Cisco's Private Cloud Push: We're Cheaper Than Amazon

Cisco Systems is planting a stake in the private cloud market by launching a new OpenStack-based managed services bundle and a new financing option aimed at jump-starting the channel's ability to make money selling private cloud and hybrid IT solutions.

The private cloud surge comes as Cisco works to enable channel partners to sell its Cisco OpenStack Private Cloud offering, the private cloud managed service it gained in September via its acquisition of Metacloud, Pasadena, Calif.

With its new OpenStack Private Cloud Bundle, unveiled Wednesday at the 2015 Cisco Partner Summit in Montreal, certified partners can now sell an offering that provides the hardware and subscription service necessary to run Cisco's OpenStack-based private cloud. Cisco touts the bundle as a way solution providers of all sizes can provide a "public cloud-like" experience behind the firewall, without the management complexities often associated with OpenStack solutions.

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"We're making this available to all [certified] partners," said Edison Peres, senior vice president of Cisco's cloud and managed services partner organization. "We're going to be more open with this because we made it easy enough to be able to do that. … We believe this is easy enough that most Cisco Gold and Premier partners, if they choose to go down this path, can implement it."

The San Jose, Calif.-based networking giant's OpenStack Private Cloud Bundle includes the Metacloud-based subscription service and software as well as a prescribed package of hardware required to support it, including Cisco ASR routers, Nexus 9000 switches and UCS server technology.

For the capacity piece, solution providers can utilize Cisco gear or industry-standard servers, Peres said.

Kent MacDonald, vice president of converged infrastructure and network services at Long View Systems, a Cisco gold partner based in Calgary, Alberta, said having the technology and services tied together is key for partners.

"You need to have both of those together, otherwise it's going to be tough for the channel to adopt," said Macdonald. "Cisco is being responsive to the voices of the channel saying that 'We need this skill set' or 'we need these services for us to get into the game.' … We're making a bet and investments that OpenStack will be more significant in market share as the public and private cloud market develops."

While Cisco's OpenStack Private Cloud services can be sold by partners without Cisco hardware, the bundle aims to simplify the process.

The bundle is easy to order and set up, a configuration that's giving partners new reoccurring revenue streams and can be used to create new professional services opportunities, said Scott Sanchez, director of OpenStack strategy at Cisco, who joined the company via the Metacloud acquisition. "The partners get the opportunity to resell the hardware, resell the bundle, help the customers get that started, and they also get that ongoing revenue stream from the subscription," he said.

For developers utilizing at least 200 virtual machines, Cisco OpenStack Private Cloud costs less than public cloud services from Amazon Web Services but adds the benefits and control of a private cloud offering, Sanchez said.

Cisco's bundle is upwards of 40 percent cheaper for heavy users compared with AWS, said Nick Earle, Cisco's senior vice president of global cloud and managed services sales. Earle defines heavy users as companies spending more than $40,000 per month.

"The pricing of the OpenStack private bundle is 30 to 40 percent cheaper than Amazon, and Amazon is known for being cheap," said Earle.

A pair of Cisco partners said the offerings will challenge Hewlett-Packard's Helion OpenStack technology, EMC and VMware cloud platforms.

"This packaged offering would be very threatening to a Helion or an EMC offering," said a top executive from a solution provider on CRN's SP500 list who spoke on condition of anonymity. "But it still has some work to do to be comparable yet. … This should be a popular offering someday after OpenStack is more accepted."

Robert Keblusek, senior vice president of business development at Sentinel Technologies, a Downers Grove, Ill.-based Cisco partner, said he sees it "as an alternative that Cisco is offering to customers who likely have VMware installed."

Some Cisco partners said the new offering does not directly compete against anyone, but rather everyone.

"I can't point to one or two companies who this is competing with, because it's certainly competing with VMware, Amazon -- EMC has their hybrid cloud, HP has hybrid cloud offerings," said Dave Hart, chief operating officer of the New York City-based solution provider Presidio, a Cisco gold partner. "I don't see them necessarily going after anybody here. Cisco is saying, 'We've got an opinion here that hybrid cloud is important, and it needs a strong network component to do it right, and we're going to bring some technologies and some services to help our customers do that."

Earle said Cisco has most commonly been going up against Mirantis, a Mountain View, Calif.-based OpenStack player, and is winning 60 percent to 70 percent of those deals.

When asked how Cisco's offering compares to Helion, Ryan MacBan, vice president of sales for hybrid cloud and managed services at Cisco said, "That's a really good question, nobody really knows what that is," noting that feedback he's heard from customers who considered Helion is "when they get down to brass tacks and ask for an actual offering and they get into services requirements and architecture, it gets very unclear."

Cisco partners said the pre-validated architecture provided by the Cisco OpenStack Private Cloud Bundle reduces risks for both partners and customers as well as time to production.

"It ensures a more positive customer experience because the configuration has been architected, blueprinted, tested and validated -- that takes a lot of risk out from the channel and it takes a lot of risk out from the customer to know that they're not going to be an experiment kit to try to make all these things works together," said Long View Systems' MacDonald. "The pre-validated, pre-engineered blueprinted strategy is very much where we see the market has confidence, in that, they don't want to be an experiment."

Partners said OpenStack is a growing interest with customers and Cisco is now giving it "legitimacy" by embracing it.

"This brings more viability to OpenStack as a truly wide-scale platform with enterprise consumption," said Brian Ortbals, director of advanced technologies at World Wide Technology, a St. Louis-based Cisco gold partner. "It plays very favorably with Cisco's hybrid cloud strategy with Intercloud. It brings more legitimacy to customers who looked at converged infrastructure as a 'private cloud' and allows them to be a whole lot more agile and aggressive in deployment cycles without having to worry about the managed and operating components of the underlying infrastructure. … We're all really happy about this."

Cisco also on Wednesday launched Cisco Capital Open Pay Financing, a leasing model that alleviates the financial burden of a consumption model, said Peres. This allows companies to receive equipment with more capacity than they initially need, but only pay for what they use later on, he said. This leasing option charges customers 70 cents per dollar upfront and the rest only as they use it, said Peres.

"A lot of partners are coming back to Cisco saying, 'Help me be able to deliver the infrastructure with less cost upfront and charge the customer as they use it," said Peres. "If they wanted to use this leasing option on the OpenStack bundle, they could take the equipment portion of that and then give it on a variable basis, but they pay 70 percent to Cisco, and everything above that, Cisco will take the risk on."

Open Pay is currently available to a limited number of customers in the U.S. and will be available worldwide in the first quarter of fiscal year 2016.

Peres said Cisco's goal is to help transform partners to truly develop a hybrid IT business model in order for them to be able to add their own added value into the mix.

"We believe that the world is truly going to be hybrid -- bringing together and balancing what is the promise of public and the promise of private is really going to be the art of managing a true hybrid environment," said Peres. "We think this is the core of opportunities for partners."

Partners said Cisco is now delivering on the promises of Intercloud laid out during last year's Cisco Partner Summit.

"A year ago, they announced Intercloud and staked out some really interesting ground and different ideas around how Cisco could really make a difference in the hybrid and private cloud space, and they're now delivering on it," said Presidio's Hart. "It's tremendous progress just over the last 12 months."

Jennifer Follett contributed to this story.

PUBLISHED APRIL 29, 2015