SAN FRANCISCO–As the larger IT companies become less specialized and more all-purpose in nature, collateral damage to industry partners is becoming a much more common–and serious–business issue.
A prime example a few years ago involved storage giant EMC and PC/server maker Dell. Dell, which didn’t focus on storage early in its existence, was happy to resell EMC’s wares to its midrange and SMB customer base alongside its servers.
At the same time, EMC needed help selling to midrange and smaller companies. Then, after Michael Dell took back his CEO job in 2007, Dell bought up-and-coming storage makers Equallogic (in 2007) and Compellent (2010), and suddenly the relationship changed: Dell was now competing with EMC and was hardly interested in reselling anybody’s storage anymore.
EMC then bought Data Domain in 2009 and Isilon in 2010, expanding its own storage line. A previously profitable 10-year agreement fell into pieces, and now you can bet Dell and EMC speak to each other only when they absolutely must.
HP, 3Com Deal Was a Key Event for Cisco
Same thing happened when Cisco went into the server-making business in 2009 with its UCS; Hewlett-Packard was miffed at that formidable new competition from a former partner. A year later, HP acquired Ethernet networker 3Com, which brought HP networking products and expertise that it used to get from Cisco Systems. We’re told Cisco’s still steamed about that one.
This pattern happens all the time, and now here we go again. VMware is using its virtualization power base (an estimated 90-plus percent of all data centers use some form of VMware software) to move deeper into the networking domain dominated by one of its major partners. That partner is–you’ve guessed it–Cisco Systems.
The relationship between VMware and Cisco Systems is an important consideration for the large number of companies that run VMware’s hypervisors and other management software on Cisco’s data center servers and networking hardware. It is even more important for larger enterprises that run both VMware and Cisco networking software.
At some point, all these IT shops will have to make strategic buying decisions about which software to maintain, and redundancies don’t cut it. Enterprises only need one network. This will all get pretty tangled, even political, and acrimony between these two vendors and their sales reps will not help matters.
VCE Partnership Is Another Sensitive Area
We’re not even talking about the two companies’ mutual interest and founding investments in VCE, maker of the hot-selling VBlock converged data center systems. That’s another touchy topic.
Well-informed industry folks were talking to eWEEK at VMworld about how they expect VMware and Cisco to gradually fall away from each other, how they will stop trying to sell each other’s wares into deals big and small, and how customers caught in the middle might be affected in the long and short runs.
eWEEK asked VMware CEO Pat Gelsinger on Aug. 27 how his company’s evolving partnership with Cisco has become more complicated, specifically in view of VMware’s unveiling of the NSX virtual networking platform that has just been launched.
NSX is a significant addition to VMware’s software-defined data center strategy, in which all data center components—from servers to storage to networking—are virtualized. Most of its features compete directly with Cisco’s older network virtualization software.
Gelsinger, as one might expect, took the high road. Nonetheless, there was a hint of concern between his carefully chosen lines.
Will ‘Collateral Damage’ Destroy VMware-Cisco Relationship?
“We’re going to do everything in our power to continue to build the partnership we have with Cisco,” Gelsinger said. “We’ve had great success in many areas with them. NSX is going to be a great platform for Cisco infrastructure. I’ll point out that the customers we had on stage [at one of the VMworld keynotes]–those are big Cisco customers running NSX in their Cisco environments.
“That’s going to be our continuing focus for the NSX platform. Every API, every SDN service, every programmatic interface that they provide, will be taken advantage of in NSX. Because the more value that they deliver in a programmatic way through the infrastructure, the more value we can give to our shared customers.
“We’re not going to stop in the pursuit of that innovation,” Gelsinger said. “This is like ESX in 2004; we see at least a decade of innovation in front of us.”
‘Collateral Damage’ Takes Its Toll
eWEEK then asked a pair of respected veteran IT analysts for their takes on all of this: Rob Enderle of Enderle Group and Charles King of Pund-IT.
“This all showcases the collateral damage that you need to consider when you move into an adjacent area,” Enderle told eWEEK. “The first major collateral damage [affecting Cisco] was back with HP, when it went from a stealth network provider to being a massive, major competitor (after buying 3Com) that Cisco hadn’t faced before. If you look at Cisco’s stock performance, pretty much since they (HP) started doing this, they went flat.
“That’s the difficulty here. As they expand out, the collateral damage companies do to partnerships, relationships and their core businesses may exceed the incremental revenue they get going into that secondary business,” Enderle said.
As VMware and Cisco bump heads, he said, VMware is more likely to hook up more tightly with somebody else–a Cisco competitor or a vendor that develops its own hardware.
“Remember, a company that was designed and built around software is probably going to be better at building and selling software, which is where the market’s going in the software-defined space,” Enderle said, “and it puts Cisco at a disadvantage as the market converts.”
VMware, Cisco Still Have a Lot to Gain
King told eWEEK that he doesn’t see a VMware-Cisco breakup anytime soon because they have so much to gain by working together.
“Cisco’s been under pressure from any number of traditional companies, vendors that it’s partnered with for years, without anybody stepping on anybody’s toes,” King said. “HP’s acquisition of 3Com a few years ago was the first major step in that direction. IBM acquired its own network switch; Dell’s doing the same thing. Oracle’s got a switch, and so on.
“VMware is pushing really hard right now in the direction of the software-defined data center,” King said. “What we’re seeing is what were once specialized vendors getting into one another’s businesses.”
“This is an issue of sensitivity for Cisco, and so many of its enterprise customers are heavily invested in VMware, that I can imagine there would be tension. But I also can’t imagine that there would be any break between them.”