Cisco's John Chambers and Rob Lloyd on Consolidation, Intercloud, ACI and NSA

On Industry consolidation

In your keynote, you predicted a "brutal consolidation" for the IT sector.  What do you foresee?

John Chambers:  I've seen this movie before.  All of our competitors from 15 years ago are gone.  They were good companies but they missed critical transitions. Now you are seeing this accelerate. The role of a pure hardware player will be challenged.  We are a software-hardware-ASIC-cloud company moving forward.  I do think that of the top 5 IT players today, only two or three will really be relevant five years from now. It isn't a given that Cisco will be one of those. We have to change to get ahead in the transition.

On Intercloud

What is the real value proposition for Intercloud? What's in it for other Service Providers?

Rob Lloyd:  The primary differentiators with current infrastructure-as-a-service offerings are (1) Intercloud partnerships will be based on ACI (Cisco's Application Centric Infrastructure) for handling profiles that can scale from private clouds to public clouds, (2) Intercloud partners will embrace the idea of workload mobility or hypervisor independent workloads, which is a recent innovation that allows the customer to have choice to move from a VSphere-application to AWS or Azure application via APIs. We've tested workload mobility already with Amazon, (3) Many of the services that we plan on bringing to the Intercloud partnerships will be networking services.  We will deliver an increasing number of cloud-based networking services.  Many of the Intercloud offers will be branded solely by the Service Providers.  That will be the case with Telstra, which was the first Intercloud partner that we announced.

John Chambers: To really know if an idea is going to be successful, I like to sit down with the customer.  If they get really excited about the new idea, then we move. This was the case with Telstra.  It's clear that they get how an Intercloud will transform their bottom line.

On a deal with Rackspace

To be successful in cloud services, is it vital for Cisco to acquire a leading player such as Rackspace?

John Chambers: The purpose of our network architecture is to help us to prioritize what we are going to do in each market.  We don't move into a new market unless there is a real chance of capturing 40% share with sustainable differentiation.  We try not to move into markets that don't have very strong gross margins -- unless they are very strategic for us.  In this case we are talking about a market that is very price sensitive that is taking on giants like Google, Facebook, AWS, Microsoft, etc.  In this type of scenario, we will look for partnership opportunities rather than acquisitions.

Rob Lloyd:  The concept of the Intercloud was announced at our Partner Conference.  That was not accidental.  Our desire is to build a Star Alliance of cloud providers.  Any company that is in that space today should be part of our roadmap to build the Intercloud.  Customers will choose to use its scale.  They will embrace the constructs describer earlier, namely, ACI architecture, OpenStack automation, movable workloads, etc. This ecosystem will expand and it could grow to include any of the companies that we think of today as major cloud providers.

On NSA

How did you feel about the most recent revelation that the NSA may have tampered with Cisco products prior to delivery to certain customers?  Did this prompt your recent letter to President Obama?

John Chambers:  I'm not going to dodge this question.  But first, let's take a step back to the days immediately after 9/11. I was asked by President Bush to be a co-chair for the National Infrastructure Advisory Council and so I understand what is possible. This country has been very fortunate that there have not been addition terrorist attacks.  Things change, however. When I saw the picture (of the Cisco box being tampered with), I did not know how to interpret it.  Is it true? Remember nothing has been proven at this point, and there isn't any indication that Cisco is involved.  The photo could very likely have been a training program.

The issue is really simple and too important to the global supply chain.  It is essential for our customers to trust us. This isn't just an issue for the U.S. high tech industry.  It is global. Customers have to be able to trust the supply chain or things will begin to break down.

My parents, who were doctors, taught me never to get too excited and I've never raised my voice as CEO.  I knew this could be a real issue for Cisco, even though there is no reason to think we were involved. Therefore, I made the decision to write the letter to President Obama.  This is so important to the future of our industry.  We have got to change.  I like our leader.  I know that the NSA has good people and they are a good customer for us, but the situation is different now than the days after 9/11 .  We have got to change. It isn't so important how we got to where we are now as to where we go from here.

On the issue of tampering, how are you planning to ensure that the customer gets the original product that you shipped?  

Distribution and shipment is just one part in the production cycle.  You also have to look at where the product is manufactured.  Securing hardware manufacturing is easier than software development. We believe that we have the most secure supply chain in the industry. You have to offer more than just a single step in security. We've been focused on securing the supply chain also because of the issue of counterfeiting. The are boxes out there that look identical to Cisco. It's really hard to tell the difference.  In some cases, it may be nation-states that have created the counterfeit. We have been cranking up security but at the same time we do not want to see a break-down of the global supply chain.  On an international level, we need rules of the road. Governments need to say 'we are not going to mess with the supply chain.'

On ACI

What is the No. 1 business case for Application Centric Infrastructure?  Why would customers want to buy it?

John Chambers:  The first reason is to have common policy for the data center, cloud, WAN and through the access network.  If you consider what application centric infrastructure does, it is remarkably simple -- it delivers applications, network, scale, and security. As basic as that sounds, that's how we charted the original cloud in the data center combining compute, storage and the network. The value is in bring applications to life to run wherever you want with common policy and management.

Rob Lloyd:  I think the No. 1 use case for ACI is security.  I think we are going to see security policies deployed from data centers to WANs to access.  I think we are going to see that the ability to react quickly to a threat or attack quickly will become automated and handled network policy. Once that threats are mitigated, the isolated node could be decommissioned and then the rest of the network will return to a normal state.  Many of the breaches in security often happen between the silos in network infrastructure and these can be avoided with end-to-end common policy.  This will be one of the strongest arguments for ACI.

John Chambers: If you want to track our progress in ACI, watch the shipment numbers for Nexus 9000 switches and the number of ACI customers that we announce each quarter. There were 25 Nexus 9000 customers a quarter ago and there are 175 customers today.  ACI is in a number of trials now and shipments are coming soon.  Watch how our customer count will go up. That will be the real measure of whether we hit a homerun with this one.

Transcribed and paraphrased from a press conference at Cisco Live! on 20-May-2014