The VAR Guy

At Microsoft’s Worldwide Partner Conference in Houston, most folks are focused on Microsoft’s Software as a Service (SaaS) strategy. But here’s a quick fact from the event that caught The VAR Guy’s ear: More than 2,500 Microsoft partners have achieved the “Unified Communications Solutions” competency. Should Cisco Systems be worried?

First, let’s put things in perspective. The VAR Guy has never been blown away by certifications, accreditations and other pieces of paper that claim VARs and managed service providers are competent. And earning Microsoft’s Unified Communications Solutions competency could be a rubber-stamp diploma.

But The VAR Guy thinks Microsoft is onto something here. In the world of networking certifications, Cisco Systems is king. And a quiet but strategic battle is brewing between Cisco and Microsoft: Microsoft’s best customers are ISVs (independent software vendors). Cisco’s best customers are VARs. With those facts in mind, Cisco is racing to recruit more ISVs, and Microsoft is taking aim at networking VARs.

Buried within this Microsoft press release, the software giant briefly mentions that 2,500 of its partners have earned the Unified Communications Solutions competency. It’s easy to dismiss such numbers, but plenty of Cisco rivals could never hope to make similar claims.

Perhaps it is possible to fly below Cisco Systems’ radar, and succeed in the networking market. Just ask the folks over at Adtran, which attracted positive comments from Morgan Stanley on July 7, notes Barron’s.

The VAR Guy isn’t predicting that Adtran will become some sort of networking powerhouse. But The VAR Guy has noted from time to time that Adtran ranks among the rare companies that continues to thrive in a world otherwise dominated by Cisco.

On the eve of Microsoft’s major partner summit in Houston, TechTarget is speculating that Microsoft may one day want to acquire Nortel Networks. Hogwash. The VAR Guy knows at least four reasons why such a deal will never happen.

First, here’s the speculation from TechTarget — which claims that some Microsoft and Nortel partners think such a deal might make sense. Here are four reasons why such a deal will never happen, according to The VAR Guy.

1. Embrace and Replace: Microsoft has spent decades partnering with second-tier companies (examples: Sybase, Novell) to infiltrate new markets or counter established industry leaders (examples: Oracle and Red Hat). By partnering with Nortel Networks, Microsoft can potentially learn how to compete more effectively against Cisco Systems in the unified communications market.

Still, anyone who thinks Microsoft wants to start selling big networking iron — routers, switches, PBXes, telecom gear, etc. — doesn’t understand Microsoft’s corporate DNA. Microsoft can’t even keep the Xbox 360 from overheating, and the company’s home networking hardware products were dead on arrival. Do you think the software giant would attempt to manage global telecom phone systems?

2. Alcatel-Lucent: So far, the merger of Alcatel with Lucent has deeply disappointed investors. In the networking industry, big mergers of equals (examples: SynOptics with Wellfleet, 3Com with US Robotics, etc.) never work. While the merging companies are busy sorting out their executive perks, Cisco Systems hums along and crushes them in the market. Microsoft knows this. Instead of buying a big networking company, Microsoft will partner with all of them.

3. That Was Yesterday: Why — oh why — would Microsoft buy a legacy telecom company as the world increasingly moves to open source PBXes like Asterisk from Digium, software as a service (SaaS) and Web 2.0 technologies?

Sure, Microsoft may eventually compete with Cisco Systems. But companies like Google, Salesforce.com, Red Hat and Oracle represent far more immediate threats to the Microsoft empire. Surely, Microsoft won’t risk getting distracted on a big network hardware acquisition.

Nortel has done a nice job cleaning up its accounting problems, current management has stabilized Nortel’s business, and the company remains a major telecom equipment supplier. Yada, yada, yada … where’s the growth? One of Nortel’s closest watchers — Blogger Mark Evans — notes that the company is still looking for its “growth” opportunity.

4. Direct vs. Channel Support: Microsoft generally relies on partners to sell, service and support its software. Nortel’s big telecom customers demand responsive, real-time, world-class support directly from Nortel. That’s not exactly Microsoft’s strong suit.

