The Cloud Maker at Cisco

by Dave Michels

Originally published on NoJitter on August 28, 2012. 

Eric Schoch is the General Manager of Cisco’s Hosted Collaboration Business Unit (HCS), which represents Cisco’s UC&C cloud strategy. While most premises vendors have jumped directly into offering cloud services, Cisco’s strategy includes both it’s WebEx brand of cloud services in addition to partnering with service providers and system integrators with solutions optimized to create cloud services. HCS packages Cisco products to service providers intending to deliver their own branded UC&C cloud service for enterprise organizations.  HCS was announced in the summer of 2010.

Prior to Cisco, Eric briefly ran the Americas Sales at Polycom, and spent over a decade at Nortel in various positions including general management, sales and marketing, business development, and product marketing.  He holds an MBA from the University of Texas and currently lives in the Dallas metroplex. Eric enjoys the outdoors including golfing and boating. His time off from Cisco gets split between soccer games with his son, gymnastic events with his daughter, and family time on the boat.

At a recent event, Eric and I enjoyed some Texas style steaks and discussed UC, the cloud, and HCS. The conversation went something like this.

DM: Can you briefly describe what HCS offers to service providers?

ES: HCS offers a productized architectural solution accompanied by a commercial model and joint-go-to market partnership approach.  We refer to this as a “whole offer”.

There are 5 key “gets” our partners receive.  First, the productized solution provides a series of critical system utilities such that the whole system is more than the sum of the individual parts.  Secondly, because we have productized the solution, as opposed to a reference architecture, we have a roadmap and long term strategy that is heavily influenced by our partners and customers alike.  This strategy is of course consistent with and an element of our larger Collaboration Technology Group architecture strategy.  Third, we have a portfolio of professional service offerings that we have productized to support the partners in the design, build, support, maintenance, and operations of the solution.  Fourth, we have a purpose built commercial model and licensing terms that are the underpinnings of the business relationship.  And lastly,  we jointly go to market with our HCS certified partners through both a branded partner designation and jointly selling [CD1] their certified cloud offerings.

DM: Hosted cloud services are gaining traction with small business, but Cisco’s services, through its partners, are targeted at companies with at least 100 employees. Why is that?

ES: We refer to our vision for HCS as “One”…one architecture, one operational model, one commercial model for our partners to serve their target customers.  We believe our architectural strategy will allow for us to deliver this level of efficiency, operational scale, and business agility to our partners and end users.  As with any execution of a vision, it is critical to focus and establish a certain amount of positive momentum in order to allow for the greatest chance to “cross the chasm”.  We are working on our phased approach to optimize the cost structure of the architecture and velocity of the integration to partner’s back office systems to drive greater business agility across all segments.

DM: Does HCS actually host services, or simply sell products to providers for hosting?

ES: HCS is a productized architectural solution and whole offer.  Elements of the offering, such as WebEx conferencing, are hosted and delivered by Cisco and resold by our partners while the majority of the work loads, or applications, are hosted and delivered by our partners.  In selective instances, as an Advanced Service, we will work with a partner to operate the system on their behalf.  This arrangement can include the data center facilities or simply our services performed in the partner’s data center.  We refer to this offering as a Build, Operate, Transfer, or an ‘Assured Operate Service”.

DM: What parts of the world does HCS offer solutions?

ES: At the end of our fiscal year we had 34 HCS partner franchises signed, although not all are publically announced.  Those partners will cover over 19 geographies around the world in most of the major developed markets.  We have the most consistent coverage across US, Canada, Western Europe, Japan, Australia, and New Zealand.  Eight Partners intend to offer services globally targeting multinational corporations.  Having been commercially available for six quarters we have made significant progress and anticipate a similar pace over the next four quarters.

DM: Is your Contact Center experience targeted as a premises/cloud hybrid solution for existing customers, or is it meant more as a stand alone offering?

ES: Our offering is targeted at both.  We are seeing a market need and request for both models.

DM: Cisco offers WebEx directly to end users, but HCS is only available to service providers. Why?

ES: First, it is important to understand that Cisco’s primary route to market is through partners and that prior to Cisco’s acquisition of WebEx, WebEx had a direct only model.  Since the acquisition, the WebEx meeting platform business has added a partner resale set of offerings.  The current mix of direct and partner resale for WebEx conferencing is now more evenly balanced.

There is another important distinction that I should mention with regards to HCS’s partner availability.  To date, approximately half of our partners are non-traditional facilities based service providers or system integrators and outsourcers.  Because of our horizontal data center architecture, our solution appeals to both traditional service providers as well as system integrators and data center outsourcers.

DM: One of the advertised benefits of your architecture is a consistent experience among premise, cloud, and hybrid. Since not all partners resell WebEx for conferencing how is this possible, and if it is possible how can your partners differentiate their services among each other?

ES: For Cisco, we term it a consistent experience because voice and video, voice and instant messaging, presence, and customer care all leverage the same software deployed on premise or in the cloud within our architecture.  We’ve productized the architecture; data center, domain managers, and system utilities that constitute the end to end solution and enable a scalable cloud service.  Previously, the feature sets for these services were fundamentally different, and in many cases limited, when comparing a PBX and a network delivered service offering.  We’ve broken this barrier with HCS.  In the case of Conferencing, our WebEx offering is service that partners can attach or include in their bundles and resale the service.  Our partners have an opportunity to add their differentiation and integrate additional services, whether they are network services, security services, cloud to cloud aggregation, or vertical market applications with the foundational workloads we are offering via HCS.

