Cisco already has had dominant market share in its core businesses. In looking for new sources of revenue and continued growth, the company saw the datacenter virtualization trend as a great opportunity. Perhaps it was a challenge as well, to enter a server market dominated by its traditional partners such as HP, Dell and IBM and, hence, antagonize them. This is inevitable, because wherever Cisco goes for growth, it is going to step on somebody’s toes.

Datacenter design is changing rapidly to meet the demands of massive amounts of data being driven largely by video applications. With the benefits of virtualization at hand, designers are beginning to take a top-down view of the datacenter. Cisco has teamed up with the leader in the space, VMWare, and storage behemoth EMC to just do that. In addition, Cisco also has partnered with NetApp in its grand vision of the USC- Unified Computing System.

The basic question may be, why does Cisco really care about server virtualization?

One possible answer: In a datacenter, each virtual machine mimics a physical server. Obviously, Cisco cares about any technology that increases bandwidth usage and thereby helps sell its mainstay routers and switches. Some examples are video like TelePresence, WebEx, and now Flip Video. Cisco wants to accelerate the adoption of 10Gb/s port usage so it can start building the 40Gb/s and 100Gb/s gears of the future. Datacenters are the first places  that can happen. However HP, DELL and IBM are neither in a hurry nor motivated to provide their server blades with 10Gb/s ports yet. They appear to be content with the existing 1Gb/s ports. So, Cisco saw an opportunity to push its 10Gb/s adoption in server virtualization. Instead of waiting for other companies, Cisco is now building blade servers for the datacenter that are customized for server virtualization. These blades provide up to 1Gb/s pipe to each virtual machine, which would mean more 10Gb/s ports at the backend of the datacenter,  helping in Cisco’s 10Gb/s push.

An alternate possible answer as to why Cisco cares about server virtualization: HP has recently stepped up its efforts in building networking gear, stepping on Cisco’s toes. HP’s Procurve product line seems to be gaining traction among its enterprise customers. In addition, with the acquisition of one of Cisco’s largest customers, EDS, HP is beginning to challenge Cisco’s dominance in the market. By some accounts, HP is the second-largest networking gear vendor.

Perhaps the reason is a combination of both the answers or there may be a third one. However, Cisco definitely has the wherewithal -  money, technical prowess, innovative spirit, and great leadership in John Chambers - to deliver on the promise of its vision - UCS.

Conclusion: Admittedly, this is a very big vision. In hard times, Cisco re-invents itself as it has done many times in the past. I believe it has the fundamentals, savvy management and competitive spirit to pull off this one as well.

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