Cisco Systems (CSCO) has long had a unique competitive position in the enterprise market. In the glory days of the mainframe, IBM still competed with HDS and Amdahl, but Cisco has had the enterprise networking market to itself for a number of years.
This monopoly seems to be at its greatest risk ever -- ESG calls this market phenomenon the Cisco squeeze. Think of Cisco in the middle of a big triangle with the competition closing in on Cisco from three distinct fronts:
1. Innovation. Juniper's (JNPR) Trio chipset and 3-D architecture set a new plateau for networking performance that Cisco can't match. Yes, this is probably a bigger threat in the service provider market than the enterprise, but large enterprises like DISA and NYSE are buying into Juniper innovation. Beyond Juniper, companies like F5 Networks (FFIV), Citrix (CTSX), and Riverbed (RVBD) are out innovating Cisco in strategic areas as well. Finally, small enterprises are looking longer at innovative and affordable alternatives like Extreme Networks (EXTR), Force10, and even 3Com (COMS) to get better end-to-end functionality at a lower price point.
2. Commodification. While aggressive innovators hurt Cisco at the high margin data center and core network, commodification hurts Cisco at the edge. The best example here is HP. Low-cost edge and wiring closet switches with lifetime warranties are increasingly "good enough" for many Cisco customers. If history repeats itself and the low end scales to eat the high end, HP (HOQ), Dell (DELL), and other commodity networking vendors will continue to gain share at Cisco's expense.
3. Server vendors. With its introduction of UCS (aka: California), Cisco effectively alienated major partners Dell, HP, and IBM (IBM). Publicly each of these companies say that they will continue to work with Cisco but privately they are mobilizing the troops. Both Dell and IBM now OEM networking equipment from Brocade (BRCD)and Juniper while HP is bolstering its ProCurve offerings with new products and partners. The rumor is that HP will no longer pay its sales reps commission on selling Cisco gear -- that will certainly change selling behavior.
Cisco is a huge successful company with good products, great support, and some of the best sales and marketing in the industry. It also has done a great job diversifying into new areas like Telepresence, consumer electronics, unified messaging, and yes, even servers. Cisco is a machine that will continue to flourish but it clearly faces greater competitive and market pressures today than ever before.
Here are a few things I'll be watching for over the next few quarters:
1. Layoffs or budget cuts in sales, marketing, or field support. This will tell me that margins are eroding, existing field skills are no longer useful, or Cisco is losing strategic battles.
2. "Back to basics" messages from John Chambers. If the ever-visionary Cisco CEO starts speaking to Wall Street in cliches like, "we took our eye off the ball," or "we need to get back to basic blocking and tackling," things are way worse than most people think.
3. Big acquisitions. If Cisco goes out and buys an F5 Networks, Riverbed, or ArcSight (ARST), it tells me that internal innovation can no longer keep up with the market.
4. Server deals. If Cisco wins large UCS deals, everything else will come along for the ride. If not, everything else will be challenged.
5. HP. If HP develops or acquires high-end networking equipment and new enterprise boss Dave Donatelli can instill an EMC-like sales culture at HP, Cisco will have its hands full.
Innovation, comodification, and competition are at the heart of the tech industry. Most industry leaders face these challenges from day one but Cisco through a combination of skill, luck, and lack of true competitors was able to tap dance around these pressures for a long time but no longer. Over the next few years, Cisco will be challenged like never before. It will certainly be interesting to see how it all unfolds.
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Cisco needs to clearly
Cisco needs to clearly define the product categories it knows how to develop, sell, and support, and stick with them. Are they good at hardware/firmware and bad at software? Is the delineation anything that takes a cable and deals with pushing bits? Take a look at MARS, which was a great idea and a solid basis for a SIEM product with vision: incorporating network activity with log management and behavior anomaly detection. However, they never invested properly in its evolution, pushed it into Cisco accounts for about a year, and turned their attention elsewhere.
And it's not like the SIEM market is stagnant:
• Compliance has been driving growth in the log management and SIEM market for the last couple of years;
• there's more federal regulation than ever, and in the current economic climate and administration, more is sure to follow;
• states are creating regulatory pressures to protect personally identifiable information in the wake of a half-dozen high profile data breaches;
• independent standards organizations and verticals are drafting their own compliance mandates.
