimization is the emerging technology that CIOs need in order to cost-effectively deal with the mountains of data that enterprises store over long periods of time. With an $800 million market capitalization, DataDomain may be too large of an acquisition right now, but both StorWize and Ocarina Networks are just the right size.

BlueCoat, Zeus Technology and Strangeloop Networks: The application delivery market, focused on making applications run faster and optimally, is a battlefield strewn with many players. While HP recently inked a partnership with Riverbed, this is merely a shot across the bow. HP needs to acquire in this area, and although market leaders F5 (market capitalization of $2 billion) and Riverbed (market capitalization of $800 million) may be too expensive, BlueCoat, which has a $400 million market cap, may give them the firepower they need. Likewise, startups focused on the next generation of application delivery such as Zeus Technology and Strangeloop Networks would provide the necessary weaponry.

Nirvanix or Parascale; Rightscale or Elastra; SkyTap: Most of the companies in the enterprise cloud computing space are still privately held, so this may be the ideal time to make decisive acquisitions. HP should acquire companies focused on helping enterprises reach storage and compute power in the cloud in a scalable manner, those enabling what I call the Cloud Two-Step. In the storage battleground, HP should move to provide outsourced storage clouds, perhaps by acquiring Nirvanix, or allow enterprises to build internal storage clouds by buying Parascale. In the compute cloud market, HP needs to acquire a company such as Rightscale or Elastra. To help enterprises build and scale applications, SkyTap, which provides testing resources in the cloud, would make a compelling acquisition.

To win the upcoming war, HP needs to pick its battles carefully and strike quickly. For the past decade, Cisco and HP have had a cold war alliance –- Cisco claimed enterprise IT networking while HP focused on enterprise servers and compute. Both companies have been rewarded with exceptional market capitalizations. Now that Cisco has broken that alliance and declared war with their enterprise servers, HP must respond. I suspect bloodshed will soon ensue, so HP should move quickly — or risk losing the war before the first shot is fired.

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  1. Now that Cisco has broken that alliance and declared war with their enterprise servers, HP must respond.”

    What about HP’s focus on Enterprise switching? Or HP’s Virtual Connect? Didn’t HP just buy a wireless networking vendor? Not that Cisco is innocent (they are always looking to move into “adjacent markets”), but I always thought that HP made the first couple of moves here.

  2. You missed unified communication. HP is in talk with an Indian startup for unified communication, to go head-to-head with Cisco

  3. Douglas Gourlay Saturday, February 7, 2009

    Somewhat revisionist history my friend, ProCurve and Virtual Connect, and recent wireless announcements were entrances into Networking years before Cisco ever made any shift towards Unified Computing.

    One thing to keep in mind, even with slanted reporting ;), is that the real test will be not if Cisco enters the Unified Computing space, or HP enters the networking space- the test of both companies will be if they continue to partner together to deliver customers interoperable and valuable solution.

    Speaking for Cisco we see that while both companies have intersecting trajectories, our customers do not want that to disrupt services delivery, vendor support, TAC escalations, protocol interoperability, or hosted offerings. Both companies are far more mature now- and will compete in some areas, and we hope, continue to partner in others.

    dg

  4. It is not often I agree with Doug Gourlay, but HP has been shifting customers to HP Procurve for years for Ethernet edge switching. Lately they have moved to extend control of the Access Layer with a range of small changes.

    Most HP staff internally prefer Cisco, but the internal Procurve division have been able to impact many business units.

    In practical terms, look to the IBM / Cisco relationship for pointers on how to be frenemies. HP & Cisco as organisations are too big to go gloves off, they will find ways to solve the partnering problems.

    Reminds of the late 90’s, when Cisco sold direct and via the channel. Its kind of the same problem.

  5. Thoughtful analysis but there are a few things I don’t like about it:

    1) HP is a mega-company. You right about some companies as being “too big” and for HP it is just the opposite, they want/need/prefer big. It’s the only way to move the needle.

    2) Going in the same direction as Cisco may not in fact be the most capital efficient strategy. HP can also expand greatly in areas that Cisco is not, particularly in the consumer area where Cisco has very little cred. This could be in mobile Internet or digital media to name two.

    HP has many businesses that go head to head with Cisco (like Halo vs Telepresense) but they just are too diverse to fight when Cisco puts all their energy behind their core businesses. Better to stay out of the way.

    I agree that HP, IBM, Cisco know how to compete but not kill themselves in the process.

