Chambers: Cisco will become the number 1 IT company

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Cisco boss talks about how SDN fits into its architecture, what Insieme is all about and why the Internet of Everything matters to IT pros

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

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When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

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The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

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But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

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When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

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The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

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But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

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When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

[INVENTIVE: Cisco celebrates 10,000th patent]

The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

[FIRST LOOK: Cisco Catalyst 6800 switch and friends]

But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

[READ MORE CEO INTERVIEWS]

When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

[INVENTIVE: Cisco celebrates 10,000th patent]

The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

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But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

[READ MORE CEO INTERVIEWS]

When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

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The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

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But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

John, anything I say should not in any way imply how our current [quarter] is going or how the next quarter looks. I assume this [article] will come out in front of my earnings, so I’ve got to say that even stronger.

If you look at our last quarter, it was a very good quarter, and I’m using us as an example, from a share of wallet perspective, a market share perspective, and execution vs. our peers, and yet it was only a growth of a little bit over 5%. The market is tough, and most of the gains that are occurring in the market are share-of-wallet gains.  

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When some groups came out and [stated] that IT spend would be at the 6% or 7% level for the year, I asked 20,000 customers at one time what they thought, and nobody, almost no one, is seeing that.  Part of the reason is that we’re in an environment where people are not taking as much business risk, but part of it is that IT companies have to translate what they are selling to be in the customers’ top business goals. There’s a void there. That’s the transition.

Most people would have said two or three years ago that we’re a network player. I think you and your peers would now place us in the top five or six IT players in the world, and we think there’s a chance to become the No.1 player. And it’s because no one is taking the key concepts, whether it’s the Internet of Everything or the transition of cloud and SDN [software-defined networks] and mobility and BYOD, to solve [customers’] business challenges. We’re going to try to take advantage of that void and move not just our space in the top five or six, but to become the No.1 player. I give us 50/50 odds we can pull this off.

You mention a lot of big trends there between Internet of Everything and cloud and SDN. What’s the key takeaway for these IT shops, the IT leaders?

They’re two-fold. First of all, in an IT environment, if you’re being measured by your expenses and OPEX, as opposed to what business results you’re producing for your company, you’re going to be playing defense the rest of your career. It’s how you say: Here are the top objectives of the company and here’s the way I can accomplish those and the ways I just cannot. This is where the business units begin to make the decision in partnership with IT. I would argue in talking to CIOs that if 80% or 90% of the decisions are largely influenced outside of the IT department, the IT departments fail. This is where we’ve got to move from discussing concepts that are exciting to us like getting server combinations with storage, with switching, with LAN, to clouds or mobility or others, and translate it through. It’s about speed of revenue generation, it’s about how quickly we can turn on services, it’s about your customer differentiation, it’s about productivity, it’s about new business models and enabling those. I believe the [IT] companies who can really help in a strategic way, help their customers truly achieve their goals, will be those who grow and survive, and those that do not will fall behind.

Most of my CIOs I talk to don’t think that major high-tech companies provide a major strategic value to them. If they’re being real candid, they say maybe one or two. When you challenge them about can we become No.1, I say if not Cisco, who? And you get candid recognition that there is not a good player in position to lead this other than Cisco, if we execute it right. Now this is a big jump for us. So it comes all the way around. If you’re clearly talking about OPEX and CAPEX, you’re going to be having your budget cut or held stable for the next, definitely, two years, and depending on the economy, maybe beyond. If you’re talking about complete alignment with the business goals in the company and the business units and your ability to help them achieve [business goals] it’s a whole different discussion.

What would you say are the critical elements for Cisco in becoming that No.1 provider?