DM: Unlike some of the enterprise communications as a service offering, you have to create a compelling proposition to both service providers and end users. How do you sort out the priorities when those constituents are in conflict?

ES: I’d like to say it should be as simple as prioritizing the Voice of the Customer as the guiding principle, however as you suggested in your question, it is not always as cut and dry as that.  Fortunately because we started with existing workloads or applications and are building on top of them, we have been able to focus most of our attention on enabling a system set of attributes to enable and scale a cloud delivery model.  As we further integrate the workloads into partner networks, we will inevitably start seeing specific application level requests but right now,the focus is primarily on how we drive more efficiency and scalability of the system.  Another dimension to keep in mind is hybrid deployments, where on premise applications interact and integrate with cloud delivered applications.  It is important to keep parity between the two to enable a ubiquitous user experience from an application perspective.  In other words, a user should be able to have the same end user feature functionality when he or she consumes a service deployed in the cloud or on premise.

DM: How does end user street pricing of HCS compare to Cisco’s premises based UC solutions?

HCS has a specific commercial model targeted at partners to enable a cost effective offering.  It is important to understand the direct solution costs are less than half of the total costs of delivering a service like this.  Additionally we’ve seen customers start to give much more weighting in their decision making process to the business agility and balance sheet liquidity that a utility service provides.  We’ve seen monthly user pricing fairly consistent across segments in both North America and Western Europe.  When comparing an on premise TCO to a utility service offering we are seeing the pricing being very similar on a apples to apples basis whereby the enterprise is gaining flexibility and agility in rolling out new services faster with a deeper penetration while focusing their scarce human and monetary capital on their core business deliverables.

DM: You said TCO between premises and hosted is comparable on an apples to apples basis – both seem to be dropping though. How does that comparison look in the future, say in five years?

ES: Great question Dave.  I think we will see a lot of evolution over the next five years on pricing of cloud collaboration offerings.  There are a couple of different factors at work in cloud than are different than the premise market.  I think it is safe to say annual price erosion on physical endpoints will be the same regardless how the application is delivered.  We are seeing that enterprises are recognizing and beginning to quantify the value of business agility and balance sheet liquidity that cloud brings.  Enterprises are having a hard time keeping up with the pace of innovation and changes in UC&C.

We are not talking about just IP Telephony and Voice Mail; although that is where many of today’s discussions start.  The workloads that are being enabled across cloud offers are happening at a staggering pace and we will see those additional capabilities make their way into feature bundles at tiered pricing where the more feature rich bundles of UC&C will be much more economical to consume with cloud when looking at the total cost of ownership and business agility vs. traditional on premise PBX like deployments.

Another key aspect that will have a much larger bearing on pricing over the coming years is the ability for operators to aggregate and integrate multiple cloud capabilities for a customer.  I’m not sure how that will be priced but I would think there would be some representation of that value expressed in a per user per month price of the feature bundle.  This is a factor that sort of makes the direct comparison harder to make.

I think a key takeaway here is enterprises will have more choice and flexibility in how they take advantage of the benefits to solve business problems with UC&C.  In short my “prediction” is cloud will bring more value for most businesses in the end.

DM: What does the HCS targeted end user organization look like? And what is the range of sizes of the companies that are signing up?

ES: HCS can cost effectively serve customer averages of 100 users to 100,000 users plus.  Most of our partners have drawn the line at 250 users and some at 500 users for go-to-market focus reasons.  We are seeing end customer wins anywhere from 250 to 300 users to as large as 100,000 users.  If we take out the very large deals the average size of the wins are in the 2,000 to 3,000 seat range currently.

DM: As the hosted sector becomes crowded with a gamut of technologies and services, what customer requirements are still unmet?

ES: I think this is a great question and one that we could spend a lot of time on.  We are certainly at the beginning of this market transition.  Enterprises are continually falling short in realizing the full benefits of UC&C because of stalled or partial rollouts due to factors such as high operating costs and operational challenges, constrained IT resources and budget, interoperability, long deployment times, and high up-front capital investments.

The challenges we are focused on overcoming with HCS is to remove those barriers to realizing the full benefits of UC&C while adding to the benefit list Business Agility.  We believe Cisco, with our network heritage combined with the Hosted Collaboration Solution along with our partner’s assets, can collectively deliver all of necessary functionality to a customer without the associated risks.

Cloud based offerings for real-time collaborative applications are highly dependent on the underlying network.  Considerations such as quality and class of service are ultimately critical components to the end user experience.  For many enterprises the ability to leverage SIP trunking services combined with network services is a critical requirement that cannot be overlooked.  The advent of BYOD and mobility is putting a greater emphasis on network based mobile integration.  This is an area where we are innovating with HCS and the future looks very promising.

Ease of contracting and consumption with high-quality support is a critical to enabling enterprises to achieve business agility.  As an industry I’d like to think we could strive for making it as easy as buying a wireless service plan and activating a new smartphone.  The final area I’d highlight is solution or system management; service fulfillment, assurance, and billing.  Having a consistent set of system attributes and standard interfaces for integrations have quite a bit of maturing.  These are key to driving operating costs down and achieving economies of scale.

DM: Thanks Eric, there’s really a lot going-on at HCS. I agree we are still early in a major transformation with cloud services, and expect there’s going to be some very interesting concepts and technologies yet to be introduced over the next few years. Very exciting and interesting times and I look forward to seeing how things develop.

Dave Michels is a contributing editor and independent analyst at