  6. @Aaron – you are right, HP has always tried to encroach on some of the Cisco markets. But, as far as I can tell they have done ok, but not great there and clearly have not treaded on Cisco’s core routing products. With Cisco announcing their intentions to move into HP’s main bread and butter it appears to be war time.

    @Jack Garner – I missed unified communication on purpose and I actually had that in a draft of this post. I think for HP to win this war they need to focus on future markets where they can acquire to gain ground or even gain a lead from Cisco. I’m not sure that unified communications qualifies here – is there a company you would recommend that they acquire?

    @Doug Gourlay – Slanted reporting or not (and in full disclosure please note that I was a Cisco employee for over seven years and HP was my employer for two years out of college), from what I can tell battle lines are being drawn out and crossed in the partnership arenas. If Cisco and HP prove to have the same partnership in enterprise accounts in a few years then you can tell me I am wrong :)

    @Etherealmind – Like my comments to Doug above, I truly think this time it’s different from a partnership perspective. I do agree with you that HP and IBM face the same threats from Cisco and are preparing for a major fight. If I were a betting man, I would put money that over the next few years we’ll see the gloves off and brass knuckles out in full force.

  7. @Kris Tuttle – Thanks for the nice words. I think that if HP was able to take significant marketshare from Cisco in the enterprise networking markets in the future (focusing on the areas I outlined) then it will absolutely move the needle. Cisco and HP both have about a $90 billion market cap and if either gains market share in servers or networking the markets will take notice.

  8. Douglas Gourlay Saturday, February 7, 2009

    @Allan with the definition of ‘same partnership’ I will agree with you completely, it will change, the nature of the relationship will have to. I have seen Cisco and Microsoft compete in some areas, partner in others, IBM and Cisco as well. I hope we can have a similar relationship with HP moving forward where customer-success is concerned.

    What I don’t understand though is the portrayal of this as Cisco entering HP’s turf first, and not recognize HP’s significant thrust into networking that has been happening for years. (Andy Bryant, from HP, commented on SeekingAlpha – “HP is already in networking, and we’re the leading alternative to Cisco for the Enterprise. …we don’t report numbers as a distinct business within HP’s annual reports, but we are a growing business.”)

    And in the spirit of disclosure as most everyone knows I work at Cisco, coming in just at Allan was leaving for his ISP adventure. It’s such a small world…

  9. The problem HP is getting killed for is that they are suffering disruptive lifecycles.

    The beauty of Cisco is that they are insanely innovative and going into markets that feed their lifecycles. Cisco will win because they are hell-bent on innovation, research & development. This is needed for growth now and survival in the long term! http://glassified.wordpress.com/2009/02/03/croslins-theory-of-disruptive-lifecycles/

    Disclosure: my new CTO, David Croslin, was the Chief Technologist of HP’s Media, Communications & Entertainment vertical. He DID NOT tell me anything bad about HP! (Just making sure he won’t get in trouble with his HP buddies)

    ;-)

  10. @Doug – Yes, HP is in networking – but they have stayed away from Cisco’s core markets either because they knew they could not compete there and/or they respected their alliance with your company. Now that you are going after the market where HP is claiming market leadership (they claim they are #1 in enterprise servers), are you going to consciously stay away from competing with them in their core markets and enterprise customers or move in to compete with them directly? I suspect you’re going to do what Cisco does best – compete directly in the enterprise markets and customers – and I feel that will change the nature of the partnership and invoke an all-out war.

  11. For both Cisco and HP, becoming the company that delivers next-gen clouds — first mostly internal to enterprises and then commercial-scale externally — is what matters and building these clouds will require servers and server-virtualization, network switches/routers and network-virtualization, and a better than FCoE solution for integrated storage (local or remote). And oh someone needs to start worrying about GPUs and virtualization for GPU enabled processor farms as well.

    None of the startups mentioned on your shopping list permit a big enough technological leap for HP. Perhaps JNPR would be a better buy for networking technology ( and their carrier revenue based will be a complementary market for HPQ) and I keep hearing good things about their new data center initiatives…

  12. @Rohit – You’re right on the fact that HP needs to think about the market in a few years from now to win the war. And that is why I think that I would recommend they acquiring smaller companies today that could have strategic value in the near future. I would contend that Cavium, DataDomain, Riverbed, F5 and BlueCoat are big enough to get them started (or more down the path if they acquired a few of these). For next-gen clouds, that market is still too small to have a significant player, unless somehow HP could wrestle AWS from Amazon. IMHO, better to place a few small bets in that space and leverage the great HP sales channel for growth.

