Cloud Computing Appliances
A couple of weeks ago, the New York Times reported on a Cisco announcement that it would start manufacturing what could best be described as "cloud computing appliances": commodity servers with virtualization software pre-installed. I believe the notion here is that you just rack up enough identical boxes to meet your total computational needs, then virtualize all your applications onto that substrate.
This is entirely achievable, too, by the way, as this (mind-blowing, at least for me) demo of 3Tera's AppLogic virtual data center product shows--literal drag and drop, plug and play, connect-the-dots configuration magic. Virtualization software from both VMWare and the open-source Xen hypervisor product both support virtual image migration (i.e. move a running virtual machine from one physical machine onto another one), so as long as your hardware is beefy enough that your largest application component can fit on it, you can swap hardware in and out all day long if you want.
Now, of course, this does assume you want to or have to run your own data centers; economic theory states you won't be able to do it as cheaply as Amazon does with AWS until you're deploying within an order of magnitude as many servers as they have (and they have a lot), and the enterprise market is large enough that there will be economic motivation for the cloud vendors to address current worries about risk management, data security, and operational visibility and control. So interestingly enough, Cisco may find that its largest addressable market consists mainly of the large cloud vendors!
Now, though, if you follow this logic through, it suggests that if you do decide to host a data center in the cloud, you should actually layer your own virtualization on top of it, purely for management purposes, so that you can make efficient use of your EC2 instances, just as virtualization now lets you efficiently use physical hardware. If you can just rack up stacks of identical hardware in your own data center, and have the software in place to manage the virtual infrastructure laid down on them, you also have the wherewithal to just "rack up" more EC2 instances in the same way.
I suspect that with commodity hardware (take your pick of vendors) and commodity virtualization software and operating systems (mature open-source projects like Xen and Linux count as commodity software) that Cisco will have a hard time making the case for their bundled product--riding the price points on both commodity software and hardware will be difficult to say the least, and if they don't, they may find their main competitor in the space is essentially a well-written HOWTO (Linux + Xen + cheap x86) document given away for free, which is never a good competitor to have.