Exclusive Interview: Cisco CEO Chuck Robbins On The Dell-EMC Fallout, Avoiding A VCE Bloodbath And The Need For Apple To Embrace Partners

Taking Center Stage

Cisco CEO Chuck Robbins Tuesday took to the main stage at the Best of Breed (BoB) conference to weigh in for the first time publicly on how Dell's $67 billion blockbuster acquisition of storage market leader EMC and EMC subsidiary VMware will impact Cisco.

In a 45-minute no-holds-barred wide-ranging interview with The Channel Company CEO Robert Faletra, Robbins spoke about getting ready to speak with Dell CEO Michael Dell, the "massive period of instability" facing Dell-EMC, the impact on Cisco's relationship with the VCE alliance, Cisco's acquisition strategy and even the new Cisco Apple partnership.

Have you called Michael Dell about the Dell-EMC deal yet?

We're trading voice mails right now.

But you do expect that you'll talk to him?

I'm calling him right after this. He called me while I was flying in here last night.

Will you still be working together with EMC? What does the deal mean for the competitive landscape?

Oh yeah. I think that, first, when you step back, the deal that went down was not a surprise. We've been expecting it. We've been talking about consolidating and we think that it will continue. I believe this will even accelerate it. It's a big deal. They're hard. We have a lot of historical examples to look at where we can see the challenges with big companies coming together in this space. It's not without its challenges. ... When we look at what we need to be doing around next-generation security, the introduction of predictive analytics capabilities, machine learning, hybrid cloud, all of the things that we're focused on, there's a lot of opportunities for us. But, if you look at the partnership itself, I've talked to a lot of EMC execs over the past few days and I expect that when Michael [Dell] and I chat that we will talk about the need to continue our partnership.

It's interesting that Dell is trying to do the exact opposite of HP. What are your thoughts on that?

For us, when we look at acquisitions I think that there are so many emerging areas that we can take advantage of that can make the network more relevant. When you look at a deal like this, or you look at even what HP is doing, think about the length of time that the discussion has been going on and then think of the length of time between now and when this deal gets done and then they begin to execute on all of the synergies. I think it just creates this massive period of instability in a world that's moving faster than we've ever seen. My view is that, when these large deals begin to transpire, it gives us an opportunity to continue to move faster and continue to separate ourselves.

Longer term, is there any chance that the 'C' [Cisco] stays in VCE?

I think so. I think that when you look at their model, I think they will continue to evolve to meet the different use cases that they face within their customer base, but I can't imagine a world where there are customers that aren't asking for solutions with 'C' in it. ... Customers still want both. It's incumbent upon us to make that work. I think that the historical lessons that we've learned are that customers did not want to see us and Microsoft have a bloodbath around collaboration and, in retrospect, we probably should have done a better job of coming together despite our differences to make sure we were really focused on the customer issues. That's one of the things that we'll do through this transition.

Could you see Citrix being bought by somebody -- maybe Cisco?

If you look at the whole move toward management orchestration -- the next-generation data center -- there is a lot of disruption that is going to happen in the IT stack. There is a lot of movement.

There is going to be movement from hypervisor-based models. So I think companies have to look at where do they believe this industry is going to go and what are the elements of the stack.

And then I think you have got to build your strategy around where you think it is going to go and what your customers need from them. To the extent that someone builds that strategy and sees that there is a play there for something in that space, I assume it might make sense.

Wouldn't it make sense for you to have a storage play yourself at some point whether it was an acquisition or a move in that direction?

To the extent that the solutions that we are delivering to our customers are met through those [storage] partnerships, then I think that is the approach we will take.

To the extent that there is something in the future that will lead us in a different direction, then we will take a look at that. But to date we have been very pleased with the [storage] solutions.

With your strong track record of integrating businesses, do you think that would work with a bigger player?

It depends on what you define as big. I think $7 billion is a lot of money -- we've done a few of those. We have done 182 acquisitions and I think five years after the acquisition 95 percent of the talent is still with us, which is a great testament to the culture. Some of them have not worked. John [Chambers] used to joke that one out of three acquisitions won't work, and if he knew which one it was he wouldn’t buy them in the first place. ... We think our global ecosystem is not only a huge competitive advantage for us, but it's also something that we can use to take an acquisition and just accelerate it at a pace that nobody else can. Meraki [for example], was $100 million when we exited Q4 when we bought it and two and a half years after we bought it it's at a $1 billion run rate. That's phenomenal and a lot of that is because of [partners].

Talk about the Apple relationship. What do you expect to get out of that and how does it work with the channel?

I think you will see a shift. I'm happy to tell [Apple CEO] Tim [Cook] that he needs to get more active with [partners], especially around this announcement and the IBM announcement. There's a few things that I think this really brings. Number one, our customers are asking us ... [for] seamless integration of our video assets with Apple iOS devices. The second is ... creating a world where that iPhone or iOS device is a fully integrated endpoint in the unified collaboration platform just makes sense. That's the second piece of what we've done. The third is ... there's a natural need for us to give native prioritization and traffic management capability at the operating system level. Then, iOS apps you can prioritize over someone watching a cat video in the cube next to you.