  13. Allan,

    Do me a big fave. Since you are so trigger happy in deleting comments, can you for freak sake delete all my comments here? I have made approx. 5 or 6 comments in the last month.

    Thanks, sir.

    Neal Lachman

  14. Allan,

    Do me a big fave. Since you are so trigger happy to delete comments, can you for freak sake delete all my comments on the blog? I have made approx. 5 or 6 comments in the last month, won’t be hard to find them.

    Thanks, sir.

    Neal Lachman

  15. @Neal Lachman – I have never deleted a single comment from anyone and I do not have the appropriate permissions from GigaOm to do this action. If you feel that there is a technical issue here, I am happy to bring it up with the GigaOm team.

  16. Allan,

    I have the print outs of this page with and without my comment. So, either the comment fairy turned into a comment b*tch due to some technical issues, I don’t know what happened.

    In any case, if I am wrong, my apologies. Karma is a b*tch! ;-)

    Take care.

    Neal

  17. @Neal Lachman – For the record, I have never deleted a comment from anyone on any post. I’ve sent a note off to the team here and we’ll follow up. Thanks for the heads up that something may be amiss here.

  18. Sajai Krishnan, CEO, ParaScale Saturday, February 7, 2009

    Allen – thanks for the kind words about ParaScale. HP, IBM, Dell, Cisco – this is going to be a dogfight. As virtualization and cloud computing catalyze changes in industry structure, this next wave of IT transformation, cloud computing(and storage), seems likely to push through at a must faster pace than the prior major waves like client-server or Web 3.0.

    On the public cloud computing side, I was just blogging (see here http://blog.parascale.com/?p=103) about the interesting dynamics that could shape that market. To state the obvious, if HP (or Dell or IBM or Cisco) were to offer an enterprise-grade cloud computing service it would change the dynamics materially. At this point, what is available as a public cloud service, is great technology but still quite nascent. Allen, in the comments, you say “For next-gen clouds, that market is still too small to have a significant player, unless somehow HP could wrestle AWS from Amazon.” This market is moving fast and analysts like IDC and Gartner are throwing out big sizing numbers. AWS is a nice service, but the customer base is a “1000 points of light”. So I do believe there is plenty of room for the big boys to jump in and it is going to take a bit of time for them to get it right. Personally, I would love to see this as it is great validation for cloud computing and is only going to accelerate the adoption of this technology for all players.

    Sajai, CEO ParaScale

  19. @Sajai – I agree that next-gen clouds are *going* to be a big market. I should have qualified my comment to say “…that market is currently too small to have a significant player and move the needle for HP…” We’re in full agreement that the enterprise cloud computing market stands to be transformational and large in the coming years.

  20. Nice observations from all. Two important things that HP’s got that it will take time for Cisco to develop. (1) a strong enterprise systems management business, and (2) a sales and marketing organization that understands enterprise IT compute (not network) buyers.

    For Cisco just to sell servers — and these will by no means by “just” servers — the sales organization will need to know how enterprise server buyers work, what the interplay between them and SW organizations are, etc. This doesn’t develop overnight. And, for Cisco to have a reasonable presence outside the networking space, they’ll need a strong application & software management suite to complement their newfound HW.

  21. @Ken Oestreich – Great points. Selling hardware is not the same as solution selling to an enterprise, especially when that solution includes application software.

  22. @Neal

    I am not sure what you are talking about because none of your comments have been blocked. I have also seen none of your comments being stuck in the spam queue. please elaborate so we can look into the issues deeply and clearly.

    thanks

    Om Malik

  23. Wonder if – given the lower and lower mkt caps out there now… HP might even want to look at someone like Juniper or alcatel-lucent…to get more head on

  24. Sunday Morning Links Roundup | IT Management and Cloud Blog Sunday, February 8, 2009

    [...] How HP Can Fight Cisco And Win [...]

  25. Many of us expected this to happen – Cisco getting into the datacenter servers. Their next move would be to go after Apps and MS would be in their target.
    As for application delivery, HP should go after NetApp.

  26. Allan Leinwand Sunday, February 8, 2009

    @techie – I think HP would do better to concentrate on competing directly with Cisco in the enterprise, not in the service provider markets. I’m not sure Juniper or Alcatel-Lucent help them in the enterprise much – and I would vote for the amount of money they would have to spend to buy one of those firms that they should look ahead and buy multiple smaller companies to focus their efforts on where Cisco will be selling to the enterprise in a few years.

