Sharp turns like Cisco's have a long history

If Cisco announces its first blade servers on Monday, as expected, the news may well herald a major expansion of the dominant networking company's business. But even though it's the most hotly anticipated move in a long time for an IT vendor, this isn't the first case of a company taking a big gamble on entering into a new business.

Potentially game-changing shifts have taken many forms, and none is directly comparable to Cisco's plan or its historical context. But there are some lessons for Cisco in how those strategies have played out, according to industry analysts.

It may be hard to remember, but Intel didn't make any chips for servers until the Pentium Pro was unveiled in 1995. The company had remained focused on PCs while giants such as IBM and Sun Microsystems built both the central computers that ran enterprise applications and the processors at the heart of those systems. PCs were used for some departmental functions such as printing, but they weren't true servers. Leveraging its PC chip development resources and large-scale PC economics for server CPUs turned out to be a very good move for Intel and IT as a whole, spawning the industry-standard servers that dominate data centers today.

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If Cisco announces its first blade servers on Monday, as expected, the news may well herald a major expansion of the dominant networking company's business. But even though it's the most hotly anticipated move in a long time for an IT vendor, this isn't the first case of a company taking a big gamble on entering into a new business.

Potentially game-changing shifts have taken many forms, and none is directly comparable to Cisco's plan or its historical context. But there are some lessons for Cisco in how those strategies have played out, according to industry analysts.

It may be hard to remember, but Intel didn't make any chips for servers until the Pentium Pro was unveiled in 1995. The company had remained focused on PCs while giants such as IBM and Sun Microsystems built both the central computers that ran enterprise applications and the processors at the heart of those systems. PCs were used for some departmental functions such as printing, but they weren't true servers. Leveraging its PC chip development resources and large-scale PC economics for server CPUs turned out to be a very good move for Intel and IT as a whole, spawning the industry-standard servers that dominate data centers today.

The Pentium Pro was a momentous introduction but wasn't as daring a move as Cisco would be attempting by entering the server market, noted Insight64 analyst Nathan Brookwood. CPUs were already Intel's core business. It was just a matter of bumping them up into a new class.

But another move by Intel didn't turn out so well. In the late 1990s and earlier in this decade, the company aggressively pursued communications, introducing new types of processors such as Arm-based StrongARM chips for handheld devices and even producing optical components for high-speed networks. Both efforts took Intel outside its core business and didn't gain much traction, eventually being sold off.

"I'd have to give them a failing grade on that," Brookwood said.

Some vendors can use their sheer size to make a daring foray succeed. Microsoft does this regularly, said analyst Roger Kay of Endpoint Technology Associates. The quintessentially dull software company tried to break into gaming hardware in 2001 with the XBox, and it struggled for years against established players Sony and Nintendo. Today the XBox 360 has a wide lead over its most direct competitor, Sony's PS3, but only after years of investment and losses. Kay doubts Microsoft has broken even yet on its cumulative investment in the platform.

"It's something Microsoft can do better than others, because they have the money and smarts," Kay said.

Success in a new business does require knowing what you're getting into. This is why Dell stumbled badly after it entered the printer business a few years ago, according to Kay. At the height of its success selling business and consumer PCs online, the company decided it could give HP a run for its money in another mass-produced piece of hardware. What it didn't count on was HP's printing brand and intellectual property, as well as its marketing and distribution system, Kay said.

The IDG News Service is a Network World affiliate.