Tim's view is that they need to be more enterprise-centric, that they need to respond more to what the enterprises need as these devices have proliferated in the enterprise, and I think it's smart. He's looking for the top players.

Is seems like Cisco is taking a hardware approach to SDN while others are going to pure software. What is Cisco's point of view on the software-defined network?

Here's the bottom line -- it's a combination of all of those things. We are not religious about how this is going to play out. We are focused on, we've delivered ACI in the data center and we are going to expand ACI. It's opened up where you can actually drive policy across competitive platforms, so it's open from that perspective. We are going to be launching our enterprise version so that you can then have software-defined campus features, software-defined WAN. We do believe that the world will have a combination of merchant silicon-based solutions. We've done that in the 9k in the data center today, we have an ASICs-based for high-performance use cases and we have a merchant silicon version for where you just need high-speed connectivity and you're not looking to do a lot of analytics.

How does security play into that vision?

If you think about what is going to drive the decision over time, I believe that the security solution long term is going to be wire-speed, in-line analytics and security because the networks are going to be so massively distributed. If you believe that we are going to have 50 billion devices connected by 2020 and 500 billion connected by 2030 ... that's a lot of devices. You're just going to create a broader set of assets that are going to be under attack. I believe what is going to happen is you're going to have to be monitoring at the network layer of traffic when it enters the network and you have to be able to do it at wire speed, real-time, via analytics, machine learning and for that you have to have some high-performance ASICs. You can't count on software that is sitting somewhere.

Does Cisco want to be more of a software-centric company?

We want to be whatever we need to be to meet our customers' needs. The good news is, software typically is higher margins, which equates to what Wall Street would like to see us do. Subscription business is more predictable, which is what Wall Street wants us to do. So, I think all of those trends are positive for how our customers want to consume the technology as well as where we need to get to with our financial models. You'll see us continue to invest and move there. ... [For example,] our collaboration portfolio, our revenue was up 14 percent in Q4 and our deferred revenue, which is our subscription business, was up 21 percent. Our security portfolio today, 47 percent of that is now software and subscription. We're making that transition in several areas.

Could we see a time where Cisco has its own software-defined network that works better with the Cisco gear, and does that bring your margins down over time?

For the 30 years that I've been in this business, we've been trying to convince customers that it's about total cost of ownership, it's not all about the capex up front. Seventy percent of the cost of running an infrastructure is in the operational costs and we spend 90 percent of our time debating the cost of the box up front. For the first time in my career, I now see customers focusing on the operational costs associated with running all their infrastructure. ... The issue is -- what is the problem we are trying to solve? ... If you help the customer achieve those things, then they couldn’t care less if it's SDN or it's mayonnaise. What we are going to do is we are going to create a ruthless automation capability because the reality is, what SDN is, is you abstract the automation, policy and configuration of the network infrastructure and you give the customer the ability to do that dynamically. ... We will drive programmability and automation across everything that we sell to our customers.

Talk about innovation. What is next from Cisco and how do I monetize it as a partner?

I think there are several big areas for us. Driving this automation and abstraction layer and programmability is going to be a big play for us. Second is the analytics that the network can expose, in-line, real-time analytics, will give information to our customers which is tied to that Internet of Things that we're talking about. ... Then, the Internet of Things ... that is going to be a huge bet for us. ... We think that as this plays out for our partners and for Cisco, this infrastructure build-out is going to be unbelievable. It is going to be a combination of cloud-based public cloud, private cloud, hybrid, you're going to put compute storage and networking and have the ability for all these devices to connect and then have the network provide real-time analytics in conjunction with something from a static analytics perspective to solve the problem. There's so much ahead of us that I think this move is going to be five to 10 times bigger than what we've seen so far.

How do I get ready as a partner for the Internet of Things? What should I do?

I think that it is going to be industry-based. Many of our partners have built different practices around different industries, which has been fantastic ... Building a business that exposes the value of the data [is very important] -- we can't stop with just connecting the stuff because connecting it unto itself does nothing except for introducing new connections and some data until we can help deliver those insights. I think that's where the big opportunity is for [partners].

The other thing I think you ought to really be thinking about is customers tell me they want to spend all their IT assets and all their personal assets and human assets engaging with the C-suite. There is more pressure to deliver value to the organization. ... Technology has now moved from the basement to the boardroom. It's a board-level discussion. ... What that means for the partners is that there's a huge opportunity to step in and take on all of that stuff that has been going on in the IT organization.

What about in security? What innovations can we expect?

In security, what you will see from us is you are going to see us come forward. We're beginning to release elements and it will all come together in the end, where the network is going to have a tremendous amount of artificial intelligence in the machine learning that will provide information back up to the network in conjunction with Cisco-based threat knowledge, which comes from our malware-based capabilities with Sourcefire, our URL information that we pick up from Open DNS. ... and then we take the bottoms up machine learning we get form the network and you marry that to a dynamic provisioning that you can automate the configuration and re-provisioning of your infrastructure based on these threats that are coming in. We think that is going to be how the security architecture is going to play out. You're going to see those pieces come out from us over the next few months.

