Shifting Sands – Changing Alliances Underscore the Dynamism of the Infrastructure Systems Market

There is always a tendency to regard the major players in large markets as being a static background against which the froth of smaller companies and the rapid dance of customer innovation plays out. But if we turn our lens toward the major server vendors (who are now also storage and networking as well as software vendors), we see that the relatively flat industry revenues hide almost continuous churn. Turn back the clock slightly more than five years ago, and the market was dominated by three vendors, HP, Dell and IBM. In slightly more than five years, IBM has divested itself of highest velocity portion of its server business, Dell is no longer a public company, Lenovo is now a major player in servers, Cisco has come out of nowhere to mount a serious challenge in the x86 server segment, and HP has announced that it intends to split itself into two companies.

And it hasn’t stopped. Two recent events, the fracturing of the VCE consortium and the formerly unthinkable hook-up of IBM and Cisco illustrate the urgency with which existing players are seeking differential advantage, and reinforce our contention that the whole segment of converged and integrated infrastructure remains one of the active and profitable segments of the industry.

EMC’s recent acquisition of Cisco’s interest in VCE effectively acknowledged what most customers have been telling us for a long time – that VCE had become essentially an EMC-driven sales vehicle to sell storage, supported by VMware (owned by EMC) and Cisco as a systems platform. EMC’s purchase of Cisco’s interest also tacitly acknowledges two underlying tensions in the converged infrastructure space:

• That as the degree of integration and the combined software and storage component rises, the identity of the underlying compute platform becomes more abstracted lowering the value of many of the that many of the strong features that Cisco UCS offers, and …

• Just as Cisco saw the market adjacency of servers, so does EMC, and its complete ownership of VCE IP now clears the way for EMC to capture the server margins and revenues by substituting a less sophisticated server layer underneath its own VMware and other software layers. I fully expect hat EMC will continue to offer UCS-based CI offerings, but will probably move aggressively to integrate other compute platforms over time into ne converged offerings. This guess is reinforced by the fact that EMC has been recently recruiting CI technology strategists and marketing talent, and there have been reports that EMC will be integrating its ScaleIO software-defined storage IP into VMware’s kernel, further expanding its potential CI slate of CI offerings.[i]

In a complementary and compensatory move, on Dec 4 IBM and Cisco announced VersaStack^TM, a converged offering built around Cisco UCS and IBM’s proven and versatile StorWize storage technology, to take its place alongside VCE and FlexPod as UCS-based CI offerings.  While lacking specifics, the announcement also cited future integrations with Cisco ACI, Intercloud Fabric and unspecified IBM applications. This realignment of the stars, unthinkable when IBM was competing with Cisco for server market share, speaks well of the creativity of IBM and Cisco management[ii], confirms the effective “divorce” of Cisco and EMC[iii] whose relationship has been slowly souring as Cisco as Cisco cozied up to  NetApp and then acquired Whiptail, and opens up interesting possibilities, particularly for the long-term, particularly considering Cisco’s position vis-à-vis storage and its increasing criticality in both enterprise and CSP segments. Consider the following:

• If there has been a technology element that Cisco has struggled with, it has been storage. During the first several years of UCS, Cisco aligned itself with EMC and subsequently NetApp, so there was little pressure to invest heavily in storage, but as EMC and Cisco began to eye each other’s turf and the role of storage escalated and changed along with sheer data volume, analytics and the whole “big data” explosion, Cisco found itself with a weakness in their offering. IBM’s StorWize is an excellent, proven and scalable technology, and will be a strong complement to Cisco’s EMC and NetApp business, which will both continue (the EMC side has momentum for years, and NetApp is both popular and has little choice but to continue with Cisco for the moment).

• In the short term the advantages are obvious. Looking further out is it possible that the end-game here might be Cisco’s purchase IBM’s storage division or part a big chunk of it? IBM keeps its economics close to its vest, but as IBM continues to transform itself into a cloud-dominated services and software-led company, a sale of some of its storage IP is not unthinkable, and having another likely purchaser in the pipeline beyond Lenovo[iv] will certainly maximize its value if it comes to that.

All this is of course pure speculation, but what is certain is that the market for core infrastructure technology is anything but moribund, and that when you have a TAM in the neighborhood of $100 Billion, innovation and adaptation will be continuous, profitable for some vendors and good for all users.