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Scott Puopolo VP, Service Provider Transformation Group October 13, 2015 Transformation Through Innovation

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Scott PuopoloVP, Service Provider Transformation GroupOctober 13, 2015Transformation Through Innovation

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialWho Will Get Left Behind?Current Situation: Slow GrowthOTT Players Gaining Scale and Challenging SPsGlobal Market Cap Trends: Value Shift Underway

Source: Web Operation Quarterly Update, Patrick MorrisseyValue Capture from Growth is Not Happening

CustomerCloudPlatformEcosystemDataDollarsFight to Own/ Control

1B Android + 50B Apps download from Google Play in last year + 1B YouTube + 1B Chrome + 1B Web + 900M Gmail users

$1.8B AWS revenues in Q215 285M+ customer accounts

1B+ iOS devices shipped

Over 1.5B Windows + 1.2B Office + 70M Xbox + 300M Skype + 900M Web users + 700K Windows AppsSource: Web Operation Quarterly Update, Patrick Morrissey

Total Market CapMarket Cap Trends for Telco, Cable/DTH, Traditional Media and Web/Digital MediaNote: Data for 66 Publicly Traded GSP AccountsMarket Cap as of 1st January of the yearNote: Revenue and EBITDA based on CY14; market capitalization based on 1st Jan 2015.

2,385B2,402B2,766B3,535B3,880B

SP Profitability versus Internet Traffic Growth, 20102014Source: Cisco Analysis of S&P Capital IQ. Revenue and EBITDA data is based on figures from GSPs 70 Transformational Service Providers from around the world, and on the Cisco Visual Networking Index, 2013-2018; EBITDA to Price Ratio shows average for 58 Transformational Accounts for which data is available

ValueOpportunitySource: Capital IQ, Cisco Visual Networking IndexCategoryCAGRTraffic31%Revenue6%EBITDA3%

Value capture #2

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

Bottom-Line: The Integrated Telco Business Model is BrokenConnectivity (access/bit transport)Services

Entry BarriersInvestmentMetricsMarket SpeedSP RoleHigherLonger-term, higher volume, lower riskUnit costYears/DecadesIncumbency, very few playersLowerShorter-term, lower volume, higher riskTime-to-market and agilityWeeks/MonthsPlay as one of many contenders

Ubiquitous, seamless connectivityLean, utility-type productionBuild scaleDifferentiate via speed/QoS,price, serviceSmart service enablementManage disruptionAll-in service ecosystemsTime-to-market and agility Highly scalable cost structuresCustomer ownershipInformation & data ownership/management

Key Success Factors

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

There are Several Key Market Transitions and Leverage Points at SPs Disposal

The Potential of Dataand AnalyticsNetwork and Operations Transformation

Internet of Everything

Profitability and Growthof Digital Media

Pervasive Mobility

Cloud and New Business Models

SP Services Evolution

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialNetwork and Operations Transformation

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

ProFiT Perspective Focuses on Service Providers Opex Efficiency Lean and Agile6 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

1New Technology Architecture (Network and IT)2New Business Architecture(Operating Model, Processes)3Insertion & Migration Strategy4Financials (Capex & Opex efficiency, and funding methods)5Value Generation: Services, Business Models, Agility/TTMImproves OpexEfficiency

T ductiontnessransformationFiPro

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialMature TechnologyInvestments are directly linked to revenueMergers and Acquisitions

CloudNFVSDNHypervisor TechnologyCloud burstingSpend is not directly linked to revenueService AgilityOperational FlexibilityCost Optimization

Poweringthe Internet of EverythingRapidly maturing technologyInfrastructure Cost Savings are clearTransforming Network Architectures & OperationsSlowly maturing technologyUncertain business benefitsAbstracting for Better App & Network Interaction

