Internet of Everything is the biggest thing on our horizon: Cisco (Part I)

In the first part of an interview, Geoff Lawrie, NZ country manager at Cisco Systems, talks to Reseller News NZ on how the Internet of Things is the next big thing for the company in New Zealand.

Q: What are the larger networking trends that you are seeing in NZ?

Geoff Lawrie: Here's my take.

I think NZ is a relatively sophisticated networking marketplace. Cisco regularly brings together all the managers across mid-size markets globally. The Scandinavian countries, Norway, Denmark and Sweden, the mature Middle-European countries like Switzerland, Austria, Belgium, Portugal, Greece, Latin American countries that are doing well, couple of the developed Asian economies - we get together as a group. So I have a good opportunity to benchmark NZ.

One of my overall conclusions on that is we are a relatively sophisticated market. There is a good understanding here, the technologies are relatively mature, the infrastructure works well, it is relatively well priced. We are going through some transitions with relation to fibre at the moment, but in general it is a pretty well established networking environment.

As a consequence Cisco does as well here as it does anywhere else in the world. We tend to operate on the sophisticated end of the scale in terms of the networking capabilities that we offer to market and NZ is a good market for that. Customers understand that, they appreciate the value, and they place value on the support environment that goes behind it.

There is big disruption going on around UFB and its impact. There is nothing more current and topical right now than UFB, copper pricing and fibre. They will work through the system. But, ultimately, I am personally delighted that NZ has pushed in forward to getting in place a fibre infrastructure, because I think it is absolutely critical to the future.

It has nothing to do with my role here or my opportunity with Cisco. I just think that if NZ wants to be a globally relevant, well connected prosperous, productive kind of a country fibre infrastructure and networking, as well as strong connections to the rest of the world is one of the fundamental capabilities to have as a country. It is important to every industry - it is not a technology alone issue. It is important to the education process, important to the health process, critically important to agriculture and productivity in those areas, critically important to trade and government connections with citizenship. The underlying enabler to all of that is connectivity with fibre.

I am really pleased that we are pushing ahead with that and, ultimately, it will be a big disruptor.

The big thing we are seeing here in the last couple of years is the investment that telcos are making in networks and 4G. We are once again at the relatively sophisticated end of the case on a global basis. We may not be the first, right, but certainly incredible in terms of what we are doing with 4G. Vodafone has been in the market since October last year. And Telecom has come to market with their 4G option. And we have had a substantial volume of both of those projects.

Q: Where will the next phase of growth come from for Cisco?

GL: The networking industry is relatively mature in NZ. Most people who want a network have got a network. The interesting thing is there is still significant investments going on in terms of quality and capacity in terms of those networks.

So most of our market is not people putting in new networks, although there is a little bit of that. But there is a lot of investment going into capacity in particular. And the underlying driver for that is video. Every organisation, particularly large scale organisations in enterprises and governments, are seeing an escalating use of video across their networks.

That is driven partly by the social media elements a lot of which is rich media based. But now organisations are finding that executive communications, training delivery and effective collaboration all of that requires a high definition video element.

Sending text messages or voice data is a very low impact transmission. When you get to shopping around or wanting to have very low latency, like zero delay, or high definition video - that is when you really need a high quality well configured network. So organisations are investing a lot in getting to that level.

Our business here is split. About 55 per cent comes from what you would call core networking, and across that the vast majority is upgrades to bring either greater capacity -- particularly the main transmission networks we are moving from 10G to 40G to 100G on those networks -- so there is quite a bit of investment in supporting that.

They are also wanting to have higher quality in their networks to support video. So these are the two drivers of the networking side of the business.

Telcos and ISPs are about 30 per cent of our business here. The significant majority is enterprise and business consumers.

The public sector went through a hiatus of investment around the tail-end of the global financial crisis. One of the consequences of that was that many initiatives and projects inside the government got put on delay, slowed down or cancelled altogether, around the 2010 and 2011 period.

Around 2012 it came back quite strongly, on not all the projects but a lot of them. There are key areas in government where investment in that kind of capacity is fundamental to the productivity equation. And good examples are health, education, the justice sector in particular are investing a lot in networks to drive video in core processes.

The remaining 45 per cent - the bigger component in that is collaboration technologies. So that is voice and video systems connecting organisations. We are the largest supplier in the NZ market of that capability particularly in the enterprise level -- that is IP-based voice and high definition video collaboration systems.

