Cisco ups software ante

To spend billions on software for binding network hardware, applications.

By Jim Duffy
Network World, 12/11/00

SAN JOSE - Cisco last week outlined a plan to invest billions in software that will let users better control voice, content, security and wireless services on their Cisco networks.

At its annual Worldwide Analyst Conference last week, Cisco executives said the plan to move higher "up the stack" will better enable Cisco to differentiate its products and boost its profit margins. The move could also pit the company against existing and potential business partners that jointly market their software products with Cisco hardware as members of Cisco's "ecosystem."

Specifically, Cisco plans to focus on service control and communications services software, code that acts as "middleware" to help bind network infrastructure more tightly to network applications. Call-routing middleware, for example, could gather information from multiple Oracle databases and deliver it to a call center agent.

"We will play in the middleware area," Cisco CEO John Chambers says. "We don't strategically partner and then compete, but there's a natural gray area where there will be overlap" with partners.

Added Mike Volpi, senior vice president and chief strategy officer: "Occasionally, we become a member of the ecosystem to accelerate a market we care about. We will be surgical in going into the ecosystem and up the [protocol] stack" toward the middleware and application [market]. "Service control and communications services are two components of Cisco's Architecture for Voice, Video and Integrated Data [AVVID], a scheme that Cisco now says is a reference framework for building voice, video, security, and content-enabled fixed and mobile e-businesses. AVVID initially was a blueprint for converged voice, video and data networks when it debuted 15 months ago (See story).

"There's huge opportunity for breakaway created by the AVVID reference architecture," says James Richardson, senior vice president of Cisco's Enterprise line of business, referring to the company's plan to separate itself from competitors including Nortel Networks, Lucent, Siemens and Alcatel.

Service control and communications services handle such tasks as VPN security, call control, quality of service, policy and directory control, unified communications and collaboration. These two aspects of the AVVID architecture are the "next billion-dollar markets" for Cisco, Richardson says.

Cisco has already invested $4.3 billion to acquire several software companies - including GeoTel and SightPath - to fill in some components of its service control and communication services suite. Cisco will invest billions more in research and development to fill out the AVVID architecture to address lucrative opportunities in VPNs, voice, security, content and wireless networking, Richardson says.

In so doing, Cisco will enter competitive situations with companies that are now or could be joint marketing business partners, analysts say.

"I think they'll run smack dab into a whole bunch of companies in content delivery," says Frank Dzubeck, president of Communications Network Architects, a consultancy. "There's so much overlap as you move up the stack that's more difficult to control. You worry about ownership of goods. They're going to compete with software companies, ASPs and ecosystem partners."

"Software is where the differentiation comes in," says Tere' Bracco, an analyst at Current Analysis. "If you look at the ecosystem partners, the phrase 'We both compete with and complement Cisco' has sort of become boilerplate in media kits. Now that Cisco's playing more heavily in [software] they're just going to compete with ecosystem partners on more points and complement them perhaps on fewer."

Bracco says Cisco's push up the stack does not threaten to disassemble the company's partnerships, however. Even if they complement the networking giant on fewer and fewer features, just being associated with the Cisco name is money in the bank, she says.

Some partners did compete with Cisco to a certain extent in the past, but now expect to compete more.

"That is not unusual in our industry, particularly as the voice and data services are converging," says Mary Sullivan, director of marketing communications for Priority Call. "Perhaps in 2001, 2002 we will see more [competition]."

Dzubeck thinks Cisco will look to add more network usage billing and accounting capabilities to its hardware, beyond what it already delivers with its NetFlow technology.

Xacct Technologies in Santa Clara is an ecosystem partner of Cisco's that develops billing and accounting software. Xacct welcomes Cisco's push higher up the stack.

"I view this as a very positive step from Cisco because until very recently, it was very frustrating for us to get any mind share in the sense that they just didn't want to think outside the box," says Anil Uberoi, senior vice president of marketing and business development at Xacct. "At least now, I finally get to talk to some people at Cisco that value this [software] function. Our challenge is to stay at the top of that curve so they don't have any reason to look around."