Cisco Doing Servers a Symptom of the Times

(MoneyWatch)  The news that Cisco will push into the server market might seem like a big surprise -- and a big departure from its traditional base of networking equipment. But if you think about the direction computing is moving, it's not really surprising, and probably only one of a number of examples of radical diversification that will be coming in the next year or two.

The New York Times was certainly correct that this move will cause increased tension between Cisco and such usual partners as IBM and HP. But to see this, or the more general issue of enterprise product companies expanding beyond their traditional bounds, as a sudden development is a tad insular. GigaOM predicted Cisco entering the blade server market back in March of last year. And it was only last September that Oracle announced servers co-developed with HP. Even Google is rumored to be developing a router.

The reason for the border jumping is that the nature of computing is changing. Corporations are increasingly looking to virtualization to help in both efficient utilization of hardware and software resources and business continuity. Companies are also looking at SaaS and cloud computing as new ways of acquiring necessary services. The upshot is that the difference between computing and delivery of data is blurring.

Some are assuming that Cisco's interest is merely continued growth, because otherwise the margins fall far below what Cisco is used to. But this makes more sense if you see Cisco's action as part of its attempt to put itself in the middle of any transfer of data, whether video teleconferencing or the movement of media in the home. This is a long term survival strategy because when virtualization in all its forms takes precedence, then network hardware becomes commodity goods.