Cisco’s Data Center Moves: Who Wins, Who Loses?

Cisco Systems (s CSCO) today announced its new blade server, first reported by us in March 2008, along with a Unified Computing strategy that converges storage, compute and networking into a single layer (thanks to virtualization technologies) that is managed by a specialized piece of software. Stacey has captured the intricate details of the news, while I have already posted about the imperative behind these moves.

This new comm-puting approach adopted by Cisco is unique, in that it is the first time a company is selling a single packaged offering so to speak. People have sold either storage related equipment, or network layer gear or just servers. So, what does Cisco’s announcement mean for existing vendors?

Prior to Cisco’s announcement, Sun Microsystems (s JAVA) and eGenera, a Marlboro, Mass.-based early stage company have often talked about such a unified, network centric future. Even IBM (s IBM) takes a holistic view of the data center.

Cisco, by virtue of being a late comer to the market, has managed not only to lap them, but has also posed a serious challenge to two major blade server makers – Hewlett-Packard (s HPQ) and Dell (s DELL). You can put Rackable in this category as well, but it’s a small player compared to these behemoths. One of the main reasons these companies are at risk is because they have typically innovated on cost and performance metrics, not a whole 360-degree view of the changing data center infrastructure. Google (s GOOG), as a company, has reinvented data centers by building its own gear, and taking a holistic approach to the data centers.

About three years ago, I wrote a piece for Business 2.0 about how the mega computers were dictating the technology trends of the future. Many gear buyers were frustrated that companies weren’t building “Internet class” stuff. Today, when I talked to Saavis CTO Bryan Doerr, he reiterated that point and said that one of the reasons he was excited about Cisco’s data center moves was because they were finally making service provider class equipment.

Cisco’s Impact on Other Sever Makers:
Dell Negative
HP Negative/Netural
Sun Neutral
IBM Neutral
Others Negative

What he didn’t say was that it would literally get Dell and HP get off their duffs, rethinking their approach to server computing going forward. If I had to pick a company likely to respond with a resounding slap to Cisco, it would be HP. It already has elements of what Cisco wants to sell as part of its HPC product line; it has software capabilities (remember, HP bought LoudCloud) — and it also has the capability to buy a whole slew of companies.

Dell has an existing relationship with eGenera, but I really don’t see it as a technology innovator, so I feel it will be reduced to selling “commodity” servers with commodity type margins. I also expect Sun and IBM to get supercharged and start aggressively positioning themselves against Cisco and its new systems. All these companies would like to partner with Juniper Networks (s JNPR) or acquire some of the existing switch makers to become more competitive with Cisco.

Now the good news: they all have time — but not a lot — to respond to Cisco. Cisco has challenges – its products are still in beta. For instance, the company is new to the server market and will have a different market dynamic to deal with. The sales cycle for these new offerings are going to be long, and there is plenty of room for Cisco to stumble. Secondly, I wouldn’t count on its software to work flawlessly. The company has a checkered past when it comes to software.

I am sure there are many who will resist Cisco lock in, as articulated by one of our readers who writes, “Cisco is trying to own everything in the datacenter…which sounds good to them $$. How many datacenters do you know run entirely on one or two vendor’s gear??”

I agree. Cisco talks about APIs and working with legacy equipment, but like our reader points out, the truth is always harsher. Most importantly, in these tough economic times, many companies would be wary of the excessive margins typically built into Cisco’s products.