Software-Controlled Architectures Will Evolve in SP and Enterprise Networks

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialNOTES from Analysys Mason Dipeshs snythesisThe SPs are looking at various ways to respond to the disruptions in the industry S/W Controlled Networks are transforming the SP Networks. Cloud*, SDN and NFV, each addressing an aspect of the challenges and opportunities, define evolution of SPs networks and they will continue to co-exist and collectively underline the evolution of Software-Controlled Network ArchitecturesThe dominant reasons for adopting SDN and Virtualization: Cost savings and Network flexibility followed by making service introduction easier and monetizing networks more effectivelyEPC and processing-hungry components (e.g. video optimization, DPI) are likely to be virtualized first.RAN may also be partially virtualized keeping in mind that flexibility offered by SW can not replace HW efficienciesThe SDN and virtualization concepts offer a fertile ground for software and IT companies in the telecoms value chain. SP are indicating they may trust their existing partners to help them because of established relationships & legacy infrastructure Cloud, SDN and NFV are in different phases of adoption due to technology maturity & perceived benefits to the SPsCloud spending is directly linked to revenue from IaaS, SaaS and PaaS and the benefits are clearCost savings from NFV are clearer than SDN, hence NFV seeing faster adoptionOpen Source and Open APIs Enable Faster Innovation and Wide Participation Improved Agility, Operational Flexibility and Cost Savings are the common groundAll aiming to enable Faster Innovation through Open Sourcing and Open APIs

NOTES from SP Marketing Presentation:SDN will offer the ability to separate control and data plane capabilities.NFV will allow network functions & SW to run on general purpose, standards-based hardware. Orchestration can enable automation, provisioning &interworking of physical &virtual resources. And is now embeded in NFVOpen APIs enable faster participation and collaborative innovations

7

Guiding Principle: Operational Modularity with Agile Business Architecture (ABA)

After: Shared resourceService Suppliers

Before: SiloedTechnology DomainsCurrent

Customer BUService OrchestrationFulfillmentAssuranceDesign & PlanBuild

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

Verizon Adopts Cisco's iWAN SD-WAN SuiteThis is Verizon's "first step in our overall move into the SDN world," - Shawn Hakl, Vice President of Enterprise Networking and InnovationAT&T and Cisco Advance AT&Ts Network on Demand PlatformWere working with Cisco to bring the next-generation network technology benefits to our customers. Their extensive SDN and NFV capabilities will broaden and enhance our Network on Demand platform, - Ralph de la Vega, president and CEO, AT&T Mobile and Business Solutions.DT Terastream Deploys Agile Business Architectures for Pan-European Service ProductionHighly simplified, virtualized, IP-based production architectureIntegrated productionOne common product development logic

SPs Have Already Started to Transform

Real-time OSS, ABAVirtualized CPEDomain 2.0

Terastream NfVIP+OpticalReal-time OSSACIManaged Business Services

Unified MPLSSecurity aaSEnterprise (NFV)Distributed peering

All IPIP+OpticalUnicaCloud based Video

Domain 2.0Terastream NfVIP+OpticalReal-time OSSManaged Business Services

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialVerizon Announcement from 10/8 on Cisco Newsroom: http://newsroom.cisco.com/uk/press-release-content?articleId=1716521Quote from Shawn is from 10/7 eWeek article: http://www.eweek.com/networking/verizon-adopts-ciscos-iwan-sd-wan-suite.html though he does also have a quote in the press release we can use.

AT&T: On 9/30, AT&T and Cisco announced that we are collaborating to enhance the AT&T Network on Demand platform by developing and deploying advanced virtualized technologies, including software-based customer premise equipment (CPE) that will deliver expanded benefits to business customers. The press release is here:http://about.att.com/story/cisco_advances_network_on_demand_platform.html

Ralphs quote above is from the press release posted on AT&TKelly Ahuja posted this Platform blog to amplify our AT&T news:http://blogs.cisco.com/news/cisco-advancing-virtualization-with-att. The announcement was made at AT&Ts annual analyst conference this morning, and AT&T announced additional Network on Demand vendors Brocade and Juniper today as well. AT&T also made a general Network on Demand announcement stating that they are enhancing NoD capabilities through an ecosystem of the industrys-leading technology companiesand that they are launching an additional Network on Demand-enabled service - Managed Internet Service on Demand. See additional announcements here: http://about.att.com/allpostpage.htmlDT Terastream - Key outcomes listed are from slide 18 in backup.9

Cloud and New Business Models

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

What Are Customers Looking For?