Managing the market transition. Those areas like everything moving to IP, Internet of Everything, a transition where many people think the data center and the cloud and the LAN are separate, but we believe it will be a total architecture. I might put that as a whole separate point, even though it’s part of the market transition. We think there will be a single architecture, a single approach in the data center that combines routing and switching and storage and software and server technology and that will go straight up into the cloud, with intelligence throughout on the net. [See Unified Framework graphic.] Now, once that occurs, all of a sudden you can program to any [part] of that, and you can bring services or tie into revenue generation, from months to minutes. When you sit in front of an AT&T, or a JPMorgan Chase, or a Walmart, or a Deutsche Telekom, you’re able to talk about transforming your business. When you have those discussions your share-of-wallet goes up dramatically.

Cisco architecture

Credit: Cisco

Remember, John, when you and I first started talking about architectures, nobody in the industry believed them. Now people appear to get it. Now with 18 product families where we’re the one or two [in market share], no one has even come close to that in history, and we’re talking from the data center all the way down to security. If we combine those well architecturally, we are two to three years ahead of our nearest competitor on how you use ASICs and silicon to go after this. This ends up being the architectural play to solve the business solutions, which I now firmly believe it will be. Before I believed it, but there were fair critics, and you have to listen to your critics, because they always have moments of truth. Now I’m very comfortable that we would take the capability that concept-wise SDN and NFV [network functions virtualization] and the cloud want to bring to life, and we’ll bring it to life in a way that no one else can.  

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The next element is, are we able to accelerate our customers not only with technology implementation of that but the business solution? This is where you’re going to see us move into consultancy much more with our partners, and move much more into an independent development community in terms of getting solutions on that.

Nobody wants SDN or NFV, or even cloud. What they want is how quickly can it increase my revenues? How quickly can I bring up new services? How do I gain competitive advantage with innovation? With the architectural approach that encompasses this, we’re now talking about speed of delivery that is by a factor of 100-fold faster vs. before, and agnostic. We’re not going to do it based on a [single] hypervisor or an operating system that is proprietary, etc.

Think of the Internet in four stages. Stage one was purely connectivity, e-mail, the techies talking back and forth. Stage two was e-commerce, and we rode that horse. We moved from a router company to probably one of the foremost thinkers of where the environment was going, spoke all over the world on it through the ‘90s to 2000 with a revenue increase that very few companies have seen in history. The third phase was around social, cloud, video. We did OK in it but not with the same transportability to solving the customers’ needs. [Fourth,] around the Internet of Everything, this complete architecture of the cloud and the data center coming together, all about how do you increase the customers’ revenues and drive their productivity, change the way they interface to their customers, and the new business models? To do that with technology and [with] business partnerships and consulting is the transition we intend to make. If we do that, we will become the No.1 IT company, in my opinion.

Give me a minute on what the application-centric infrastructure means?  How is that different from networks of today?

Networks today are largely done in a server-type environment or totally in a cloud, but it’s still a server in the cloud. If you watch what’s going to happen, we’ll put intelligence throughout the network. Think of the network no longer as what you and I grew up with, with seven layers. Think of it in three. Think of it as the unified backbone in the middle. Think about an infrastructure of the bottom, applications on the top. We will provide APIs that will interface to the application so you can program at any stage of the network - to do security or smart grid, just as an example. [Ed. Note: This blog post by Cisco’s CTO Padmasree Warrior explores the application-centric infrastructure topic.] With these 500 billion devices that are going to be connected to the Internet, you’re going to probably do that [programming] locally and move your applications all the way down to that level. For smart grid you do it at the top-of-pole router right in the neighborhood. Nobody's going to try to do it back in the data center. Same thing with security, you have intelligence throughout the environment on how it interfaces. Your ability to program to any segment of the network is very key, and to allow people to gain competitive advantage in terms of their approach to this. At the same time, you've got to open up the network. Think of this as northbound APIs and southbound APIs. This is where [it would be difficult] if you haven’t already built the number one router, the number one switch, now the number one cloud. I don’t know if you saw it the other day that Cisco has the number one cloud share. [Ed. Note: A recent analyst report showing Cisco with the number one position in cloud infrastructure.]  That’s the good news.  The bad news is it’s 16%.

You have to start somewhere, John.