SIEM is going mainstream, and next-gen companies like Q1 Labs are out-innovating Cisco where it's not successfully executing, providing an opportunity for competitors like Juniper to erode Cisco’s market share.
Spot on
I like the article. Cisco is cornered from all front right now..no doubt about it..take look the offerings from Juniper, Brocade and even china based H3C, they offer better price-performance across the board at least in the enterprise space..Cisco alienated huge routes to market by going the server route and I am not hearing that customers are jumping up and down to buy the UCS solutions..
I guess to accomodate for impending the loss in the networking space, John C is going after companies like to Tandberg to acquire the next generation markets and monopolize..If Cisco survives this and comes off with little impact, hats off in pulling it off, but that seems like a unlikely scenario - they will lose some traction in LAN space.
Need to be real
Cisco does and always has faced stiff competition. The initial competition was Wellfleet in the router space. As it entered the switching space(which was an established market), it faced 3Com, Cabletron, Alcatel, Foundry, Extreme, Fore and Bay Networks. As it moved into IP telephony, Cisco has had to compete with heavy weights Avaya, Nortel and Siemens. Agreed Cisco's approach to enter a new market is to acquire and to Cisco's mgt credit have done a good job of integration of the acquisitions. But it would be unfair to say innovation's stops after the acquisitions. There will always be competitors and no company will ever hit everything perfectly. But in the wake of vendors who are no longer in business and/or who do not value their customers, I think Cisco has a pretty good track record.
Competition
When Cisco went into switching the market was not already established. In fact it was nascent. They won that market by (1) changing the game by pushing switching to the desktop (a radical idea at the time), (2) pitching a well thought-out layer 2(Lan) and Layer 3(routing) architecture and (3) taking advantage of a poorly executed merger of Synoptics and Wellfleet (Bay Networks). The difference now is that there is no major paradigm shift like L2 switching. Improvements now are incremental in cost-performance, management and the like.
"But it would be unfair to
"But it would be unfair to say innovation's stops after the acquisitions."
Yeah it's been amazing to see what Cisco has done with its infosec acquisitions. The PIX/ASA product line is a joke and at least five years behind most of its competitors. Protego became MARS, and ceased to introduce any significant features. Riverhead, Twingo, Okena had anything interesting to note since their acquisitions?
Cisco no longer innovates, it reacts. Honestly, when looking at the expansive product line, what screams "best of breed" to you? Out of all the acquired products, which ones have actually been brought into a comprehensive enterprise centralized toolset? Sorry, but slapping the Cisco logo over another former company's logo is about as innovative as changing the letterhead on WebEx stationary. Get honest and look through the list and try to spot innovation:
http://www.cisco.com/web/about/doing_business/corporate_development/acquisitions/ac_name/about_cisco_acquisition_names_list.html
As far as Juniper, they have made significant headway into major accounts in the past two years. I work in the Midwest with over a dozen Fortune 500 companies, and I have yet to see a datacenter in the past two years without Juniper gear in the racks, or Juniper boxes in a corner (indicating that proof of concepts are taking place).
Cisco is a sales organization. They sell the concept of "single vendor" or "one throat to choke" but people are not being fooled anymore. Acquisition is not innovation.
article
After reading your article, It looks like Cisco recognized that competitors will always be there and they are not going to just sit back and let Cisco dominate, so regardless, there will be competition on all fronts. As for the Server vendors mobilizing to attack Cisco, this might be a sign that there is some vulnerability in their products, that is addressed by the UCS platform, I can only guess they have never had a disruptive force with lots of $$$ moving into server market space.
Why not to mention vyatta as
Why not to mention vyatta as Cisco competitor? In enterprise market it certainly wins! I see great enterprise market share to go vyatta way from cisco and thy can't do anything about it until they also provide free and open source IOS that would run on x86. Today nobody needs separate box as router - you can do it on virtualised vyatta inside your enterprise server.
vyatta
Vyatta? Hehe. You must work for them :)
Vyatta?? Kind of a stretch
Vyatta?? Kind of a stretch don't you think?
vyatta??? right
You have to be joking if you are considering vyatta as a enterprise class offering.
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