It's fair to say that in the last month, Cisco has dominated the news-scape for UC/UCC. The company has broadened the spectrum of the devices it supports, improved UC management, beefed up its channel program for developing vertical and horizontal UC partners, and partnered with CSC to launch a major UCaaS service in Canada. Given all the balls that Cisco has to juggle, you have to wonder why they're spending so many management cycles on UC, whose products are a blip on the company’s financials. There's a good reason.
When Cisco entered the server space with its UCS line, it took a step that was both incredibly bold and incredibly risky. Cisco not only had no reputation whatsoever in the server space, it had cordial partner relationships with some of the server companies. The challenge Cisco had, and still has, is ensuring that revenue gains from UCS offset losses in switching and routing that competitive counterpunching could create. To do that, Cisco has adopted a strategy of "artful dodging" to avoid sales collisions with its new competitors.
Cisco does have a solid market position in the network, and some applications are more network-related than others. Where these applications are also in an early stage of adoption or modernization, they represent a good place for sales insertion. UC/UCC is one of the best of these network-related applications for a number of reasons.
The first reason is that the two main server rivals to Cisco, HP and IBM, are not big incumbent UC providers. The major UC incumbents like Avaya, Siemens, etc. don’t provide servers at all, and also don't have major market share in network equipment (Avaya is in that business via its Nortel acquisition, and Siemens has Enterasys, but neither are top-tier competitors). By going after UC as an application, Cisco can push first the software, then UCS, and then even network upgrades, all without stumbling over old rivals or creating potential new ones.
The second reason is video. Cisco has made no secret of the fact that they love video as a traffic generator, because it's by far the most credible new source. They love two-way video in particular because it demands better than best-efforts Internet QoS, so it's more likely to demand excess capacity to avoid congestion, as well as traffic management features to control latency—all things that run up the cost of routers. It's pretty hard to imagine a company becoming dependent on video without integrating video better into an overall UC strategy, something Cisco has recently recognized. Instead of leading with telepresence, which is a kind of millionaires' video strategy, they're increasingly leading with UC and hoping everyone is hooked.
The third reason, and the one I think is the biggest, is the cloud. The CSC UCaaS offering, which leverages Cisco's Hosted Collaboration, is a perfect example of what network operators are likely to want to deploy for themselves. Because network operators have long been more motivated by competition than by opportunity, a Cisco deal with CSC only increases the credibility of UCaaS to operators, and the credibility of Cisco as a partner. And as anyone who has tried cloud application deployment and integration knows, it's a lot easier to field a spectrum of something-as-a-service apps based on a single cloud vendor than on multiple vendors.
What should that something-as-a-service be? Any something someone will buy. For example, remember that Cisco bought a company that does management of user gateway devices (ClearAccess)? That may represent mere pennies of bottom-line impact to Cisco in a direct sense, but if you want to think about as-a-service opportunities for network operators, home automation is a clear winner. Cisco knows that the financial analysts are all predicting a capex shift among operators—from network to cloud. Cisco knows that it's the only telco equipment vendor who has servers. They're doing the math, and they like the result.
But to get to the happy point (for Cisco, at least) of dominating the cloud, they need to dominate the early apps. Profits for operators are the highest in the software or feature-as-a-service space, the spectrum of buyers is the broadest (because it includes consumers), and so a win for the operators here would not only generate dollars for those operators, it would generate a lot of orders for the supplier behind the offerings. If Chambers speaks French, he'd say "c'est moi!"
And you know what, he may be right! My surveys have said for years now that the thing that fascinates network operators most about Cisco is the fact that they have servers, alone among the big network vendors. When the early positioning of UCS seemed to lack any relevance to the network operators' monetization goals, Cisco's credibility took a big hit. They're coming back now with a story of server-and-network harmony that's looking more and more like the cloud.
If all this is true, then Competition for UCaaS among network operators would drive both provider-centric UC vendors and enterprise UC vendors to respond with their own strategy, likely with more cloud integration schemes. Even Microsoft. In their most recent quarterly call, Microsoft said they were pleased with the pace of Skype integration. But the blitz of the last month has given Cisco both a lead and momentum. They're starting to look like a winner.