Remember, people said we couldn’t play in the data center, much less the cloud. We’re the No.2 player in x86 blade servers. We passed IBM. Barring surprise, we’re back up to over 70% switching share and 70% port share in the market, which 2-1/2 years ago, people said: Not a chance. [We’re] a company that constantly reinvents itself, that knows when to stay the course; i.e., focus on service providers and architectures and enterprise coming together, and IT and communication coming together, which I would argue are the biggest transitions going on in the market. You know when I got service provider and enterprise customers together, they didn’t even want to be in the same room three years ago. Today they get it.

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And when I talk about IT and communication being one framework, people didn’t believe in that, and that’s clearly happening at this same pace. So those are transitions and it’s an all-IP world. We were lucky on that. Everything is going to Internet protocol. Our ability to come into it with product leadership in the data center, the LAN, the access, the open architectures, the ability to move on this - we have opportunities that no one else has. What we’re trying to do is not only not mess it up, we’ve got to speed our ability to go do it.

So one of our biggest challenges is how do I free up resources in certain areas and move them to others? The speed of this change is dramatic. So new business models for pay-as-you-go, software-as-a-service, recurring revenue capability, deferred revenue. They all sound great, except I’ve got to pay for them today, and the profits are in years two, three and four. I have to free up resources and speed up decision cycles to move into these new markets.

Is this application-centric approach bigger than SDN?  Does it relegate SDN to a technology that enables that?

We view software-defined networks as just one element. Think about the combination of SDN and NFV, which is service providers, in terms of network functions virtualization. Think about the cloud concepts, and then think about it as an architecture where you bring together servers and routing and switching and software and storage, first in the data center and then virtually throughout the whole cloud. It’s all of these together that provide that - your ability to provision and bring services to market much quicker, in seconds or minutes as opposed to years. Without architecture, we think that doesn’t work. How many CEOs do you think say: I want software-defined networks?

Not very many.

Or how many CIOs?

Not very many probably.

I’ll tell you [what they want is] programmability. What they want is to be able to control operating costs and the CAPEX costs, the ability to be able to meet their business needs at a much faster pace. This is just one of the variables in that equation. We played defense for a year on SDN rather than just embrace it and say here’s where it fits and here’s where it doesn’t, here’s how it fits in the architecture. All of our ASICs we bring out are going to be SDN-compliant. Look at our next high-end ASICs which will generate the routing technology for the Internet of Everything, 4.1 billion transistors on this. [Ed. Note: Chambers shows ASICs.] It has 11 million lines of code. It cost $250 million plus to develop, half software, half hardware, the ability to take a chip architecture for a [Catalyst] 3850 but expand it to other products. We just announced it for the [Catalyst] 4500.

When you go to service providers, SDN does one thing for you.  NFV does another set of functionality for you. And candidly, the cloud does another. What we’re going to do is combine the cloud with the data center architecture, with SDN and NFV all together, and it will be a play at orchestration.

Let me ask you a couple questions about how you get to that architecture. One is that today you’ve got three data center platforms or fabric architectures, of Catalyst, Nexus and, now, Insieme. Are customers going to be confused about how they get to where you’re going from these different platforms and offerings?

Any time you offer multiple approaches to a market you’ve got to spend a lot of time with your customers, understanding the pluses and the minuses for each way you pursue them. What Cisco has always done is make this transition pretty smoothly. The results speak for themselves in terms of our ability to do this. We moved from the GSR 12,000 [Ed. Note: a core router for service providers] to the CRS and now we’re up to, what, 750 accounts on it, when people thought we might be into maybe 10 or 15. A smooth transition, [like] the CAT6000 to the Nexus 7000. The CAT6000 is still in our top seven or eight product lines, at a couple of billion dollars a year. As you bring out new products, if you do your job right, you protect your install base, you allow for people who want to continue down that path relatively smoothly, and say here’s where you go. Then as you bring out other products that maybe are a next-generation, or skip a whole generation of concepts, you’ve got to have the courage to disrupt the market and lead with that. Then you’ve got to bring those two together over time in terms of how you provide the best of both worlds. We do this pretty well. Our history on it has been very, very good. We’ll do it reasonably well again.  

