Cisco’s IBM-like Plans

The Economist writes about how John Chambers plans to keep growing:

On the one hand, Cisco is still fighting fiercely to stay ahead of technologically savvier rivals such as Juniper in its core business of switches and routers. Last year, for instance, it released the CRS-1, a router that looks like three industrial-sized refrigerators in a row, costs over $1m, and is known inside of Cisco only by the vulgar acronym HFR, for huge fucking router. On the other hand, Cisco is sweating hard to make and sell new kinds of gear. The main danger in this strategy is that Cisco will come up against new, and possibly stronger, rivals.

One instance is the booming market for voice over internet protocol (VOIP)ie, telephony delivered over the internet instead of circuit-switched telecoms networks. Many firms are switching to VOIP because it is dramatically cheaper or even free (as long as a call need not interact at all with the traditional phone network) as well as much more convenientvoice-mail and e-mail all go into one inbox, for instance, and are accessible from any internet connection anywhere. To make that switch, firms need to replace their old switchboards (called private-branch exchanges, or PBXs) and telephones, and Cisco is happily selling them new internet PBXs and internet handsets.

Cisco’s competitive position is, if anything, even worse in the other growth markets it has identified. The fight to be the alpha male in the market for corporate data-storage networks, which are huge consumers of network bandwidth, is between two focused makers of storage switches, Brocade and McData. Cisco is a distant third. In another very promising market, that for wireless and wired home networks, Cisco has bought itself a strong consumer brand called Linksys, but it is up against stiff competition from firms such as D-Link, 3Com and Netgear. Even when it comes to making corporate networks more secure, a natural product extension for a router maker, Cisco is behind firms such as Check Point, the leading maker of firewalls.

In a way, all this loops back to the original dilemma. Cisco, the router company, is ageing gracefully in an unexciting market; Cisco, the cocksure attacker of new markets, is discovering that lots of muscular lads are there already. So Cisco is adding one more strategic effort. Cisco wants to become a trusted business partner, not just a router company, says Mr Chambers. What this really means, says Deb Mielke, an industry consultant, is that Mr Chambers intends to emulate IBM, where he once worked, by transforming Cisco gradually from a boxmaker into an army of network consultants and integrators who charge for services as well as, or even instead of, hardware. That might indeed help him to grow revenue, although it really does sound a bit old and grey.

Om Malik has some counterpoints.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.