CISCO –HP: CO-OPTETION TO COMPETITION
Introduction
In the latest unfolding of corporate melodrama to play out in the IT domain is the much talked about estrangement between the networking giant Cisco and one of its largest channel partners Hewlett Packard. How this happened and what we can expect in the industry because of this rift is what we’ll try and explore in this insight.
In the Good times
Below is a snap shot of the areas in which the two vendors had embarked to collaborate on. As Cisco’s partner, HP had access to proprietary information such as product roadmaps and was a preferred channel and Global Alliance partner with partner profitability initiatives. That status however, will come to an end on 30th April 2010 when Cisco has decided to not renew its partnership with HP.
Scope of the alliance that was active from 1997 to 2010
Source: Frost & Sullivan – Information sourced from: Cisco Press release –Jan 15, 1997
When Organizational Visions Compete rather than Collaborate
What was once a symbiotic relationship increasingly became a competitive one when both Cisco and HP decided to build competencies organically and through acquisitions in areas that they had earlier relied on each other to complete their breadth of offerings. Cisco’s announcement in March 2009 to introduce the Unified Computing Server (UCS) – probably marked the beginning of the end, a move that decidedly positioned Cisco as competing against HP’s core products.
The playing field was leveled with HP’s acquisition of 3Com in Nov 2009 (one that is ongoing). 3Com’s networking platform has helped HP spruce its Procurve portfolio with the scale it needed to its existing networking portfolio, and have a standards based, interoperable and flexible infrastructure ecosystem that was necessary to compete with Cisco’s networking architecture.
So Cisco’s announcement of not wanting to renew its relationship with HP as an authorized reseller didn’t really come as a surprise. On the contrary, it merely marks the end of an increasingly hostile relationship and the beginning of a new adversarial one between the two players.
Detailing the Context
For the 36bn dollar networking giant –Cisco, who has a stake in close to every high growth market, and who conventionally enjoys strong partnerships, attested by the 12,000 certified partners that bring in about 80% of its business, it’s puzzling to see how its relationship with one of the biggest services companies has gone sour.
But in retrospect, it’s not all that hard to imagine that the lure of grabbing a share of the blade server market must be alluring enough especially with its renowned marketing, pervasive datacenter penetration, and almost $30 billion in cash that the vendor brings to the table.
Cisco’s vision is set on the blade server market that is dominated jointly by HP and IBM. 2009 saw a 10% to 15% decline in the server industry, and it seems like a difficult time to have entered the playing field. However in true Cisco style, the vendor is making in-roads with its partner BMC (with whom it has teamed up to bundle BladeLogic management software into the UCS solution) to boost the credibility of its foray into blade computing
Some of what works well for Cisco is that in an environment of shrinking IT budgets – energy management and automated provisioning are among the few innovations that can reduce costs without sacrificing efficiency. UCS, with its smaller hardware footprint (fewer switches, communication blades, management modules) promises to reduce energy consumption and provide easier administration.
However, it is evident that Cisco has entered direct competition with HP and is a matter of time when a similar fate will befall its other partner IBM, two companies with strong technical leadership, effective marketing, and brilliant vision.
HP’s leadership in services, networks, servers, storage and desktops on the other hand is a formidable strength of power that Cisco will have to contend with in the playing field. A $115 billion company, with approximately $40 billion coming from services, is definitely going to have some weight with at least the large organizations who are more likely to purchase servers from market leader HP rather than Cisco, at least in the near term. But as UCS gains acceptance and traction – Cisco claims to have 400 customers to date for the platform, and expects $1 billion in revenue this year – its appeal will increase as well. That initial appeal will be from smaller companies and green field data center opportunities, and then expand into larger enterprises, which will impact HP.
HP’s strength in services – a key growth area that delivers much higher margins than hardware is likely to be Cisco’s ‘Achilles heel’. Unless it buys out a services organization in the near future, this aspect of client engagement is likely to suffer with two of the largest services partners turning foes.
Cisco’s leadership in the switching and routing space in the enterprise and datacenter may hurt HP who will no longer be able to provide its clients with partner enabled discounts while deploying Cisco’s products. However, this will also open up opportunities for other vendors like Alcatel Lucent who now partner HP to provide alternative solutions for HP’s clients.
Summarizing the Aftermath
Without overly dramatizing this event, let’s look at the customers for a moment. Given how broad and widely prevalent the Cisco/HP environments are, not much is going to change in that neither customers nor vendors will be able to shake that stack of mixed implementations in a hurry. If anything, the future is what is up for grabs.
Cisco with its success and leadership in the networking side connects data centers, while HP’s stronghold has been selling servers that populate the facilities. That both vendors are now trying to be the primary vendor to customers building data centers makes for an interesting challenge that both vendors seem poised to take on
However, one can be assured that this split is likely to change the landscape of how vendors will collaborate and each of the vendors will possibly take steps to ensure that, where it lacks equipment or expertise, it’ll partner up to fill in the gaps and continue supporting its customers effectively, alluding to the fast-emerging opportunity for customers also to perhaps build relationships with partners that are now an alternative to HP and Cisco.
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