  27. Interesting post Allan.

    I think you need to break this down by product/business and where HP needs to play offense versus defense. Discussing a monolithic strategy for HP implies that its a single business and they are just too big.

    In computing, HP needs to play offense because Cisco is going to be the classic insurgent and present the market with a product that is technically innovative and optimized for growth applications (read virtualization, Ed Bugnion, co-founder VMWare,is one of the guys on the Cisco team). Datacenter computing is an area that has not seem much innovation for a long time and HP needs to offer product innovation here to continue to own the CIO’s agenda. Not innovating in the space would be inviting Cisco to take share.

    In networking, HP needs to fill out it’s core enterprise networking offerings so it can sell “end-to-end” to use a Chambers phrase from the turn of the century! Then they should worry about the edge and services.

  28. Allan Leinwand Sunday, February 8, 2009

    @Ammar – thanks for the comments. I agree that HP needs to continue their lead in the enterprise server market because Cisco is going to play the insurgent and innovate quickly. In the enterprise networking market, I understand your point but would think HP could fill out their core datacenter switching needs and their edge services in the same timeframe. The HP folks at the various networking divisions (Roseville, Colorado Springs, Ft Collins, Cupertino and Grenoble if my memory serves correctly and the internal HP structure I knew still holds true) should be able to execute on multiple fronts simultaneously.

  29. HP is buying BlueCoat ..

  30. Carter George Monday, February 9, 2009

    Great piece, Allan, and one that touches on the extremely pressing issue of storage growth. We can’t comment on your specific suggestion here but can say that we fully agree with your assessment that storage optimization will emerge as a key technology to manage the upwardly spiraling load of data. I discuss this in more depth in my blog post, “The Impending Storage Crunch”: http://onlinestorageoptimization.com/?p=64.

  31. Allan Leinwand Monday, February 9, 2009

    @Nag – I have not seen that announcement, but as I write above it makes good sense.

    @Carter George – thanks for the comments and the link.

  32. Why Does Cisco Need $4 Billion in Debt? Tuesday, February 10, 2009

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  34. Cisco and HP: data center frenemies now poised for all-out war – The Network Hub Wednesday, February 18, 2009

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  36. You have mentioned networking partners Arista, BNT
    i personally think that Voltaire (www.voltaire.com), already an HP & IBM OEM partner, can be a very valuable asset for HP in this war, they have managed to sale server fabrics with HP against Cisco, they have both the hardware and the software, and its more then likely they will extend their offering from InfiniBand to converged Ethernet

    1. Dell recently inked a deal with Xsigo. Of these startups these guys seem to be right time, right place and right technology. The whole capability these server companies lack are in the switching elements in both networking, storage and I/O Virtualization. Arista is just an ethernet switch – does not solve the storage piece and BNT is again an ethernet play – not sufficient. Where is the value add in taking commodity switching silicon and slapping it together.

      I think it might be useful to understand the Xsigo solution better.

      They use Infiniband for a 10/20/40G connection out of the server – but that is just connectivity fabric which is reliable. The operators on the server side see something that is familiar, easy to configure and simple — virtual ethernet and fibre-channel interfaces. This simplicity is key for the guys managing the servers.

      Add many of these Xsigo virtual interfaces based on demand, bind them uniquely to your VMs, set QoS to guarantee bandwidth and performance, set the bandwidth per VM or per application, move these IOs from VM to VM, or server to server without ever re-wiring your rack.

      This is quite sweet and one gets server utilization to pretty high numbers – as you have freed up the IO bottleneck.

      Think of this as a converged fabric – without ever needing to throw away your ethernet and fibre-channel switches (unlike the new fangled FCoE). Xsigo is great for investment protection and consolidating your infrastructure – perfect for these difficult budget situations and tough economic conditions.

      These guys seem to be getting traction in a marketplace where customers want to maximize server performance, keep their existing gear and get more juice from the existing deployments.

      The XMS management piece is well integrated and their solution works with all VM vendors – VMWare, XEN, Microsoft’s Virtual Machine and multiple Operating Systems too. That is a powerful story.

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  43. How Dell Will Respond to Cisco’s Server Challenge | Online Buissnes Thursday, March 19, 2009

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  47. Why Cisco Should Buy Dell Friday, July 24, 2009

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  50. HP: Positioning and Filling Holes for Data-Center Dominance « Twilight in the Valley of the Nerds Monday, September 14, 2009

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