Consolidation breeds interesting times
T he Chinese proverb "May you live in interesting times," which can be both a blessing and a curse, certainly describes life in the networking industry. For example, industry consolidation continues even as new companies spring up. The pace of change poses serious challenges for vendors and IT managers who must navigate the shifting landscape.
Several forces are driving consolidation of all types. As the Internet has taken off, we've seen a consolidation around a few core technologies, including IP and switching. Consequently, the boundaries between LANs and WANs are blurring. Similarly, technologies for combining data and voice traffic on the same network have emerged, prompting the traditional data networking vendors to cast a covetous eye on the telephony market, and vice versa.
Overall, technology consolidation is good for IT organizations in that it narrows the technical choices you have to make, while broadening the number of vendors from which you can buy that technology. And there's no doubt that the heated competitive environment is driving solutions to market more quickly. Consider, for example, the rapid pace of development of Gigabit Ethernet and High-Speed Token ring.
However, technology and market consolidation also can lead to customer lock-in. Building an infrastructure that has equivalent, if not identical, services across the LAN and WAN is no mean feat. Single-vendor solutions may be the only way to get certain advanced capabilities, such as end-to-end policy-based security or quality of service. Vendors are driven to grow larger so they can offer customers as many technology pieces as possible.
A quick look at some of the events of 1997 leaves no doubt that market consolidation will continue for the foreseeable future. The merger of 3Com and U.S. Robotics, for example, created a company large enough to be Cisco's rival, at least in terms of revenue. The merger also stratified the traditional data networking vendors into two distinct classes: those with more than $5 billion in sales (Cisco and 3Com) and those with less (Bay and Cabletron, in particular).
Cabletron, knowing it must leap to the next level or be left behind, last year made a number of radical changes. Perhaps the most significant was the retirement of founder Bob Levine and appointment of Don Reed as new president and CEO. Reed is a telephony veteran - having spent the past 20 years at NYNEX and New England Telephone - and brings a very different perspective to Cabletron.
For example, Reed has made it clear that Cabletron will grow, in part, through acquisitions. In acquiring Digital's Network Product Business unit, Reed simultaneously took out a player while expanding Cabletron's international sales and support organization and gaining products that appeal to service providers. Likewise, by acquiring YAGO Systems, Cabletron has made a bold move to gain routing expertise and a high-speed Layer 3 platform. It's too early to tell whether Cabletron will succeed in radically transforming itself, though this will be atelling year.
Cisco, for its part, did its usual half-dozen acquisitions, mostly of smaller companies for a few hundred million dollars' worth of stock here and there. Importantly, five of the six companies brought Cisco some form of voice or WAN technology. Most recently, Cisco bought LightSpeed to exploit the transition of voice traffic away from purely circuit-switched networks to integrated circuit- and packet- (or cell-) switched nets.
Similarly, Cisco's acquisitions of Dagaz Technologies, Ardent Communications, Skystone Systems and Telesend brought the company digital subscriber line products; technology for compressed voice, LAN, data and video traffic; high-speed Synchronous Optical Network (SONET)/synchronous digital hierarchy technology; and WAN access products, respectively.
Earlier this decade, Cisco bought its way to dominance in the switching market. Now Cisco is buying its way into the WAN and telephony markets. Although it has made inroads in these arenas, Cisco's success is not assured. On its present course, Cisco eventually will encounter Lucent Technologies.
At more than $25 billion in revenue, Lucent is no lightweight. Whereas Cisco is trying to "grow up" from its enterprise/data orientation to a global/telephony perspective, Lucent is trying to reach down into the enterprise, most recently through its acquisition of Gigabit Ethernet start-up Prominet. Arguably, Lucent has the easier job; it's easier to scale down systems and management than to scale them up.
And Lucent has some heavyweight tools in its bag, including its Internet Directory Server (IDS), a directory service that Lucent claims can handle more than 20 million entries. Cisco, for its part, is waiting for Microsoft to deliver Active Directory - which, according to recent reports, can accommodate roughly 10 million entries, only half of IDS' purported capacity.
IT managers need to focus on what vendors are and not be blinded by what they want to become. Each vendor has core strengths around which it has added other things. If what you need isn't a given vendor's core strength, but you like the other things you see, be sure to test the products you need before you make a strategic commitment. Otherwise, you will find yourself living in very interesting times.
