Cisco Joins Cloud Wars, Pledges $1 Billion for Data Centers

Networking giant Cisco Systems is the latest tech titan to enter cloud in a big way, pledging to spend $1 billion over the next two years. The company will use that money to build up its data center infrastructure, which will run the new Cisco Cloud Services, according to the Wall Street Journal.

Cisco wants to capitalize on customers' growing desire to rent computing services rather than buying and maintaining their own machines, the basic impetus behind cloud computing. The service will be delivered with and through global partners, including Aussie telecom Telstra, tech distributor Ingram Micro and Indian IT company Wipro.

Cisco has built a massive business topping $49 billion in annual revenue. Most of that is selling networking equipment, and cloud offers an opportunity to diversify that revenue a bit. There’s no telling whether the company’s cloud intentions will fly or falter, as several hardware companies have entered the cloud computing fray to varying degrees.

Amazon Web Services is still the market leader in cloud infrastructure. While Amazon has been touting customer wins across a range of company types, AWS is still predominantly viewed as the place where startups get their infrastructure legs. Cisco’s entry into cloud will focus on the opposite end of the spectrum, targeting enterprise customers looking to shift to the cloud in order to reduce total cost of ownership or increase their agility.

Benefits for Partners

Cisco’s partners stand to benefit greatly, as this is a tech giant investing a number with a lot of zeros on building out a cloud infrastructure that they may leverage to compete with the big boys.

The move could also be the result of investor pressure for the company to shore up some kind of cloud strategy. Cisco's revenue declined about 3.1 percent in the six months ended January 25, and a steeper sales drop is predicted for this quarter. Vendors selling equipment are struggling to keep up with cloud providers, which are the darling of the tech investment world, so many are forced into cloud to both diversify revenue and appease investors who view cloud revenue favorably. This strategy has worked to varying degrees with public companies, and arguably played a role in Dell’s decision to go private.

Cisco enters the cloud in the middle of a price war. AWS has been cutting prices, Microsoft has been cutting prices aggressively, and so has Rackspace (along with doing a major tech refresh on its cloud). There are also smaller competitors like Profitbricks slashing prices as well. Cisco is a late entrant to the cloud wars, but one that has the firepower to potentially be a main competitor.

It’s not easy transitioning a traditional technology company into the new cloud paradigm. However, a $1 billion dollar commitment is huge. It also means that Cisco will be building out a lot of data centers, which is good for the data center industry in general.