Why Hyperscale Data Center Giants Are Paying Up To 129 Percent More For Cisco UCS Servers

Cisco Systems' Unified Compute System family of servers is gaining popularity among hyper-scale data center behemoths that until now wouldn't have given the high priced, feature-laden systems the time of day.

When Cisco Systems launched its UCS server portfolio nearly a decade ago, the line quickly gained a reputation as a premium, enterprise-grade X86 system for enterprise customers with deep pockets. Hyper-scale customers – which typically put emphasis on the seamless scalability of data center resources – take the opposite approach, buying white box components on the cheap and building data centers themselves.

Now, large solution providers say hyper-scalers are increasingly looking to UCS as workloads become heavier and more critical, their eyes and their wallets drawn to features and services white box systems simply can't match.

"When you think about the biggest customers, you hear about people investing in white box, but some of our largest deals have been selling UCS into the hyper-scale market," said an executive at a large solution provider that is selling Cisco UCS servers to hyperscalar behemoths who do not want to speak publicly about using Cisco UCS servers. "People say, 'I can build it on my own and hire an army to build it out, or I can just buy something off the shelf that does it for me,' It's good technology. It's always been a really good platform, and [hyper-scalers] have been investing in it."

The shift comes as the demands being placed on hyper-scale providers begin to outstrip the capabilities and cost-effectiveness of white box systems, the solution provider executive said. While competing vendors like Dell EMC and HPE sell plenty of their mainstream x86 servers to the hyper-scale market, increased adoption of the UCS platform is notable because on average it costs between 65 percent and 129 percent more than competing products, according to research firm IDC.

"Cisco is not in the business of going to the lowest common dollar," the solution provider executive said. "They're really positioning themselves for that premium, enterprise-grade market, but If I'm doing software-defined storage or hyper-converged infrastructure, I'm willing to pay a premium for something that's going to work better, have better network reliability, be better for network traffic and better for service assurance. You just don't get the resilience out of white box."

Jim Leach, director of platform strategy for Cisco's UCS business, said UCS is gaining hyperscale traction among large cable providers that use it to run cloud-based DVR services, telecoms that use it to run network function virtualization, and cloud providers using it to run SAP-as-a-service, for example.

Of the 13 providers certified by SAP to offer HANA as-a-service globally, eight run on UCS, according to Cisco.

"They may see compute as commoditized, but UCS isn't just compute, it's a whole system," Leach said. "Our built-in security, and the operational benefits of UCS management at scale is unique in the industry. They're not all about how much compute can I have, but how efficiently can I manage it and keep it running with a fairly lean set of admins."

Another example cited by Cisco is ForePaaS, a French Analytics as-a-Service firm that went with Cisco's UCS-based HyperFlex hyper-converged infrastructure platform to offer its customers fast, secure scaling of data analytics platforms.

Since bringing the HyperFlex solution online in 2016, ForePaaS has lowered bandwidth costs 68 percent and has spent 38 percent less staff time on managing virtualized environments.

Over three years, the company expects to offer customers a 51 percent reduction in monthly costs compared to public cloud.

One sign the premium strategy is paying off for Cisco is the company's strong showing in server revenue through the first half of the year.

Cisco broke the $1 billion mark in the second quarter with $1.1 billion in server sales, a more-than 22 percent year-over-year increase, according to IDC.

Cisco's fifth-place revenue position came despite the fact that it did not make it into the top five companies in worldwide server unit shipments, being handily outpaced by Dell EMC and HPE/H3C Group while tangling with Inspur, Lenovo, Super Micro and ODM (Original Design Manufacturers), according to IDC.

Those unit share numbers show that the high priced UCS systems are not replacing white box hardware in all areas of the hyper-scale data center. In fact, white box servers are the best option for a number of workloads, the solution provider executive said.

"If they're doing microservices, container-based microservices, or it's a PaaS environment, maybe white box makes sense; it's probably a good option," the executive said. "But if they're doing something that's enterprise grade: software-defined storage, hyper-converged infrastructure, they're looking at UCS."

Also, hyper-scalers are interested in more than just Cisco's upmarket hardware, the executive said. UCS's secret sauce is in its automation, orchestration and management capabilities, like Intersight and UCS Director, as well as the services and support available through Cisco and its partners.

"There's a low-cost promise there with white box, but if you take out UCS's management tools, take out support, you're really not saving much," the solution provider executive said. "You have to stock drives and stock things that might go wrong with the [white box] server. There's nobody to call when things go bump in the night, and you have to procure a bunch of open source software."

"Customers realize [white box] is a pain to support," said a senior executive at a large solution provider that works extensively with Cisco. Customer data center spending is accelerating as the cloud market matures, the executive said, and the largest customers are reaching for the easy button.

"One of Cisco's main advantages is that you can manage blade and rackmount servers through the same interface," the executive said. "Customers are taking advantage of that because it's a single management platform, and it integrates well with Cisco networking."

Cisco Chairman and CEO Chuck Robbins is at the center of the hyper-scale market's awakening to UCS, said Zeus Kerravala, founder and principal analyst at ZK Research. "Prior to Chuck, [Cisco] was afraid of approaching web-scale because they saw them as enemies," Kerravala said. "Chuck came in and told everybody, 'We can't fear these guys anymore. We have to find a way to grow with them.'"

As a result, UCS has found a home in a swath of the hyper-scale market where white box compute doesn't make sense, Kerravala said. "You can do more that's custom with [white box]," Kerravala said. "If you have something very specific to do, or extremely vanilla to do, by all means; buy white box. But when control, management and service are more important, there's been a move away from white box. If you're doing something mission-critical where you need support, or integration into other things like software-defined networking, you could do it yourself, but you don't get what you don't pay for."

"If you buy white box, you're writing your own OS, doing your own support and hiring people to do all of that. It's anywhere from 3X to 5X the cost to do the solution," Kerravala said. "Sometimes it's not worth the hassle. Buy the turnkey product and the support that goes with it."

Cutting down on all the manpower Kerravala describes is a key point for Todd Brannon, Cisco senior director, product marketing, data center. Because UCS is sold as a complete system, Brannon said, it offers customers a stronger value proposition than competing servers.

"The approach that a lot of ODMs and OEMs take is, 'I can lower your cost of production by lowering the cost of your servers, your infrastructure,'" Brannon said. "We say your cost of production is driven by software licensing and people and how much you're trying to scale your admin-to-infrastructure ratio."

"We can save them much more on the labor than competitors can," Brannon said. "They see we can help enforce policies at scale and no longer have people in the equation. Those folks really latch into this. Telcos have hundreds of sites and they need to manage this ubiquitously. We approach them with Intersight, build a cloud with all of our management capability, and the customers plug compute into the cloud. No one else is doing that."