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But think of Insieme not as a router or a switch or a server or SDN. Think of it as the architecture for the data center, bringing this functionality together in a total, simple architecture. Simple in terms of how all these come together in a way that no one else has done. We’re probably two to three years ahead of any competitor in being able to do this. Because remember, merchant silicon, the people who think you can do this with an Intel chip or a chip from Broadcom, just don’t get it.  We put programmability in software so you can change this as you go. This isn’t just a cool project we have working. This is the team that’s never missed for me. I mean, this is Mario [Mazzola], Prem [Jain], Luca [Cafiero], Soni [Jiandani]. How many billion-dollar product lines have they built for Cisco? Out of every time they’ve touched one, how often do we not become the No.1 player? Remember, they were the ones who did UCS together with the network, the Nexus 2000, 5000. They were the ones that did out IP telephony for me. Their track record here is off the scale, and our ASICs spins are back in, so in terms of the peak critical path here, we’re in great shape for what you’ll see in the second half of this calendar year. I’m sure we will have some critics on this. Our competitors will try to throw as much fear, uncertainty and doubt as possible at it. But this solution is really solid. It will be an architectural play. It will be like no one else can do.  If it works, this is our quick acceleration to become the No.1 IT player. People, I think, will get the framework. SDN is just one of the enablers, one of 15 equations, as you make this transition to faster revenue generation, less OPEX and less CAPEX, vs. the payback you get toward higher productivity and ability to meet your user needs faster. The CIO, instead of playing defense, can respond to each of these business units going the way they want.

By the way, John, you’ve seen this movie. Even as close as I am to Salesforce.com, we have 38 instances of empowerment to our groups where they did their own interpretations of salesforce.com. The CIO has to get architectural control and then produce the business results. So I get pumped up. Do I think the spending on IT will change two to three years from now as a percentage of total budget? I believe extremely strong the answer is yes. But it will be because we take the complexity out of this and enable the users to meet their customers', their internal community's, their CEO’s objectives at a much faster pace. That’s the horse we’re going to try to ride with the Internet of Everything to becoming the No.1 IT player.

I want to get to that Internet of Everything, but I have one more question about this architecture. At Cisco Live, Gary Moore [President and Chief Operating Officer] said the company absolutely sees routers, compute and storage converging, perhaps in the same platform. Can you elaborate on that?  What does that look like?

It looks like Insieme, and you’ve got to put in switching. So if you think about it, the ability to also provide storage, whether it’s from our partners or from ourselves. It’s a single architecture, first in the data center and then throughout the whole network. So go all the way to the edge of the network, whether it’s a top-of-pole router or any access product, switch or router we have from Cisco. We’re not only going to make the ASICs programmable to that, with north- and south-faced APIs, we’re going to literally empower that group to move with the speed where our customers can implement it and we’ll move UCS technology to every device. So with our own ASICs, which have been designed for these types of features, and programmability, as well as a standard server technology, X86. There’s the combination of the two, not one at the exclusion of the other. You can’t design into the ASICs of a classic server the networking capability you need with the intelligence and security that we’ve done for 20 years. If you think about a true router technology, it’s 36 million lines of code. To think that you’re going to take 36 million lines of code and you’re going to overlay something like SDN, very complex software, to solve the problem of very complex software without an ASICs architecture combining that and an architecture play on it probably is insanity. This is where we think it will be a strong architectural play, and it took us a little bit longer than I would like to really be able to articulate this and bring it through.  

So back to your question, there will be layers of server technology, layers of switching technology, layers of routing technology, layers of top-of-rack capability to the servers, to the routing technology, to the software, to the storage. What we’re going to try to do is combine those architecturally and to shrink the seven layers down to three.

Does that include combining, say, UCS server blades and Cisco routers? Are we talking different types of boxes here?

