From networking to the cloud: Cisco’s Intercloud story

• Networks that didn’t talk to each other, to clouds that don’t talk to each other
• In a world of analytics, ‘information about things is more valuable than the thing itself’

 

EARLIER this year, Cisco Systems Inc said it would spend US$1 billion over the next two years to build a network of clouds called the Intercloud, which would be architected for the Internet of Everything.
 
The Intercloud, to be built with the aid of industry partners, would enable rapid application development, and deliver a new enterprise-class portfolio of cloud IT services for businesses, service providers and resellers.

When asked about the rationale that sparked the Intercloud push, Cisco’s senior vice president of Global Cloud and Managed Services Nick Earle pointed to its heritage as a networking company back in the late 1980s and early 1990s.
 
“It actually wasn’t called ‘the Internet’ back then, it was called networking, and networks didn’t talk to each other and you couldn’t move data between them.
 
“Point is, they were proprietary, closed networks and you had to pick a vendor. That was the first phase of networking,” he added.
 
Cisco played in this space, providing networking equipment along with other companies, but what really powered its growth was the capability to connect these separate networks together via the widespread adoption of the Internet Protocol (IP).
 
The company managed to catch the Internet wave with products ranging from modem access shelves to core routers that quickly became vital to Internet service providers (ISPs). By 1998, this gave Cisco a de facto monopoly in this segment.
 
Earle admitted that while the comparison may seem “simplistic,” that was the insight born out of a global-level strategy session the company conducted last year.
 
This was the realisation that today’s cloud space “actually looks pretty similar to networking in the past” with a lot of vendor-specific clouds that are not designed to interoperate, and a very vendor-  rather than partner-centric model in place.
 
“It’s islands of proprietary technology and the other thing is, no one is making any money! Not even Amazon,” Earle told Digital News Asia (DNA) on the sidelines of the recent Cloud Expo Asia event in Singapore.
 
“[Amazon chief executive officer] Jeff Bezos clearly employs someone to make sure he never makes money and he says that, if you look at his profitability, it’s exactly a zero. Even Marc Benioff at Salesforce hasn’t made money,” he quipped.
 
To get a better idea of the cloud landscape, Cisco created ‘cloud sniffers’ and assessed the many services available.

Earle said the company discovered that the average enterprise (the Fortune 1000 range) has about 783 cloud services in use out of the 3,800 then-available independent services in the market, though the figure is mostly likely higher today.
 
About 11% of cloud services websites encrypt their data while 16% don’t have anything more than a single password login for access.
 
“There are a lot of well-documented security issues around cloud services and chief information officers (CIOs) get fired for non-compliance and breaches. It was clear to us that there was a gap, there are there’s 10 times more ‘shadow cloud’ out there than what the CIO or IT has approved,” Earle said.

Cisco realised that the cloud industry was operating on what was essentially a “1.0 business model,” indicative of the still-nascent nature of the space, despite its rapid leap to ubiquity, he said.
 
“We figured, instead of a ‘me too’ on 1.0, why don’t we try defining what a 2.0 cloud business model is and why not look at it from a customer’s point of view?” he added.
 
Customer- and partner-driven
 
Earle (pic) said that insights garnered from customer feedback informed much of Cisco’s approach to its Intercloud initiative.
 
The first major request was for the capability to migrate legacy assets to private cloud environments, or at the very least, ‘cloudify’ it, as Earle describes it.
 
Second was the capability to embrace public clouds, to enable users to innovate and use third-party applications – but with a need for a rules-based engine that could help ensure compliance and security.
 
“That’s the ideal scenario, where I could set security policy just once and it is automatically implemented across internal and external clouds so that no matter what clouds the company has, security is guaranteed in the policy – the best of both worlds,” Earle said.
 
He said the company’s Application Centric Infrastructure (ACI) and Intercloud Fabric are key pieces of technology that will enable this scenario, adding that the Fabric runs on any x86 server platform.
 
“That was the feedback from customers – that they didn’t want to be locked-in in terms of hardware.
 
“Now this was a big deal internally, this move to uncouple the software from our hardware, more so than the external market reaction to be honest,” he wryly added.

