Virtual Datacenters and The Services Chasm

Previously, I wrote about product companies that find themselves in a precarious place known as the services chasm. This is where the services strategy does not align with market realities. For those of you that are skeptical this chasm is engulfing more and more historically product-centric companies, please read the article that just hit the streets:

Cisco, EMC May Offer IT Services

Both Cisco and EMC offer hardware products that are the building blocks of corporate datacenters. Those building blocks are usually consumed in a traditional “CPE” or “customer premise equipment” model. In other words, the hardware is sold and installed on the customer’s sight. The transaction is a product sale. However, if datacenters begin to virtualize and customers begin subscribing to “datacenter services”, the CPE model collapses. Product companies like Cisco and EMC will need to sell their products to DCO service providers, OR they will need to provide these services directly to enterprises.

Obviously, IBM with its extensive heritage in services is well positioned for a world of virtualized datacenters. HP, with its acquisition of EDS, now has a shot. But what about product-centric companies like Cisco? Can they afford to simply resell through IBM, HP, or some other services provider? I don’t know.  Optimizing go to market channels is not my specialty. However, tracking and analyzing the balance of product and service revenues in technology markets is my specialty.   If datacenters go virtual, that marketplace takes a hard shift from product transactions to service transactions. I would argue that companies that can provide those services directly are much better positioned to succeed in that type of market. Perhaps this article hints that Cisco and EMC have already come to the same conclusion.

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