Last October, IBM tapped Rometty, who is 55 years old, as its first female CEO and ninth CEO overall. She officially took the reins as president and CEO and became a director on January 1, 2012.

Rometty, who started at the company as a systems engineer in 1981 and worked her way up the ranks. Before being named CEO she was SVP and group executive of IBM’s Sales, Marketing and Strategy and before that led IBM’s huge Global Business Services unit and engineered its $3.5 billion acquisition of PricewaterhouseCoopers Consulting in 2002. She was viewed as a solid choice who would continue to forge down IBM’s cloud-and-services strategy set by Palmisano.

IBM has a mandatory retirement age of 60 for its executives.

The orderliness with which IBM has managed its succession stands in stark contrast to rival Hewlett-Packard which has had five CEOs since 2005. In other industry succession news,  long-time Cisco CEO John Chambers tipped his hand about possible retirement and succession strategies earlier today.

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The big picture is that as the network becomes the pipeline running through modern society, his company stands to gain — if he can mange the transitions.

Lucky for Cisco, it’s not like the transition to an all-IP world connected by networks is a sudden shift. Change is happening in waves, and Chambers hopes to take advantage of as many waves as he can. Already, Cisco has managed to successfully predict and deliver products for the transition to video on consumer and corporate networks. In four years, Chambers believes video will dominate corporate communications — and even IT.

I’ve whittled down the 90-minute discussion into three key takeaways (and reported earlier on why Cisco didn’t buy Skype) that our readers will find most interesting. The topics range from the failure of the Flip buy to Cisco’s plans for the data center. Let’s begin in the home.

The changing set-top-box market.

Cisco is not, I repeat, not selling the set-top box business it purchased in 2005 when it paid $7 billion for Scientific Atlanta. Chambers denied it at least three times during the call, but he also said that in five years, he’s not sure content from service providers will be delivered from a box. Instead, it will be all done in the cloud.

Cisco's home videoscape product.

On it’s face, that seems like an admission that the set-top box is headed for the scrap heap, but Chambers is right that service providers are not going to give up on boxes inside their subscriber’s homes. None of the executives inside telcos or cable companies are eager to provide a pipe into the home, they all want some kind of hardware to ensure a device where they can deliver software, services and any other value add that will help them stay above the commodity pipe business. The only question is will that box be a modem, set-top-box or a residential gateway. Whatever it is, Cisco will be happy to provide it.

Speaking of the cloud, Cisco has a (secret) plan there too.

Chambers was mum on his plans to address the dual threat of an entirely new data center customer that cares mostly about price and scaling out, as opposed to the nifty software and plug-and-play aspects of Cisco’s UCS gear. He was also pretty quiet on the looming threat of software-defined networks, although he pointed out that Cisco is a member of the Open Networking Foundation and will support Open Flow. However, the real threat of Open Flow and SDNs is that they will undermine Cisco’s architecture play.

Cisco's UCS server.

In the data center, Chambers emphasized the customer wins at service providers (about 45 percent of the customers) and Fortune 500 companies. Cisco is betting that a system that goes from chip-based to software and services will win out. So far it’s doing well, but I also think it’s missing out on the next big wave of growth in the server market — companies like Amazon, Facebook and Yahoo that buy their servers by the racks (and even by the data center) as opposed to by the box.

Those companies are trying out merchant silicon in switches such as those sold by Arista, or even lower-level gear from the likes of companies like Huawei or Quanta. Chambers’ response to the rise of merchant silicon and commodity boxes is to bring on the ASICs. That’s right, Cisco plans to keep designing its own chips as part of its architecture play — but it also plans to design them faster. When I asked Chambers to go deeper into this, he declined.

It’s possible a custom ASIC could bring value to Cisco, even in the webscale world, if used a little bit more strategically. For example, SeaMicro is a hot startup in the server space because it’s building a box that could replace 500 machines from five years ago and run at 96 percent of the power. SeaMicro can do this because it has developed its own ASIC to handle the networking inside that box.

When I pointed this out, and asked if Cisco could deliver a fundamental rethink of its ASIC to deliver that type of functionality, Chambers said he wasn’t willing to discuss this further, so as not “to let all his competitors know where Cisco was going.”

But M&A is in the air.

Chambers seemed frustrated that no one asked about Cisco’s recent announcement that it planned to start buying other companies. He didn’t really offer any insights about who or what he wanted to buy, but on Friday Cisco announced the planned acquisition of LightWire, a company that makes an optical transceiver.

