What Cisco’s Defeat Means
When every day brings with it news of some new cloud computing-based product or service, when every IT company worth its name has already entered or planning to enter the cloud computing market, the news of a withdrawal does rankle. When the company in question is a big name like Cisco, it may even give rise to doubt regarding the resilience of cloud computing.
Last week, networking giant Cisco pulled the plug on its hosted e-mail service just 13 months after launching it and spending $250 million on its development. In spite of initial interest, the service did not find many takers. The news was first made public in a blog post by Debra Chrapaty, senior vice president and general manager in Cisco’s collaboration software group.
“The positive disruption represented by the cloud computing transition was what led us to introduce a Cisco hosted email product in November 2009. Customers told us they were interested in divesting responsibility for managing email on-premise in much the same way as they outsourced conferencing to Cisco via our SaaS WebEx Conferencing service,” Chrapaty wrote.
In the thirteen months since, we’ve been market testing Cisco Mail via a controlled release. The product has been well received, but we’ve since learned that customers have come to view their email as a mature and commoditized tool versus a long-term differentiated element of their collaboration strategy. We’ve also heard that customers are eager to embrace emerging collaboration tools such as social software and video.”
So what does this tell about cloud computing in general? Does the fact that Cisco could not find enough customers be a cause for concern? What implications does Cisco’s failure have on the broader cloud computing market?
First of all, let me equivocally state that Cisco’s failure in no way means a setback for cloud computing. On the other hand, it means that the market for cloud computing products and services is mature enough to demand value for money. And there is enough competition to ensure that the provider who doesn’t provide value doesn’t survive.
Let’s take a look at the numbers. Cisco offered a standard package of $5 per month per user which including Outlook support, Web 2.0 webmail client, e-mail, calendar, with only 5GB storage. Compare that with the offerings of Google Apps and Microsoft Exchange Online, both of which offer storage of 25 GB at $50 and $60 annually, besides additional functionality. From a purely business point of view, it makes no sense to pay the same price for a lesser product.
Secondly, Cisco’s defeat demonstrated one of the immutable laws of business – the need for differentiation. Cisco didn’t offer anything that was different from Google, and Google already had the first-mover advantage. The only parameter it could have competed otherwise was on price, and here too Cisco found itself lacking.
What does this development mean for Cisco, which, as Chrapaty said, remained “very committed” to collaboration technology, a $38 billion market currently. Cisco has the popular WebEx product in this space and a large share of the VOIP market. Experts opine that these two would be hit by Cisco’s departure from email as the company will no longer be able to offer a comprehensive collaboration package.
As Matthew Cain, vice-president and lead E-mail analyst at Gartner wrote in a research note, such a move “takes away the ability for customers to use Cisco as a single stack collaboration vendor.” Also, customers may become wary of Cisco’s long-term commitment towards other products in this space, including collaboration platform Cisco Quad, Web-casting and video-sharing application Show and Share and collaboration tool Cisco Pulse.
In conclusion, I would say the Cisco’s failure shows that the cloud computing market is maturing and this should encourage providers to come up with innovative products to get the customer to open his wallet.