John Chambers says IT industry is headed for ‘brutal consolidation’

At this year’s annual Cisco Live summit, John Chambers tried to draw attention to the difficulties of other entrenched IT giants — like IBM and HP — in an attempt to make a case for why Cisco is different.

He cited analyst firms’ predictions, and warned of a ‘brutal, brutal consolidation of the IT industry’ and a ‘musical chairs-like movement’ over the next few years. after a few rounds of musical chairs, say ten years from now many of the leading IT companies will be gone.

So far, so good. I agree. We are in a tectonic shift for IT. It is so foundational that we are unlikely to be talking about Information Technology at the end of 10 years. In fact, it already sounds 10 years out of date. Software is eating the world, and everything is being infected: it’s everywhere. Our handheld devices have more capability that PCs of a few years ago. The cost effectiveness of Amazon-grade cloud computing will lead to the rapid migration of all enterprise software to the cloud (hybrid and public).

The CIO is rapidly starting to be viewed as a holdover of an earlier time, or a role overseeing the dismantling of the 20th century IT operation. In the early days of electricity, businesses had a VP of Electricity, who had a slightly deeper knowledge of this innovation, but once electricity found its way into all many of devices — like typewriters, pencil sharpeners, and tools on the factory floor — the job became irrelevant. We are going to see that transition in the next few years, and the giant IT corporations that grew by working with IT staff to deliver Information Technology to businesses are going to have to pull themselves inside out or die.

I am skeptical of Chambers’ hand waving. Back in Dec 2012 I wrote about his plan to refashion Cisco before retiring:

I am always dubious when some CEO of a giant tech corporation plans to reorganize the company as the last thing before retiring. So when I read that John Chambers, the CEO of Cisco, is a) planning to remake the network giant, and then b) retire, I immediately discount the whole initiative as gold plating on his retirement watch.

At that point, he had started the ‘Tomorrow Starts Here’ campaign, which is so retro-futuristic that I almost laughed out loud. And he made no reference then to social business, which IBM has made a centerprise for their software business.

Chambers’ approach is to acquire companies whose technologies fit into a vision of the tech future: the Internet of things (iot). But I don’t buy the idea that you can guess the future course of a nascent market by making multi-billion dollar bets, like Meraki and Sourcefire. Buying companies that have been successful in today’s networking and security markets does not position you for the future, it just buys market share today. A the best, this is a sustaining innovation, as Clay Christensen styles it, selling new high-priced products to existing customers.

But Cisco — and the other IT vendors — need disruptive innovation: building early stage, low-cost alternatives to their products, that jump to the next wave on the innovation curve. Cisco is not doing that.

Consider the new DX line of video conferencing devices, which cost in the $1000 to $4000 range. These devices run a version of Android, and some have touch sensitive screens, but they cannot be used as general purpose tablets or PCs. They run video conferencing, and other Android apps downloaded from Google Play, but they are awfully large to be an adroid device. Contrast that with the norm today, where people are using low-cost or no-cost video solutions like Hangouts or Skype on tablets, smartphones, and PCs.

Cisco is like a dinosaur with its tail on fire, but its nervous system is so slow it hasn’t noticed yet.

Earlier this week I wrote about Cisco’s deadpooling of the-work-management-tool-formerly-known-as-Quad, which was rebranded WebEx Social (see What does the Cisco/Jive partnership mean?). That rebranding is classic example of sustaining innovation triumphing over disruptive innovation. Instead of allowing then-Quad to develop a brand based on its unique value and community of users, and to learn to compete around models of business closely linked to the use and adoption of work technology, Cisco saddled its in house-effort with the fading, aging brand of yet another multi-billion dollar acquisition, a deal done in 2007.

John Chambers is starting to look more like Steve Ballmer everyday.  He wants to reorganize and reorient the business to operate in this century, but his skills and instincts are 15 years out to date. Like Ballmer’s vision for moving Microsoft from a software company to a devices and services tech empire. But then, after starting and not completed a major top-to-bottom reorganization, he pushed for Surface (which lost $600M in its first year), decided to buy Nokia, and fell out of favor with the board.

I predict that the DX line is going to flop like Surface has. Ballmer’s gone, and we’ll see what Satya Nadella does with that tar baby, but Chambers is still running things at Cisco. Maybe there a multi-billion dollar merger coming in the near future that will spell the end for Chambers, too.