He also acknowledged Cisco’s mistaken efforts to get into the consumer market with the Pure Digital acquisition (otherwise known as the Flip camera buy.) He said when his team realized the deal wasn’t working, they quickly decided to shut it down, and did so, which is possibly the best way to spin a $590-million mistake.

Indeed, Chambers appeared to be the master of being able to admit his mistakes, and then spinning them quickly to an asset. Whether it was his ability to recognize quickly that the $590 million buy of Flip wasn’t going to work or his realization that an effort to change the pricing and product mix on switches led to a sudden drop in margins that he has since fixed, Chambers hasn’t met a market transition he couldn’t either see coming or fix in retrospect with quick action or an acquisition.

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Cisco, which is famous for its acquisition strategy, may have made a rare flub with Skype. But since Cisco passed on the deal it’s still trying to exert some influence over Skype and its new owner Microsoft, via the European Union. Last week Cisco asked the EU to block the Microsoft-Skype merger. At the time Om wrote:

The company that once championed SIP and sold expensive PBX gear and expensive handsets for the offices has been losing influence in the new world of collaboration and communication. For a long time Cisco has dominated the unified communications business. Cisco, thanks to its nose-bleed inducing price tags, is aimed at companies with deep pocket books. Skype, on the other hand, is for real people and small businesses.

Cisco is extremely worried that Microsoft will now take Skype further into the corporate community, and that big companies will stop buying its gear. Cisco’s De Beer in his conversation earlier this morning wouldn’t go as far to admit it outright, but he did say that it was causing them problems with their corporate clients. The argument De Beer made was that just like any voice phone can talk to any other voice phone, video calls should have similar interoperability.

Chambers confirmed this when he explained that Cisco’s customers asked it to make this move because they wanted their Cisco software and the Microsoft (plus Skype) software to work together. That’s right, Skype was a threat and now with Microsoft’s corporate cachet, it’s an even bigger threat, so now Cisco wants it to play nice — or just play with it.

Chambers also said that Cisco had been trying to work out a deal with Microsoft on this, but had gotten nowhere. The problem for Cisco is that it didn’t buy Skype a while back to avoid alienating its service provider customers. However, today when IP communications are the only communications, and the core of many lines of business for Cisco, thinking about that service provider subset of customers now means Cisco frustrates another set. For Cisco the growing importance and prevalence of a single network across all lines of business is both a curse and an opportunity.

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Those five areas are switching and routing, the data center, collaboration, video, and architectures for business transformation. In the past year Cisco has done six acquisitions, with half of those occurring in the past three quarters while it was handling its restructuring. As we have documented, Cisco’s previous forays into M&A have helped the company spread its bets on emerging technology around, but they haven’t always helped it boost its bottom line. Cisco also had seemed to lose focus in previous years, letting other firms come into its market and take share.

Based on the financial results at the end of Cisco’s fiscal second quarter of 2012, the company has $46.7 billion available in cash and cash equivalents. It is profitable and is generating cash as well after completing its reorganization, which has cut $1 billion off its annual run rate. In response to questions about M&A strategy on the call, Chambers said that the acquisition strategy remains the same, buying companies with about 100 engineers and products close to coming to market that Cisco customers tell the company it should buy. He pointed to the acquisitions of Tandberg and Starent as good examples of deals and said that of all the large players out there making acquisitions only Oracle had a similar success rate as Cisco when it came to integrating deals.

If Cisco is back in the shopping mood, we have a few suggestions for places where it should start. It should go all-in on the cloud, which seems like where Cisco wants to focus anyhow.

Since software-defined networks and OpenFlow are clearly an emerging area in the networking space, Cisco should shell out money for a player in this space. Big Switch would be a good bet, as it is trying to create an ecosystem using open-source controllers and then focusing on building services and applications on top of that platform. The model is different for Cisco, but the focus on enterprise applications and services is one that would benefit Cisco and lead to higher margins.

As clouds are deployed, monitoring and tracking websites and application performance from within the network are important for Cisco and its enterprise clients, which is why New Relic could also be a good pick for the company. New Relic’s SaaS-based software monitors performance and tracks issues back to the data center to help enterprises or website owners pinpoint bottlenecks and problems.

If Cisco wants to go big, my colleague Derrick Harris suggests that NetApp might be a good buy, because it reduces Cisco’s reliance on EMC, a relationship that is rumored to be on the rocks. If it is not NetApp, any storage vendor with a strong virtualization story and promise in the enterprise would help bolster Cisco’s burgeoning server division as well as its storage networking lineup.

Given the array of startups bringing both intelligence and performance improvements to different areas of the network, there are plenty of opportunities for Cisco to pick up new customers, technology and market share by buying a startup or established company. Who do you think Cisco should snap up?