The remaining component is about new business for us, which is around datacentre compute and switching. We have been in the high capacity datacentre switching between compute and storage for a long time. About three years ago we entered the blade switching market with a relatively revolutionary technology.

When we launched it, it was into a mature market too. The compute market was dominated by HP and IBM for a long time. And you would be hard pushed to find anyone particularly in HP and IBM who ever gave us any chance of being successful in that market.

But we are now number one blade shipper in the US. We are number two around the world and quickly getting to number one. It has been a phenomenal successful piece of the business for us. The investment that is going in cloud and cloud--enablement is helping to drive that. So we are actually gaining a share and growing that business in an overall declining marketplace.

Q: Do you see those ratios changing in next couple of years?

GL: Each of those markets have different dynamics to them. What's happening in the core networking space is that people are investing in capacity but a bit like PC model. People are spending the same amount of money and getting twice as much every 18 months. People are investing a lot, and it is going up from 10G to 100G and getting much more sophisticated, they are not spending much more money. So revenues in that marketplace is relatively flat, and going down. In NZ we grew our share of that market last year. But that was within a static market. Within that, in the networking space, there are parts of the market that are growing significantly and mobility is the big part of networking that is growing very strongly.

And that is in two senses -- one is the service providers that are investing in their mobile capacity, because of their smartphones and video on mobile networks and that kind of stuff. Just about every enterprise and government organisation in NZ has a wifi strategy. Five years ago it was all about fixed line connections and plug-ins. Now every enterprise we are dealing with has a Wi-Fi strategy of some description and in some cases Wi-Fi is the major area of investment.

Wi-Fi is a huge growth area. The marketplace is seeing 35 to 37 per cent total revenue growth. That is extraordinary. And security would be the other element. There is increasing spend in the security side of things.

Collaboration overall as a marketplace is growing slightly. But voice communications is going out. Fortunately for us we have got a really strong video portfolio. So we have got -- we have been able to ride that wave.

Total datacentre market spend is increasing slightly but within that service spend is declining radically. There are declining price points for capacity and it is a very competitive market. Virtualisation is taking a huge amount of spend out of that marketplace. Our figures were that our overall datacentre portfolio grew 35 per cent in NZ, inside of a declining market. That is a great outcome for us.

The biggest growth is coming out of datacentres and cloud-enabling. We had 35 per cent growth there and that's much higher than overall growth right. So the dynamics are changing -- datacentres are growing. The communication spend is staying relatively stable. Our portfolio growth is coming out of datacentres.

Q: Do you see that tipping the scale and becoming the dominant part of your business in NZ?

GL: The biggest thing on our horizon is the Internet of Everything stuff. We are in the fourth phase of the internet now. We started off with basic connections. Then we went to ecommerce and started transacting. We had the third phase of the social media, which went into the whole area of personal connections and the internet.

Now we are in the next phase of that growth, which is being driven by our willingness and propensity to connect everything on the planet -- plants, animals, appliances, cars, mobile phones -- just about everything. The number of connections to the internet is just about growing exponentially.

Think it was in 2009 or 2010 that the number of connected devices surpassed the number of people on the planet. Now we are at about 7 billion people, we have got 15 billion connected devices. We see that growing to 20 billion by 2015. By 2020 we are predicting 50 to 60 billion connected devices. That's being driven by some fundamentals in the tech industry to such an extent that the outcome is almost certain now.

That means having billions of devices connected and being able to make use of it, to ensure that data gets to the right endpoint, often without a human to be involved in that process. That is going to have implications for every industry.

For instance, I think it is going to be fundamental to how we do retain a pre-eminence in agricultural productivity. Connecting up our pastures, our livestock -- all of it being connected with telemetry and feeding information back to a location. All that kind of stuff will be done here.

Even on the NZ scale, that is going to be hundreds of millions of devices -- how do you get that information connected, how do you get that to a useful connection point. That is going to be a role that I see Cisco playing.

And what do you do from there -- the data storage, the analytics, the transmission, the industrial control that goes behind that -- I see Cisco having a role in that as well.

The second part of the interview, where Geoff Lawrie talks about the larger economic impact of the Internet of Things, will be available on Reseller News NZ on Monday, December 16.

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