Absolutely. If we do this right you’re not even going to know what a box really entails. Remember, we’ve already got these ASICs out there, that’s why our products have the investment protection. Merchant [silicon manufacturers] puts their features into the silicon. Nobody’s even thinking about putting the features into the silicon that we think are going to be required at the edge of network. We have probably two to four years of leadership there, and that assumes they start today to put it in their ASICs, which most of them have not even thought about doing. Everybody’s doing the data center. I mean that’s old world. It’s how you take this data center to the cloud and meld this seamlessly with the network and accomplish the power of it, in my opinion.

So, John, let’s talk about Internet of Everything. What should IT people be doing to lead this?

This is exactly what many customers ask. If you stay where you were, your job is keeping the lights on in a data center, with servers separate from storage, separate from switching, separate from software, separate from the cloud, separate from ease-of-use. If your ability to bring services to your customers or to your consumers or for your internal use [entails] cycles of one, two and three years, you will get left behind, with 90% of decisions going to the end user. Now we’ve all seen that movie. As that happens, it will feel good for a couple of years and then you go: I can’t combine them. I can’t show you the data. I’ve got security problems. I’ve got more people maintaining the patchwork effect. That’s a bad outcome too, although in the short term it might have some attractiveness. All of a sudden you can see a company move into this No.1 position in terms of the ability to deliver. And that’s what we’re going to try to do.

So what does it mean?  Should a CIO be the one who is developing the ideas for how to capitalize on the Internet of Everything? Who’s driving that, and who should be driving it?

The interesting thing is when I talked to the Internet of Everything concepts two or three years ago - remember we started on smart, connected communities five-and-a-half years ago, we did Smart Grid four years ago, we did interconnected industries over two years ago - the techies got interested but not the top decision makers. That has changed in the last 12 months. They get it. You don’t have to explain to Lee Scott, prior CEO at Walmart, or now Mike Duke what this means on retail. He watches it. He gets it. He knows that he can automate his parking lots, to following his customers, with their permission, through the stores to see what they buy, see what they don’t buy. He can do his virtual walk-through that they did Saturday morning, and then walk through a number of stores through the week. He can do it at every store in the world combined. He can change completely his supply chain and efficiencies within it. He can interface to the consumers differently than ever before. You can go to AT&T, Randall Stephenson [CEO], you do the demo of what this means from logistics, to manufacturing, to distribution, to retail and selling this, and say: Here’s the role the service provider plays in it. He goes: I get it. Can I use your demo? And the answer is: Of course.

So what has changed is the CEOs are beginning to get it. They’re beginning to understand this isn’t a nice next-generation of the Internet. In my opinion it’s going to be bigger than all the prior generations combined, both on loads, the way it changes society, implications, etc. And while I call it the Internet of Everything, something that might bite with the most business users is they’re going to digitize every company in every country. When I went through Israel a year ago and we talked concepts about how you completely position your country for the future. How do you do productivity faster than anyone else? How do you do your education system better than anyone else? How do you do your healthcare better than anyone else? How do you include 20% of your population who don’t participate in your core industries, i.e., technology, how do you do the training on that? How do you do defense? How do you do security? How do you do startups? When we were there just a month ago, we announced with the Prime Minister, [Benjamin] Netanyahu, our architectural play for the country. We announced with the president, [Shimon] Peres, how we’re going to do inclusion. We announced the communication lead, in terms of how you do fiber to the home and wire this together in a way that truly gets the digital infrastructure for the country. We announced with the welfare and inclusion group, which is really the human resource side of the house, how we’re going to train people and make the transitions. We had major announcements of each one. They will be the first Internet of Everything country, or put a different way, the first true digitized, fast-track training with the advantages of that. You’re starting to see which companies and countries understand this. The ones who are most powerful think of it as a total architecture. So a smart, connected city in Songdo, outside of Seoul, South Korea - everything there is infrastructure for the future. It’s all Cisco-based, by the way. The President of South Korea said they felt they would get 1% to 2% growth from GDP. And the United Nations located their whole concept, not the Internet of Everything, but the concept for next-generation emerging countries, in what city? Songdo, in South Korea.