Well, The VAR Guy has certainly set himself up for a big fall here. If Microsoft ever buys Nortel, The VAR Guy will have to eat a big serving of crow. In the meantime, he isn’t swallowing TechTarget’s theory about a potential Microsoft-Nortel combo.

When Cisco Systems launched its Unified Communications strategy, the networking company worked overtime to educate partners about the market opportunities ahead. But Cisco’s Data Center 3.0 strategy will depend far more heavily on guidance from established partners, notes Wendy Bahr, VP of Channels for US and Canada.

Here’s the reasoning: Early on, the unified communications field was green with no established technologies. As a result, Cisco had to build solutions and partner programs from scratch. But when it comes to Data Center 3.0, many of Cisco’s partners already have expertise with servers, storage area networks and so on. As a result, Cisco realizes that partners may actually lead a lot of the Data Center 3.0 discussion going forward.

Time and distance prevented The VAR Guy from attending the 2008 Cisco Partner Summit in Hawaii. But The VAR Guy won’t have any excuses for skipping the 2009 Cisco Partner Summit, which will be held June 1-4 in Boston, our resident blogger has learned.

Boston is a short shuttle flight from The VAR Guy’s mystery blogging location — somewhere on Long Island’s famed Gold Coast. But don’t look for him in a Gatsby mansion. Chances are, he’s writing this while connected to WiFi in a local Starbucks.

During a chat earlier today with Wendy Bahr, VP of US and Canada Channels for Cisco, The VAR Guy learned about the Boston event location for 2009. While the 2008 event in Hawaii attracted partners from across North America and Asia Pacific, the 2009 event will give Cisco’s European partners an easier opportunity — and a shorter flight — to join the action.

Bahr also confirmed that Cisco plans to hold another Velocity Marketing event this year. The initial marketing event, which Cisco launched in December 2007, educated partners about Web 2.0 marketing and PR. (And yes, The VAR Guy blogged live from that event.)

The VAR Guy has been hyping TelePresence — that next-gen videoconferencing technology — for nearly two years. But is anyone (outside of Cisco Systems Inc.’s own offices) actually using TelePresence? You bet. Here are nine key data points to consider.

First, some background. The VAR Guy recently read that Cisco had sold only six TelePresence systems in Australia. At first, our resident blogger worried the global TelePresence market was tanking. But then he reached out to Cisco for some clarification. Here’s the Cisco party line, along with our resident blogger’s perception.

9. Triple-digits: Cisco had more than 100 customers using TelePresence as of December 2007. Not bad, considering conference room systems can cost $300,000 or more per deployment.

8. The New Fortune 500: Cisco has received orders for more than 500 TelePresence units, as of April 2008. So, it’s safe to say that market growth has accelerated since the December 2007 deployment estimate.

7. The Bigger (Global) Picture: Cisco has 229 TelePresence rooms deployed internally, across 108 cities and 32 countries. Good to see Cisco practicing what it preaches.

But The VAR Guy wonders — might there be an opportunity here for Cisco to actually “time share” these internal systems to customers that can’t afford their own on-site deployments at the moment?

6. Rising Utilization Rates: Cisco’s internal TelePresence systems have a utilization rate of 45 percent, compared with standard video conferencing systems that have less than 1 percent utilization rates, the company claims.

5. Smile for the Camera: Cisco has held 110,627 TelePresence meetings to date. The VAR Guy has only attended one of them. Did the other 110,626 meeting invites get lost in the email?

4. Big Commitments: In the past three months, nine enterprise customers have decided to deploy 50 or more TelePresence rooms.

3. Global 2000 Brands: TelePresence adopters include Procter & Gamble, Wal-Mart, SAP, EMC, Wachovia, McKesson and others.

2. Any to Any Discussions: AT&T is introducing intercompany services that will allow companies to call outside their corporate networks, and hold virtual meetings with their customers, partners and suppliers.

