What Cisco learned from open source

An open source company, Vyatta, has taught Cisco and the market that a networking box is really nothing but a computer with software.

Now Cisco is returning the favor, with boxes that combine the functions of networking, computing and storage.

(The picture is from Vyatta.org, specifically a page highlighting users running Vyatta on regular servers. These are Dell servers.)

Just keep your eye on the ball here. This is all about the proprietary business model.

Note please who our fearless leader lists among the Cisco partners at today's launch -- Microsoft.

With HP now heavily involved in Linux, across its product line, there is an "empire strikes back" feel to the Cisco announcement.

The shot will be heard first in HP's desktop division. The recent launch of the HP Mini 1000 Netbook features a usable keyboard and a choice of operating systems.

You can get an Ubuntu geared to the Intel Atom chip, a simplified Linux geared to Netbooks, or one of two Windows versions -- XP or the beta of Windows 7.

The problem for HP is that if a customer chooses Linux its margins are wafer-thin. If a customer chooses Windows its margins are slightly better.

What Microsoft is telling its OEMs is that they can experiment with Linux if they like, but they are going to take a margin hit for it. And that while the OEMs may feel they don't need Microsoft, Microsoft does not necessarily need them either -- anywhere on the product line.

While software is a great cost-cutter, in other words, it is also a great margin-cutter. All companies which make their living on big margins are under pressure, thanks to open source. Brand names require margins to maintain.

Can big brands live on Linux-size margins?