Add-on Services from the Same Provider70%Agility and Reduced Cycle times42% Would Switch to Another Service Provider if current is not able to deliver on vMS54%Bundled Services82%

11 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialScott, the detailed results slides for this data points are in back up for your reference.11

Virtualization Provides a Catalyst to Revitalize Business Services Growth and Profitability

CustomerPremises

PEPENSIClassicCPEVirtualized CPEHigh CostProfessional InstallApp. SpecificRigid PoliciesLow costCustomer Self Serv./ InstallAppl. AgnosticConfigurable policiesPervasive AutomationService ChainingComparison of Classic CPE vs Virtual CPESources of New Value Creation 4. New Customer Segments1. Opex. Cost Transformation2. Customer Wallet Share 3. Services Velocity

Service Provider

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

Revenue Upside of Virtualized Business Services

$ 454 MillionTotal 1-5 Year RevenuePresent Value for5 Years Revenue5 Year and Year 6-10 Residuals RevenueResidual Revenuefor Years 6-10201520162017201820195 Year Revenue Breakdown* Does not Include Revenue from Sale of Device; Assumes US SP with 250,000 installed managed router base and 30% geographical in access footprint *$ 312 Million$ 1,464 Million$ 672 MillionResidual PresentValue for Years 6-10

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialPotential Gross Margin ImpactKey Assumptions CSR / virtualization impacts Fulfillment, Assurance and MaintenanceImpact to sales operations are excluded as they do not flow to cost of services; hence sales opex savings are not includedDue to evolution of CSR pricing, the CSR and ISR prices are comparableSP Price for ISR and CSR assumed unchanged

32% increase in overall Gross MarginTalking points?

# 2015 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

New Business and Financing Models to Reduce Financial and Execution RiskAre you Moving in the Right Direction?5 Key Considerations

Seek Cloud Based Management Models for Process Automation

Take the SDN/NFV Leap Now

Smart Network Management

Cloud Delivery Model of New Services

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialHow do our traditional resellers participate?

Drive account relevancy and therefore account stickiness by developing a Hybrid IT practice.in just 5 steps

These steps arent easy and they arent necessarily sequential as they are displayed herebut each are necessary for partners to assist and support overworked, over-stretched and overwhelmed IT departments, as they evolve to becoming IT brokers for the various LOBs that are spending an ever bigger percentage of IT spend

As our traditional IT customers need to become more responsive, agile and flexible to their end user customers so do our partners need to provide guidance and counsel on how to move effectively and efficiently into the HYBRID IT model of consulting, brokering and enablement.

{BUILD SLIDE each click adds a box; talking points listed below}

1 - traditional data center compute, storage, network, virtualization, security2 Policy controls, to improve security, and ensure compliance for access 3 move to Private Cloud the easy button that is anything but easy. This is the automation and orchestration that allows a traditional DC function like a cloud4 provide interoperability between various DCs and clouds ability to move applications, workloads and data from cloud to cloud5 become a consultant for and broker of cloud services15

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialVirtualized Managed Services Leads to Significant Impact on Revenues and Labor Efficiencies

For the SPs, Virtual Managed Services Drives Strong Labor Efficiencies (OPEX Reduction)

Overall Managed CPE Revenue Impact of 15% - 20%Relative Operational Benefit(Based on 10 year NPV)Relative Revenue Benefits(Based on 10 Year NPV)Penetrating Down Market Segments is Key to Revenue Growth

Overall Impact of 60% - 70%

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialDT Terastream Deploys Agile Business Architectures for Pan-European Service Production*