What is the role of the CIO? They have got to understand what the opportunity is here. They’ve got to understand that varies by industry, with probably the fastest one taking off being manufacturing. We think it’s 25%-27% of the first decade’s opportunity of $14 trillion profit.  This isn’t total available market. This is profit on top of OPEX, CAPEX, people, everything. You don’t have to explain the amount of money you can make or what does that mean - especially when you then take it to the car and connect it through seven or eight major networks in the car, and new revenue-generation capabilities. The answer is, the IT people have to begin to really come up to speed on it. We’re beginning to train in our classes top customers and people on how do you really do the Internet of Everything with certification levels? We led the steering committee which met here three or four months ago with 65 top companies from around the world on this, and they aren’t your normal peers.  Some are competitors, a lot were software players, there were the GEs, Schneider’s [Electric] of the world.  There were only two service providers in the room. It was a unique combination. The first conference on this will be in October in Barcelona. Now remember, Internet of Things is the architecture. Tying together things plus people plus data plus process is where you get the productivity. That’s where a lot of people, in my opinion, missed on it. It’s nice to crunch this data up in a data center, but how do you even get it? You get it through the sensor networks. You get it through the networks out there with intelligence throughout that not only can see the traffic patterns, they will make most of the decisions and only bring the relevant information back to the central site. Because you can’t handle 50 billion, much less 500 billion devices, video, wireless, etc. You want those decisions made early in the field where the crops are. You want to say: I’m not getting enough water on this. I need to change this. Or it’s fine on water. Don’t sprinkle it today, it costs us extra money. Increase the productivity on an acre by 50% or 100%, the insight to say this is what really made the difference in fertilizer within this location. Those decisions should all be made locally. But then as you look through as it comes up through the supply chain, your ability to go back to which crops literally might have been the source of a problem, or which crops do you really want to track? It connects everything in a way that really gets exciting. But the only way you can bring this to light is you’ve got to have the ability to get the right information to the right person over the right machine. The right machine at the right time to make the decision.

The top of that Internet of Everything chain is really around Big Data and analytics - what you do with all the data that you’re getting. Should we expect Cisco to play more in the application space there? Would you acquire more of the analytics capabilities?

Well first, our strength has always been to do this with an open architecture, which is part of the reason the steering committee trusted us. Secondly, we naturally gravitate to partners. We’d much rather make the pie bigger and our slice smaller of the pie by percentage, but bigger by definition, a whole different approach. Our goal is to completely lead here and do it with a combination of partners, because $14 trillion of profits, that’s going to be a huge amount for a whole bunch of people. We would do it through partners, partner with a GE as an example, partner with an AT&T, a Schneider Electric, a defense agency group, an automotive company. By the way, we’re in all of them around the world in terms of positioning. We will provide part of it with programmability. We talked about focusing on that manufacturing floor, you would probably want to program down to that shop. You don’t want to program back up in the cloud.  

That’s where people get confused. IBM did a huge amount of work on big data analytics, but how do they get it?  Is it going to be made in the cloud or is it going to be made throughout this intelligent architecture network? But could we be their best partner in loading stuff into the data center? Good question. Absolutely. But we will make the decisions in a way that allows all of you to put in the data center [only] the information you need. Over time, self-learning networks will be the next-generation, where network decisions will be made remotely based on either applications or what’s going on in the network to prioritize stuff for security. If you haven’t even thought about programmability at the edge of the network, if you haven’t thought about the routing [protocols] for that, if you thought about BYOD, cloud, mobility, SDN, NFV, the cloud implementation, the data center architecture that includes servers, routing, switching, the software that goes with that, and storage, then you can’t really take advantage of the Internet of Everything at the speed we’re going to. Put a different way, that’s a hard hand to beat.