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Perhaps social networks can provide important information automatically for utilities, like streaming data about their customers who are experiencing outages, said Ipsen. Utility customers are deeply engaged with web 2.0 social technologies that will be crucial for interactions with utilities, like delivering bill alerts, and information about peak load shaving and variable pricing, explained Ipsen.

While Cisco’s smart grid strategy has shifted recently, and now seems somewhat unclear, Chambers assured the audience: “We are committed to your industry.” He also compared the evolution of the smart grid to the evolutions in IT infrastructure from telecom to routers to cloud computing. “History repeats itself … I’ve seen this movie before” said Chambers.

However, with Cisco’s decision to end its strategy of providing end devices and services for home and building energy management, the main products Cisco is selling is its grid-connected routers and switches, which are basically ruggedized versions of its Internet routers and switches. Cisco already has some under-the-radar, but tough, competitors in that space. Ipsen noted in her talk that while Chambers would love to just sell utilities boxes, Cisco knows that it needs to sell both “services and solutions” too, in addition to hardware.

Regardless of Cisco’s shift in strategy, the company clearly sees the smart grid as a massive market. There’s $210 billion in net present value (NPV) from the smart grid in the U.S, said Ipsen. She also described the smart grid as the largest “Internet of things.”

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• Increase the chances your content will be found. Full, or even partial, text is more searchable than tags and titles alone. “I’ve found that on several of our clients’ blogs, the transcript often outperforms its corresponding podcast,” says Janelle Kozyra, the Director of Editorial and Senior Managing Editor for Gregory FCA.
• Make your content more accessible. People who can’t hear the video, or those who don’t want to search through it, will find transcripts useful. Ted Cocheu, the founder and CEO of Altus (an enterprise provider of video search and management tools) said recently, “New technology is enabling enterprises to easily combine PowerPoint presentations with audio/video into a dynamic format that is searchable down to the point of interest or keyword. . . . As a result, users can have instant access to the information they need.”
• Make repurposing your content easier. Once you have a transcript, it’s a short step to a tweet, a blog post or a slide deck.

Creating these transcripts is becoming easier, and there are alternatives.

• Professional transcriptionists. These professionals provide high quality and full control of the process. But this may be overkill for some audio and video.
• Crowdsourcing. Ryan Lawler has covered the development of SpeakerText, a firm that supports the crowdsourcing of transcripts. The Kahn Academy crowdsources transcription and translation through Universal Subtitles.
• Automatic captioning. YouTube uses Google’s voice-to-text technology to create autocaptions.

This is a call to both content creators and users to support transcription. Content creators: Please use a service that adds transcripts to your audio and video content. Users: Help where you can by contributing to the crowdsourcing efforts.

How have you benefited through audio or video transcription in your web work?

Image courtesy of Flickr user Iwan Gabovitch

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As traffic becomes increasingly dynamic and comes from myriad networks — be it wireless or from a web server hosted at Amazon — the older ways of building out static networks no longer make sense. They add too much overhead. Think about the work Open Flow folks are doing to separate the data plane from the control plane of the network. This is in response to these shifts in traffic, a shift that Cisco rival Juniper is also watching and plans to address according to Pradeep Sindhu, director, vice chairman of the board and CTO of Juniper. In an interview with Om last month, Sindhu said:

The nature of traffic today is increasingly dynamic. And so the old ways of addressing and building networks, with very statically provisioned technologies, like circuit switching, is essentially dead. So you have to rethink this architecturally. Point number two is that I believe that the traffic is going to get a lot more stochastic in nature. In other words, unpredictable, both with respect to any given circuit and with respect to the sources and destination the amount of usage will continue to explode and they will get more and more dynamic and unpredictable.

So while Cisco bought up Pure Digital, the maker of the Flip camera, and focused on creating separate networks for video traffic to flow over, its competitors pulled the entire concept of networking out from under Cisco’s feet. And Cisco does best when it focuses on the network. For example, its cloud computing business, where it reinvented the concept of a server to combine the computing and networking into one box was a visionary idea that fit perfectly with the shift toward the cloud model that was occurring in the computing business. Yes, Cisco gear is expensive and proprietary, but the company built on its familiarity with enterprise customers and its existing foothold in their data centers to expand.

In the last few years, Cisco’s forays in the consumer space, video, telepresence and even collaboration have distracted it from what it’s good at on the core networking side. A good example of this is its telepresence initiative. Instead of building a platform that customers could integrate into the far-flung offices of remote employees, Cisco went with a proprietary, high-cost system that people who might otherwise work remotely must travel to in order to take conference calls. Yes, telepresence is beautiful, but for the wider audience, it’s not worth the cost and hassle when Skype or even Logitech’s LifeSize is out there offering a cheaper, easier alternative.

