Chambers talks of changing Cisco’s software model

We will no longer sell software like a hardware product, Cisco CEO says

Enterprise network professionals can expect changes in how Cisco sells the software that runs its routers and switches over the next few years, the company’s CEO told reporters at Cisco’s Networkers customer conference earlier this month.

In a broadly focused roundtable discussion with the members of the media, John Chambers said Cisco will re-examine how it sells the IOS and other software images that run the company’s routers and switches, as Cisco looks to offer more flexibility to customers and possibly boost its own bottom line by how it sells software.

“We have to evolve our software strategy,” Chambers says. “We tend to lump software into maintenance. So often people get the difference between maintenance and software upgrades [confused] when in fact they are in the same category.”

Chambers referred to Cisco’s policy of bundling software with its hardware. Currently, software such as IOS images that run routers and switches are included as part of the maintenance and support contracts customers buy for the gear. Breaking out software as a separately charged item could give customers a clearer idea of what software they’re buying and what features are available to them.

“Show customers what they’re paying for and let them make a decision that makes the most sense,” is the idea behind the potential shift, Chambers says. “There will be some elements of our software strategy that will be bundled forever. There will be others that will evolve out and will allow customers to chose what they want or don’t want in it.”

More than half of Cisco’s engineers are software engineers, Chambers says, “yet we sell [software] like a hardware product. Whereas all the major software companies in the world charge major amounts for upgrades and regular things and customers don’t even blink about that in terms of the upgrades.”

Without going into details or timetables, Chambers says enterprise users should expect to see gradual changes towards a more common model on how to buy software.

“What we have to think about over the next five years [is] how our software strategy will evolve ... how we charge customers for traditional software, to where we move to new collaborative applications or new security services or management,” he says.

Cisco’s software offerings now range far beyond the device operating systems it makes for its network equipment; collaboration applications that include presence, chat and videoconferencing for desktop clients are now part of the company’s software menu. Network and application management software platforms, security management, as well security host agents and client software are also part of Cisco’s software business.

Telepresence, which integrates high-definition IP video, audio and life-sized display screens, is one of the collaborative applications enterprises should expect Cisco to announce over the next few quarters, Chambers says, as the company eyes its next advanced tech-nology area.

“We don’t want to get too far ahead of ourselves in telepresence, but at the same time, we want to outline a vision of where the industry is going to go,” Chambers says. Chambers has referred to tele-

presence as Cisco’s next potential advanced technology in past speeches and demonstrations.

“We anticipate announcing a new advanced technology every four months,” Chambers says. “Clearly we’re putting a lot of constructive pressure on the engineering team. We know we’re asking the technology team to do something that has never been done before [with] tele-presence potentially. But we do have a lot of seeds planted [for other advanced technologies].”

On the merger announcement between parts of Nokia’s and Siemens’s telco businesses, Chambers says he sees the move as more of an opportunity to partner with a single entity on carrier mobility deals, as opposed to a new competitor.

“With Nokia and Siemens, both of them are potentially good Cisco partners,” Chambers says. “We think this gives us an opportunity.”

The merger of the two company’s telecom business units could give Cisco a single partner to deal with when putting together deals for carriers that involve wireless, telecom and IP routing and services technologies from Nokia-Siemens and Cisco. The other big telecom merger of Alcatel and Lucent in April was a more direct competitive move against Cisco, Chambers says.

“Lucent-Alcatel was clearly a combination that was a direct result in answer to” Cisco, Chambers says. How it plays out over time remains to be seen.

“Mergers among equals has a very high failure rate,” he says. “I don’t know how to do that. In my segment of the industry, there’s never been a merger among equals that’s ended up in the top leadership segment.”

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