*Source: DT Capital Markets Presentation, Feb. 2015

BUSINESS ARCHITECTUREEXPECTED OUTCOMES

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

Commercial and Below: Prefer to Buy Bundled SolutionsOverall strong interest in the mid sized/commercial segments with drop off in the smallest and largest businessesStrongest currently purchase in 1000-1999 segment with 60%Strongest unmet interest within 250-499 segment with 53%Performance and reliability drive bundle preferenceSource: Cisco Global SP, August 2014N = 601

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialQ14: Are you interested in purchasing your Network, Managed CPE and Cloud services in a bundle (e.g. buy a Network Service with a Managed CPE and/or Cloud Service)?19

Commercial and Below: Strong Ability to Drive Advanced Services Cross Sell Likelihood to Buy Advanced Services (WiFi, Security etc.)70% More Likely

Source: Cisco Global SP, August 2014N = 601Strongest increase in attachment in middle markets with 2000- 4999 emp. segment at 83%Network SP is choice of providers for Advanced ServicesSecurity Firewall- 39%Managed WiFi 43%

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialQ34: If you were to adopt the Virtual CPE services and its associated benefits, how likely would you purchase additional add-on managed services(e.g.Firewall, Wi Fi, etc.) from the same provider?

20

Commercial and Below: Strong Concept Interest and Willingness to Adopt Virtual CPESource: Cisco Global SP, August 2014Level of Interest in VCPE ConceptN = 601

79% Interest LevelStrongest interest throughout middle markets (250-5000) with 1000-1999 emp. highest interest at 89%Network SP most likely provider at 43%, VAR second at 23%Increasing rate of adoption up to 5000 emp., with major drop off above 5000 emp.Security and reliability largest barriers across all customer size segments

59% Within First Year

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialConcept: Currently, network services and managed CPE services involve physical equipment on your site (CPE). CPEs play an important role in delivering key functionalities (e.g. router for network connectivity service). In a new concept service (called as Virtual CPE / VCPE), the physical equipment on site (CPE) is dramatically reduced and much of the required capability is delivered remotely from the cloud through the network (e.g. router functionalities from service providers data center).Q32: Given the mentioned potential benefits, how interested would you be in adopting the Virtual CPE service?Q38: How fast do you expect to adopt VCPE services when available?21

Commercial and Below: Reduced Cycled Time Driven by Automation and Self Service are the Most CriticalSource: Cisco Global SP, August 2014N = 601Perceived Value of VCPE BenefitsAgility and overall reduction in cycle time more important than potential of lower Capex54% of the businesses would be willing to self install any VCPE end-point at site

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

Q31: Which of following potential benefits of the Virtual CPE concept would be most valuable for your company?22

Commercial and Below: VCPE Critical for Retention VCPE Offer Impact on Customer Loyalty62% More Loyal

Source: Cisco Global SP, August 2014N = 601Churn Potential if You Do not Offer VCPE54% Vulnerable to Churn

# 2014 Cisco and/or its affiliates. All rights reserved. Cisco ConfidentialQ35: If you were to adopt this Virtual CPE service, how much would Virtual CPE impact your loyalty to the service provider offering this service?

Q42: If the Internet Access / WAN services provider that your company currently uses was unable to provide managed VCPE functionality, how likely would you be to switch to another Internet Access / WAN Services provider that could offer VCPE functionality?23

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TelcoCable/DTHTrad. MediaWeb/Digital Media

Sheet1TelcoCable/DTHTrad. MediaWeb/Digital Media201150%5%8%37%201247%5%9%40%201342%6%10%43%201438%6%11%45%201536%6%10%48%To resize chart data range, drag lower right corner of range.

Chart10.50.050.080.370.470.050.090.40.420.060.10.430.380.060.110.450.360.060.10.48

TelcoCable/DTHTrad. MediaWeb/Digital Media

Sheet1TelcoCable/DTHTrad. MediaWeb/Digital Media201150%5%8%37%201247%5%9%40%201342%6%10%43%201438%6%11%45%201536%6%10%48%To resize chart data range, drag lower right corner of range.