You’re a customer, and I sit down in front of the CEO or CIO, walk through what we just did with facts and show what’s behind it, that’s why this last quarter we gained market share in nine of the 10 biggest product areas we had. I’ve never done that in the history of Cisco, ever.  It wasn’t 0.1% market share gains. There were large gains in a really tough market. It’s actually exciting because if you believe in what we’re saying and you can educate your users, this could be what gets IT spending going again. Candidly, selfishly speaking, it could be real good for Cisco. So we both have the same interest.

Talk about Cisco in the consumer market, what is the strategy today.

Consumer-to-consumer, we’re out. So this goes back to what we do better than anyone else: we are remarkably disciplined. Market transitions, customer-driven, when you see it occur, that’s where we do innovation. Innovation to build, find partners and integrate. That’s what cranks at Cisco remarkably well. We don’t enter markets where we don’t have sustainable differentiation, where we can’t get at least 40% market share within that scenario and it doesn’t tie tightly to our network. We missed our window on areas such as Flip, and even Linksys. We thought there would be more consumer-to-consumer, and we made the mistake of getting too fascinated with the device. I love my Flip camera. But it was about FlipShare in the cloud to any smartphone, we would have outmaneuvered Apple. And my team just missed it, shame on me for not catching it. So once you miss a transition they wait for no one. That’s why, out of the top six IT players in the world, three of them will not be there definitely in 10 years and maybe not in five. That’s how fast this market’s going to be once we start. My business for the consumer will be business-to-consumer, service provider-to-consumer, Walmart-to-consumer, Amazon-to-consumer, as opposed to consumer-to-consumer.

As we talked about earlier, you’re doing well in the cloud right now, but how concerned are you about things like the Facebook Open Project, with gear not made by companies like yours?

This is a market that’s going to go through unbelievable speed. I used to say that this was kind of an exceptional time. This is the new norm. So in a single year you could talk about SDN, you could talk about new consumption models, you could talk about IT as a service, you could talk about new players, Google, or Facebook, or Amazon doing this differently than before, all in one year. I watch market transitions and I think about what are the transitions people are [really] after? Speed, OPEX and CAPEX advantages, flexibility, and agility. This will be just one more series of good challenges. At Cisco we’ll say: What’s the business objective on it? Then transition is over. What we will not do is leave that concept alone like we did SDN, and allow other people to gain the high ground, and then we play defense. SDN is one of 15 equations that are an important part of the future. We’re going to build everything SDN-compliant, we’re going to lead in this area, but it’s just one of 15 variables, that without intelligence in the network, without servers and storage and switching, software, the network coming together in the data center, and orchestrating this, you can’t do it, including security. So those are just yet another set of challenges. This one you’re going to see us out ahead of the game on. There are a lot of weaknesses to the areas you said, and we’re going to go back and just solve what the customer’s problems are.  

What’s the problem in the IT industry? If you’re a stand-alone switch, stand-alone data player, stand-alone server capability, stand-alone storage in the data center, stand-alone anything, this is going to be a hard market to play in. It’s going to be white-label-as-a-service or white-label options. So if you’re competing against white-label where the decisions are primarily cost or OPEX, you’re going to lose. It’s where you have to go after solving their problems though. We think there’s going to be a brutal consolidation first in the communications industry, which I would argue is on its way again for probably the third time you and I have seen it in our career, and then right behind it back in the IT industry.

So your VCE joint venture, does this have a limited life span?

No. Without VCE, we would not have the position we have in the data center. EMC is a very important strategic partner with us. VMware is a partner at times and a competitor at times. And that’s more of the future. From a personal point of view, even though I wish VMware had not gone into networking, it actually is the best thing to happen to us. Because once they did, then we took a step back to what we do best - open architecture, support all four hypervisors, not tied to any vendor for a strategic long-term direction. VCE is going to have a good life cycle. Its run rate, I think we’ve already said, is a billion dollar plus. Huge. But let’s also realize what we’re doing with NetApp. It is huge as well. Great partnership. The CEO and I meet quarterly, a very profitable relationship for us both. So it really speaks to how the network is kind of at the center of all these changes and there’s good news or bad news. The bad news is it means everybody’s going to be shooting at us on one hand. The good news is everybody might want to partner with us if we do it right.