Stop and consider that for a moment. Corporate Ethernet and IP networks became exponentially more valuable when businesses started using the Internet to enable any-to-any business communications. With a little luck, the same will happen with TelePresence.

1. Ready for the Masses?: Cisco recently introduced a Personal TelePresence unit (CTS 500) and a larger classroom-style room (CTS 3200). The moves could broaden the market for TelePresence.

Still, Cisco insiders are quick to assert that TelePresence involves a long-term strategy and market build-out, rather than rapidly growing sales volumes.

Also, The VAR Guy must note, the TelePresence industry is filled with a growing number of rivals, such as Hewlett-Packard Halo and LifeSize Communications, which has won a reseller agreement with Dell.

Closing thought: Whenever Dell jumps into a market, you know sales volumes must be growing.

New Cisco Systems Chief Technology Officer Padmasree Warrior is preparing to take center stage at Cisco Live, a massive customer event that starts June 22 in Orlando, Fla. This is the first time Warrior will grab the spotlight at a big Cisco event. Here’s what to expect, along with five key anticipated trends at the conference.

5. Got Any Talent?: Cisco will spend considerable time talking more about the IT talent shortage, and the steps the company is taking to address the issue. The “talent shortage” theme has been front-and-center for Cisco for more than a year.

Cisco is working on a range of strategies to close the talent gap, including opening new Cisco Networking Academies across the globe.

4. Data Center 3.0: Cisco will articulate “continued momentum” around its Data Center 3.0 strategy, notes one trusted source close to the company.

The data center update, which involves the melding of networking with virtualization, servers and centralized infrastructure, comes at an opportune time. Cisco tactfully announced the departure of Jayshree Ullal, senior VP of data center, switching and services, on May 9.

During earlier events, Ullal was the voice of Cisco’s data center strategy. In July 2007, Ullal noted that the shift to Data Center 3.0 technologies “isn’t a sprint.” Instead, she said, the strategy will play out in five to seven or even 10 years.

In retrospect, perhaps Ullal was suggesting that the Data Center 3.0 push would continue long after her time at Cisco had ended.

3. Green Machines: Yes, the entire IT world is striving to go green. But The VAR Guy hears Cisco will have discuss some real progress points on its green strategy.

2. Here’s Johnny: CEO John Chambers typically steals the show during these events. The VAR Guy hears Chambers will evangelize “the network as the platform” for the second phase of the Internet. No surprise there.

The VAR Guy hopes Chambers will expand on some earlier themes. In April 2007, Chambers described how Cisco expects to increasingly compete with software and Web 2.0 companies such as Microsoft and Google.

1. New CTO Takes Center Stage: Padmasree Warrior made the leap from Motorola to Cisco Systems in December 2007. But this is the first time she will step onto a massive stage and share her vision with Cisco’s customers.

The VAR Guy met Warrior at a MuniWireless event in Silicon Valley, back in October 2007 — roughly six weeks before she leaped from Motorola to Cisco.

Warrior walked attendees through Motorola’s application strategy for municipal broadband networks. But portions of the presentation came off as a product pitch.

The VAR Guy expects Warrior to raise her game — in a big way — during Cisco Live in Orlando.

At Motorola, Warrior was surrounded by executive uncertainty and shareholder displeasure with the company’s performance. At Cisco, Warrior can focus on the job at hand, rather than external distractions.

The VAR Guy will share more as Cisco Live gets started June 22.

The VAR Guy has a headache. He was just getting used to the shift from gigabytes to terabytes … and now Cisco Systems is talking about zettabytes (otherwise known as 1,000 exabytes). So, what exactly is a zettabyte? And can The VAR Guy get that on his thumb drive? Here are some answers…

First, some background. Based on some recent research, Cisco predicts that IP traffic will increase at a combined annual growth rate (CAGR) of 46 percent from 2007 to 2012, nearly doubling every two years. This will result in an annual bandwidth demand on the world’s IP networks of approximately 522 exabytes, or more than half a zettabyte, Cisco notes.