How critical is that partners have a really deep Cisco security practice at this point?

In the last six months I have seen more customers walk into our briefing center and say you have got to solve the security problem for us because it has to be an architecture.

As you move into this massively distributed world of private clouds, public clouds, all these kinds of things, the network is the consistent element that exists from the coffee shop login all the way through to wherever I am getting a public cloud service from. So what we believe is that you have to build a dynamic environment that has lots of threat sources.

Ultimately what you have to do is to be able to correlate those threats, make a decision on what it is you need to do and then dynamically protect the infrastructure from that. We think that a lot of that has to happen at the network layer.

We think that is a big play and that is the architecture we are trying to design. It won't just be us, but we think we have a tremendous role to play.

What do the partners need to be doing that they are not doing today?

You have to be incredibly dynamic and you have to be willing to change even when things are going great. You have to be willing to respond and build your business and evolve your business based on what is happening. And I think it is going to move at a pace that is faster than anything we have ever seen.

I think the other interesting dynamic for all of us is the consumption dynamics in the marketplace that are occurring create a very interesting thing for us all to consider in our relationship. We are incredibly committed to the partner community. Anytime we are talking to a company about a possible acquisition, this is what they want, they want access to our partner relationships.

Are you trying to change the way the field reps interact with the channel in any way, shape or form around software?

We are shifting and much like we put programs in place for our partners -- how we define VIP [Value Incentive Program], we do the same thing for our own sales force.

We did put in kickers and accelerators for software because that is an important point, an important place we want to focus. But I don't see anything that should affect the partner community.

The mistake we make is when our incentives for all of you in the partner community are misaligned with our incentives for our own sales force. That is where we get the complications. To the extent we do that, it is accidental and we will fix it. I don't know if that exists, but if it does we are happy to fix it.

Talk about the traction you are seeing with SimpliVity and what the future of that relationship might look like?

I think that strategic partnerships are going to play a more important role in the future than they ever have been with the pace of change.

The pace of change requires us to move so quickly that we think that strategic partnerships are going to be as important as our acquisition strategy has been in the past. It doesn't mean we are not going to do acquisitions, but we are going to give equal weight to partnerships because we think you can get value to the customer even faster. So the SimpliVity relationship has been incredibly good for us.

It is just like in the storage space, people keep asking me about storage and I say -- 'Look, our storage partnerships have actually served us well. They have met the needs of the customers.' I view the SimpliVity relationship very similarly. To the extent the partnerships continue to meet the needs of what our customers are looking for from us, that is the route that we will continue to take.

What is happening in the economy right now and is that a worry at this point?

The markets have been very interesting over the last couple of months. We have all seen the currency issues. We have all seen the emerging market challenges. We have all seen the concerns about China, which bleeds through particularly in Asia. It is just one more thing for Brazil to try to digest because they are a big supplier of commodities into China. So there are a lot of things that are happening. But they have been happening. This is something that is going on right now.

Last quarter in Q4 we had a record quarter and it was all organic. We didn't have any contributions from any sort of acquisitions. The way we think about it is if things get tough then that is when we actually accelerate via our peers because of our financial strength. Regardless of what happens we'll continue to execute on the things that we can control and we'll see where it goes.

Do you think the market is going to grow the way it has in the past over the next few years?

I think our customers view technology more strategically than they ever have. So I think that assuming the economy doesn't shift into a significantly negative headwind technology in general has never been better positioned. Our job fundamentally is to shift our focus to really helping our customers understand how can they get to the business benefit of all these investments faster. And to the extent that we can do that, they'll continue to invest.

So what you are talking about is we have to be better salespeople?

I think there is an openness to being sold [technology] if there is a financial benefit. That's the reason our U.S. enterprise and our U.S. commercial business is growing.

Many of our teams there have really focused on aligning the technology to the real business issues, the business objectives of the customer.

When you go into a customer and say 'I understand this is your priority. If we can bring technology that will help you achieve this' -- and you have some metrics around it and you say, 'Would you be interested?' What are they going to say, 'No?' They are going to say yes. And then you just have to prove it.

The fundamental issue is over the last 15 years in many cases we had to evangelize the fact that technology mattered. We don't have to do that anymore. Now our job is just to show the use cases and the financial metrics and the connection to the business.

What advice do you have for partners on how to monetize the cloud federation that Cisco has put their money behind?

The way we monetize Intercloud right now, there are three primary ways. There are partners -- some of you perhaps in the room - that want to stand up Intercloud capabilities. There is infrastructure and there is particularly outside the United States helping some of those service providers stand that up.

We think enabling the customers to take advantage of a hybrid cloud environment is one of the big things that we do. And then building out the private cloud infrastructure. The other thing you are going to see us do is deliver every service we have on our Intercloud OpenStack Fabric. So anything we sell as a service will be delivered on that and we will do that in a way that you can then position those with your customers.

We are looking at sort of some next-generation evolution of the strategy that we will probably be coming out with over the next six to 12 months.