The Intercloud then, as Earle explained it, is an alliance of partners which have agreed to install the Intercloud Fabric and ACI into their infrastructure.
 
Cisco is already building Intercloud Fabric capabilities into its Unified Computing Systems (UCS) converged infrastructure offerings, as part of its ‘on-ramp’ strategy to accelerate adoption.
 
Earle also emphasised that Cisco isn’t building out its own network data centres as well, apart from its own facilities to run services such as WebEx, and is instead making it a partner-centric initiative.
 
“We said instead of the vendor-direct model, why not have architecture that’s distributed through the various clouds, to act together as one big cloud and therefore share the costs together?” he said.
 
In addition, the call for data sovereignty was expanding rapidly, a new reality in ‘this post-Edward Snowden world,’ opens another opportunity.

This is where Cisco could possibly reap the best result in the short-term, with the Intercloud’s promise to help international businesses meet local regulations for storing data collected from citizens in local data centres.
 
In an interview with CIO Journal, Leslie Rosenberg, an IDC analyst who covers IT service providers, said that countries have become sensitive to enforcing such data governance in the wake of the news that the US Government was spying on cloud software providers.
 
“Governance and compliance, and the ability to have standardisation globally, is a major concern,” for CIOs, she added.

Gartner vice president Bern Elliot told Business Insider that Cisco’s toughest challenge would be adjusting to razor-thin margins.
 
“Cisco is used to a 60% gross margin business,” he said, noting that in contrast, cloud providers work with a lower profit margin and they cut prices all the time.
 
Last week, Cisco reported its first quarter results for the period ended Oct 25, 2014, recording revenue of US$12.2 billion and net income on a GAAP (generally accepted accounting principles) basis of US$1.8 billion or US$0.35 per share, and non-GAAP net income of US$2.8 billion or US$0.54 per share.
 
However, Elliot said that Cisco could still do well with this over time, as it has some of the best hardware engineers and many loyal customers which trust it.
 
“As anyone who knows the company will tell you: Never underestimate Cisco,” he added.
 
This is just the start

So apart from selling the software pieces with the hope that hardware will be thrown into the mix, how does Cisco plan to reap the profits in this long-term play?

Earle said the company is merely at phase one of its plans, which is driving connectivity and that the next stage is the launch of an online marketplace for Intercloud-compatible software designed by other vendors – not unlike an app store.
 
Cisco is eyeing the creation of “an uber marketplace that offers the most choice,” as Earle described it, a vision not too far off from the end game Telstra’s chief scientist Dr Hugh Bradlow espouses. The telecommunications company is a pioneer Intercloud partner.

Revenue would be then made via a cut from the sales of software and services, which could range from enterprise resource management tools to even the brokering of workloads across providers.
 
But the real destination, said Earle, is to make the Intercloud an enablement platform for the Internet of Everything.
 
“This is where you get business process optimisation in the picture. The next big wave of productivity is when 50 billion things get connected to the Internet, generating information, which is valuable.
 
“If you can grab onto that information from these things, you can process and optimise them, for instance changing the supply chain process to tracking exactly when chocolate leaves the factory or when consumers purchase something,” he added.
 
Earle noted that there’s tremendous opportunity for business, but in order for that to happen a few things need to happen first – one is to capture all the data, which is why the company is working on improving connectivity, via Fog Computing, a paradigm that extends cloud computing and services to the edge of the network.
 
The next big thing, according to Earle, is the virtualisation of data, enabling the serving up of information collected from this explosion in data sources.
 
Cisco recently conducted a study to determine the ‘value at stake’ or the profit potential from businesses being able to capture that data and transform their business processes – the number derived was US$19 trillion.
 
“It’s big and it’s what everyone is doing right now. The Internet of Things world will be implemented on the cloud, but the future currency is information. Information about things is more valuable than the thing itself, and it will be a world of analytics.
 
“This is the world we want to enable – it’s not just about connecting clouds but information connected to the cloud,” said Earle.

Previous Instalment: Cisco ‘opens’ up the cloud war with Intercloud
 
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