So proprietary may be acceptable in an area where Cisco has a huge market share, but in consumer and telepresence — where it’s trying to build users and adoption — it forgot that a key tenet of creating a platform is either making it incredibly usable and or incredibly open. Cisco tends to favor closed ecosystems, but unlike Apple, its consumer products don’t have the same usability or cachet. So this refocusing of Cisco’s on five priorities that include core routing and switching; collaboration; cloud computing; network architectures and video is good news for the most part, although video is a huge category.

In an analyst report issued Tuesday morning, UBS Analyst Nikos Theodosopoulos noted that while the Chamber’s memo was a recognition of mistakes made, it could become a turning point for the company, perhaps leading Cisco to sell off low-margin or low-growth businesses to focus on a few lines of business. He wrote:

On Monday, CEO John Chambers wrote on a Cisco Blog upcoming tough decisions the company will make given recent earnings disappointments. Cisco will remain focused on five priorities: leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video. These priorities are not surprising in our view. … Some actions investors may favorably perceive is a reduction in target markets to a more manageable number (e.g., from 40+ to less than 10), and organization structure adjustments to reduce bureaucracy (e.g., elimination of councils/boards). We also would view divestment of low growth, low margin businesses as positive (e.g., consumer, set-top box, home networking).

Cisco has been able to stay ahead of the curve in the service provider market by making gigantic routers for dealing with unimaginable traffic at the edge of the network, a problem that it predicted would occur as broadband networks proliferated and services delivered over the network required more bandwidth. It managed to disrupt the giant computing vendors by consolidating servers and networking in one box, and still has plenty of innovation and knowledge locked inside the 70,700-person company. Cisco may have screwed up, but if it refocuses, we shouldn’t count it out.

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Cisco Chairman and CEO John Chambers delivered the opening address at this morning’s Cisco Financial Analyst Conference in San Jose, Calif., where he stressed collaboration applications, server virtualization, and video as key points of focus for his company — along with healthier growth.

As he did during Cisco’s quarterly earnings report at the end of August, Chambers described aggressively moving into “market adjancies,” where widespread demand is likely, as the company’s strategy going forward. “We don’t move into market adjancies randomly,” he said. “We don’t move if we don’t believe the market won’t be global.”

Chambers especially focused on the company’s growing portfolio of collaboration applications, including video- and telepresence-oriented ones. The company wants to improve its WebEx-based position in the video conferencing market through its acquisition of Tandberg, and is moving aggressively into the corporate email market, among others.

Chambers said the company’s divisions are targeting enterprise, commercial, service provider, and consumer customers. Quite a few of the demonstrations shown during his address appeared targeted at the SMB market. Some of the company’s recent offerings, such as WebEx Mail, have been just as focused on small- and medium-size businesses as on enterprises.

Chambers said he is aiming to return Cisco to 12-17 percent annual revenue growth, and that the analysts in attendance should hold him accountable for those numbers, which would be improvements over recent results. He also noted that the company’s core routing and switching operations are healthy, although he did not point to them as growth drivers.

He said he is focused on making smart acquisitions, and that Cisco typically succeeds when it buys companies, especially focusing on keeping existing talent in acquired companies. In addition, Chambers noted that he tries to focus the company on “innovation  combined with operational excellence,” although he maintained that the latter is most important.

The Cisco Financial Analyst Conference is going on all day today, and we will update this report as more announcements arrive.

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Ipsen was entirely vague on specifics, but said Cisco sees itself playing at all critical points of the network of the power grid in the areas of “enhancing operations, manageability, and scalability.” You’ll see products from Cisco in those areas early next year, said Ipsen. While Cisco engineers are hard at work on smart grid products, Cisco could also “acquire,” “partner,” with or “invest” in companies developing new tools, she said.

While originally Cisco seemed to be focusing on the home and consumer portion of the smart grid — as it did in its first smart grid deployment with Florida Light and Power, General Electric and network provider Silver Spring Networks — the networking giant is clearly now looking to play across all areas of the smart grid network. Cisco has partnered with Duke Energy on an end-to-end smart grid network, along with several other utilities. While CTOs of utilities will be interested to see what such a large network player has to offer them, we’re guess that all eyes from competitor Silver Spring will be on Cisco’s 2010 launches. Will those products be directly competitive with Silver Springs? We’ll be watching.

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