How big an opportunity for Cisco is 802.11ac?

Mobility was our Achilles' heel just three and a half years ago, now we’re No.1 in every area of mobility, except radios. Think how far that’s gotten. We did 27% last quarter in wireless, back to your specific question. Rather than get religious on this fixed vs. wireless in your location, we built the same ASICs and it could be either one. We’re No.1 in the mobile networks now, from the small cells all the way through virtual data centers. When you put our architecture together with mobility, there’s not any player in the industry that even has half the pieces we do. We pull this together, and that’s why in the service provider market a quarter ago we grew 8% year after year in a market that probably shrunk, and we’re getting more market share. Mobility is a good example why architecture wins, although you’ve got to have the patience. Every acquisition fits into that. Here’s what was small cell, here’s what was the access level, here’s what is analytical and here’s the orchestration level, here’s how it interfaces to the cloud. So it’s that cloud all the way through the data center combination.

Everybody describes Cisco as the network company. What do you want Cisco to be known as?

We’re an IT company. No.1 is defined by our customers in terms of value we bring to them to achieve their top business goals. And a company that does this in a way that allows them to drive productivity, quickness of revenue generation, ability to compete with new business models by reducing their CAPEX and OPEX dramatically in the process. So that’s our ambition and goal. We want to be the best partner in meeting their most important needs.

This might be a great closing note. Two years ago, if you talked about us transforming our company, we were really innovative in certain siloes. But in terms of having the whole company coordinated on innovation from services to sales to engineering to supply chain, and then within engineering, having every one of our major functions or business groups within engineering, IT integrated together with world class innovation, I couldn’t tell you that we were there. We were not. Today, watch the talent that we’re bringing on board in the last 15 months. David Ward [from Juniper Networks], who is probably the top fellow in the whole communications industry, is at Cisco. He’s the CTO now, but he prefers to be called a Fellow. I asked the definition of "Fellow" and he says: It's a billion dollars in revenue for you, John. I said: I like you. Paul Perez in storage. Doesn’t get any better, out of HP. Bret Hartman, security, RSA, world class. John Apostolopoulos, CTO Enterprise, out of HP, application awareness. Paul Mankiewich it’s as good as it gets in mobility, out of Lucent, Juniper. Paul Polakos, another one of these top players [from Alcatel Lucent]. Nick Thexton out of the NDS acquisition, video, he’s as good as it gets. I haven’t missed on a recruitment in a year in regards to the technical skills or business skills, our ability to attract the best and brightest. John, it’s back to what it was like in the mid-90s. We didn’t miss very often.

What we’re attempting to do with the unified platform, with the applications on top, infrastructure below, the north/south API capability, in my simple terms, maybe the network finally becomes the platform we envisioned conceptually 20 years ago. That’s what cloud and the data center architecture does.  But we’ll see.

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

Think software-defined networking will change the industry? You’re thinking way too small, according to Cisco CEO John Chambers. In Cisco’s strategy, SDN is just a single element in a holistic architecture that brings intelligence, programmability and application awareness to every facet of your infrastructure and spans the data center to the cloud. In this installment of the IDG Enterprise CEO Interview Series, Chambers spoke with Chief Content Officer John Gallant about the power of Cisco’s Unified Framework and how delivering on that vision could make Cisco the number one IT company overall. No small ambition there.

Chambers also explained the role the much-talked about spin-in venture Insieme plays in that strategy and why competitors will struggle to keep up with Cisco’s architectural play. He also talked about what IT leaders should be doing to drive the Internet of Everything and why customers should expect big changes in the network and IT vendor landscape in the years ahead.

What’s your feeling about the overall economic state of IT in the U.S. right now?

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