Cisco Systems Inc. has quite recently pledged to invest a whopping one billion U.S. dollars over a period of 2 years to plunge into the market that is currently dominated by huge names in the industry like Google, Microsoft and Amazon. Most of the money will be spent on building a robust Cloud infrastructure. It comes a surprise to us that Cisco had been pondering so long to jump in, despite being a networking company. Amazon Inc., is already killing it with their cloud services and racking in $3 billion dollars annually.
It is said that, Cisco has been refraining themselves from cloud since they kind of assured their customers about 3 years ago that they will not set foot on cloud — if they did, they would be competing with their own customers. The wait is over and promises are meant to be broken in the industry.
Companies do not seem to be interested in traditional hardware and software for their IT projects anymore. According to a Gartner report, an estimated $131 billion has been spent by companies small and large on cloud services. Gartner also speculates with confidence that they will spend $175 billion in 2014 and nearly $235 billion in 2017. The prophecy seem very much possible.
Why after all these years?
A lot of tech giants are moving toward cloud. Only in mid January IBM committed 1.2 billion U.S. dollars in cloud computing. They have also started acquiring numerous smaller companies and cobbling there path into the cloud computing realm. Also, the move to cloud is inevitable. Many companies providing enterprise services are losing all the big bucks as the use of traditional hardware and software have considerably declined in the past couple of years. More and more companies are not willing to buy hardware and would prefer to rent all the computing juice they want from web-based cloud services like Amazon Web Services.
Accordint to Rob Lloyd, who holds the chair for Development and Sales, it will be possible for them to achieve better economics by providing services for less cost. However, the truth is, Companies like Cisco and IBM failed to keep up as a lot of their customers apparently like the cloud where their data and applications are delivered online rather than stored on local hardware.
It is not only the big boys — we can also see a growing trend of traditional hosting companies providing cloud services, nowadays. Leading shared hosting services like Hostgator and JustHost, although considered rivals have now partnered to provide cloud hosting. Only recently, the Australian web hosting firm, EZI Hosting, one of the leading shared hosting provider started providing cloud hosting services.
It is quite apparent that Cisco is not willing to lose on all the money they could be making in cloud computing. Another reason for sudden the switch to cloud is the slow order growth. In the second quarter of 2014 Cisco’s revenue showed a decline by 8% percent. Investors seem to approve of the move in to cloud computing as you can see in the graph below. Their share price closed at $23.09 the highest since mid-November 2013.
Partnership
Cisco Systems is not planning to take on the big guys single handedly. They have informed that, they are planning to achieve their goals in cloud computing by partnering with some competent companies like Telstra (an Aussie telecom company), Ingram Micro Inc – a tech distributor, and an Indian IT company, Wipro Ltd who are also well known for selling computers in the sub-continent. We are not sure about the intent behind partnering with Wipro Ltd., and Ingram Micro Inc., but, Telstra is already minting 800 million AUD with their cloud services.
Cisco has made it clear that, unlike IBM who are aggressively acquiring several companies, their aim is to capitalize on renting computing services rather than owning machines.
Target
Although the multinational corporation has announced that their main target will be government agencies and big businesses — plunging into cloud services Cisco can also target small businesses. Most of Amazon’s customers, are SMBs and individuals. This can give Cisco the great opportunity to spread their wings really wide. We don’t quite know everything about their plans, but they have also announced that they are willing to sell their cloud services to telecom companies to form an Internet-based service that will be further sold to others.
We might not see Amazon and Cisco going head-to-head in the near future since Cisco has made it clear that they are going to focus more on B2B, and telecom firms, but we think it will only be a matter of time.
