It's in their nature

In my last column, I made 10 predictions for the coming year. Two of the predictions generated a number of calls: that Cisco, Bay and Cabletron would buy all manner of gigabit start-ups by the fall, and that one of the Internetworking Big Four (Cisco, Bay, Cabletron and 3Com) will disappear as a separate company by year's end.

Cabletron snaps up YAGO Systems Network World Fusion, 1/15/97.

Last week's announcement by Cabletron that it will buy the 75% of YAGO (Yet Another Gigabit Organization) Systems that it didn't already own shows the first prediction is coming true. The Big Four are moving into gigabit technology (from LAN switches to routers for the WAN), in large part by buying smaller start-ups with hot technology.

Cabletron's acquisition was a smart move because YAGO's switch/router technology will let Cabletron penetrate certain corporate and ISP markets. It also helps create more of a cutting-edge aura for the company in the trade press and financial and user communities (for more information, see report 180114-0001-01.NV "Cabletron Acquires Yet Another Gigabit Organization" in the public reports section of www.currentanalysis.com). As a side note, the acquisition also confirms that the purpose of many of the gigabit start-ups was not to actually sell anything, but to gain the attention of the big players and then sell out.

This won't be the last gigabit company Cabletron will snap up this year. Look for it to try to acquire additional technology to help it catch up with Cisco, Bay and 3Com in everything from remote access to VPNs and extranets.

Unlike Cabletron, Bay doesn't really need to kick up a market fuss - it's doing just fine on its own. While Bay is not without problems, Dave House has done an admirable job of righting a listing ship (if not quite of Titanic proportions).

Bay to buy VPN and extranet start-up Network World Fusion, 1/14/97

Bay is more likely to acquire smaller companies, such as New Oak, to solve specific technology gaps in its overall product strategy. In the case of New Oak, Bay can now make a case in the new extranet market. Because it competes in a range of markets, from ISPs to cable TV to intranets, look for Bay to try to acquire companies that build products it could not develop on its own.

Cisco unveils new high-speed GSR Network World Fusion, 1/14/98.

Cisco, too, will dip into its acquisition fund. This is not so much to shore up its technology but because Cisco buys companies because it can - that 30% annual growth rate means a fair bit of change for purchases. Cisco is so large and has such a diverse client base it could easily swallow another two or three gigabit companies and not run into any significant channel conflicts. In fact, there were some pretty strong rumors that Cisco was looking hard at Yago. If I were Mr. Chambers, I'd be looking at every gigabit company right now.

So what about the imminent demise of one of the Big Four?

First, I do not feel that there is room in the present internetworking market for more than three powerhouse companies. Second, it is extremely unlikely (no, make that downright impossible) that any two of these firms (Cabletron, Cisco, Bay and 3Com) would merge. Third, the chances that one of these vendors migrates away from the traditional core market is increasing every day. Put another way, there is an increasing chance that the market will begin to splinter and one of these firms will find themselves playing in a fundamentally different market.

Already Cabletron and 3Com are worlds apart from a competitive perspective. How often do you hear of Cabletron in the commodity modem or adapter markets, which represent an overwhelming majority of 3Com's business? While Cabletron and Bay often compete, as do 3Com and Bay, the real unifying force in this market is Cisco.

Nokia snaps up a falling Ipsilon Network World, 12/15/97.

Further, we already know that the traditional datacom outsiders, such as Alcatel, Lucent, Nortel, Siemens, Nokia and NEC, are sniffing around the internetworking space and have already begun to snap up the smaller fish (look at Nokia buying up IP Switching creator Ipsilon). It is only a matter of time before one of these firms decides to move up the food chain.

Their goal isn't necessarily to dominate the LAN market, but to leverage the LAN and routing/switching technologies with their own datacom and WAN technologies (again, see Nokia and Ipsilon). The rumor mill has recently linked Cabletron with Nortel and Bay with Lucent. Yes, just rumors, but you have to admit that they do make a bit of sense. Not many in the industry would be surprised or disappointed if these turned out to be self-fulfilling rumors.

Now I've been in the market long enough to know that there are no "sure" things, except for perhaps death, taxes and the combination of the two: estate taxes. So I wouldn't be surprised if there wasn't a bit (perhaps a lot) of disagreement over my predictions or my logic. On the other hand, what good are predictions if everybody agrees? In fact, when everybody does agree, that's when I start to get worried. So what do you think?