Hmmm. Somebody hand The VAR Guy a calculator, an abacus and some aspirin. Unless they relate to The VAR Guy’s bank account, big numbers give The VAR Guy a headache.

Now, for some clarification:

• A zettabyte is equal to: 1 trillion gigabytes; 1,000 exabytes; 250 billion DVDs.
• An exabyte is equal to: 1 billion gigabytes; 1,000 petabytes; 250 million DVDs.

Hmmm. So, Cisco is basically saying that 125 billion DVDs will flow across the Internet in 2012. Yet The VAR Guy’s kids will still complain that “there’s nothing worth watching on ipTV…”

When Red Hat kicks off its big customer summit June 18 in Boston, the open source giant will bring along a rather large — and surprising — date: Cisco Systems Inc. Why does Cisco plan to hang out at one of the open source industry’s largest events? The VAR Guy has a few hunches.

Over the past year or so, Cisco has begun a quiet metamorphosis. During meetings with The VAR Guy in 2006, Cisco could barely utter the term “open source,” and company insiders weren’t familiar with industry players like Canonical, SugarCRM or MySQL (since acquired by Sun Microsystems).

But by mid-2007, The VAR Guy noticed some small but significant changes. During a media gathering in Dublin, Ireland, Cisco managers actually uttered the “open source” term, and they spoke a bit about their efforts to get open source (and closed source) application developers aboard the unified communications bandwagon.

Good News, Bad News

The VAR Guy isn’t suggesting that Cisco is ready to start open sourcing all of its software projects. But the networking company is starting to realize that open source is both a blessing and a burden.

On the upside, Cisco can leverage open source partners to fend off Microsoft’s unified communication efforts. We all know that application developers are the key to winning platform wars. And in Cisco’s mind, the next big platform is unified communications.

Now, for the challenge: Open source also threatens Cisco in some ways, particularly at the low end of the market where companies like Digium, Untangle and others are promoting open source networking, IP PBX and security solutions.

Open source won’t threaten to destroy Cisco anytime soon, but Cisco isn’t waiting around to see how the competitive landscape evolves.

Welcome to Red Hat Summit

Instead, Cisco is attending — and even sponsoring — events like Red Hat Summit.

During the summit, Cisco is expected to describe how its products complement Red Hat’s middleware. But The VAR Guy thinks Cisco will spend considerable time listening to attendees — rather than pitching products.

Microsoft spent the 1990s ignoring and dismissing competitive threats from Linux. Apparently, Cisco is determined to avoid that mistake in the modern age of Web 2.0 and open applications.

Ignoring open source would mean dismissing dozens of application companies — and thousands of independent programmers — who can add value to Cisco’s unified communications strategy.

Say it ain’t so: The glory days of voice-over-IP (VoIP) sales appear over, according to Garrett Smith, one of The VAR Guy’s favorite bloggers. Hey, the party wasn’t going to last forever. And this “bad news” is actually pretty good news. Here’s why.

Smith expects the VoIP market to enjoy year-over-year growth for the next 5 to 10 years. Hopefully, The VAR Guy will have retired with IPO riches by that time… Regardless, The VAR Guy agrees: There’s plenty of room for continued growth, considering all of the enterprises and consumers who have yet to embrace IP-enabled desktop and mobile devices.

The key point: Smith isn’t saying that the VoIP market is slowing. Instead, he points out that the growth rate is slowing.

Why’s that? Of course, there’s the old rule of diminishing returns. Here’s a hypothetical example: A market that grows from $100 million to $200 million has essentially doubled in size and grown 100 percent. But a market that grows from $10 billion to $10.1 billion has grown only 1 percent — even though the actually dollar growth ($100 million) remains the same.

OK, that was a lame example. Another reason the VoIP market growth may be slowing involves confusion: Small businesses, for instance, have no idea what unified communications is, according to InformationWeek. Vendor hype about unified VoIP applications seems to be confusing potential customers, rather than educating them.

Ultimately, though, you should read Smith’s own list of five reasons VoIP market growth is slowing.