Part 1
By John Mulqueen
Network World, 01/04/99
 To thrive in the fiercely competitive network world, a company needs to establish a strong business base. It then has to build on that base and raise barriers around it to keep would-be competitors out.
Cisco has ruled the router market from Day One, essentially turning its IOS into an industry standard. 3Com ran off one challenger after another in the Ethernet adapter business because it offered solid products, high-quality volume manufacturing and competitive pricing. Ascend aggressively touted a new access technique and, in the process, secured a coveted spot in early ISP networks.
But incumbents aren't impregnable. If Novell had taken care of its core business, NetWare's leadership of the network operating system (NOS) market would be unchallenged. Instead, Microsoft managed to turn Windows NT into a strong competitor.
MCI WorldCom has mounted a similar challenge to AT&T in the carrier market, as have Computer Associates and Tivoli against network management king Hewlett-Packard. And the ultimate desktop manufacturer, Compaq, has put together the pieces to be a credible supplier of Unix and Windows servers.
And when companies need to strengthen a base, acquisitions are one way to do it quickly. Network Associates' hunger for buying companies has turned it into a dominant network security player. And Bell Atlantic, by buying NYNEX and merging with GTE, has positioned itself as a leader among local carriers.
Here's a closer look at how these companies have triumphed.
NOSes: The challenge is Novell's
All things considered, Novell has worked really hard this year, and its effort is starting to pay off. The company has managed to stop the flow of red ink, get sales moving, roll out products to rave reviews, get partners to develop applications using NetWare, sign deals with major customers and double its stock value to about $15 per share.
But Novell has barely been able to hold off Microsoft's seemingly unstoppable march to take over the NOS market. Microsoft keeps gaining ground, even though it's behind schedule with Windows NT 5.0, now named Windows 2000, and despite the fact that it will probably not be as good as NetWare 5.0.
To keep NetWare from being totally trampled by Windows 2000, Novell must do more to convince industry players such as Lotus to not only continue developing products for its NOS but also to embrace Novell Directory Services (NDS). And Novell must accelerate NetWare sales and drive home the value of ZENworks as a tool for cataloging and managing Windows PCs in NDS as well as for distributing and managing applications on Windows workstations.
If Novell can get these things done, then it has a good chance of achieving its task of getting its stock price higher than $30, its price in 1994 before it began its long slide.
Microsoft's NOS task is far easier. The company just has to get its products out the door; it's got the momentum behind Windows 2000.
Novell, Provo, Utah
Smartest move: Concentrating on directory services and the Internet market.
Greatest strength: Loyal users.
Achilles' heel: Weakness in application development.
Chief competitor: Microsoft.
Microsoft, Redmond, Wash.
Smartest move: Striking a deal with Cisco to develop directory services.
Greatest strength: Its checkbook.
Achilles' heel: Inferior products.
Chief competitor: Novell.
ENTERPRISE SERVERS: Compaq sits securely
Compaq may be having fits in the consumer PC market trying to combat Dell Computer's low-cost, direct sales model, but there's no sign that Compaq is budging from its dominant spot in the server market.
From the decision years ago to leverage its skill in building desktop computers to make the PC a legitimate low-end, low-cost server, Compaq has expanded to compete against IBM, Hewlett-Packard and Sun in the data center. It partnered with The Santa Cruz Operation to build mass-market and volume shipment products for the Unix market. It also acquired Tandem Computers to gain glasshouse-caliber clustering technology and big-ticket selling experience.
The Tandem integration, however, exposed a hole in Compaq's product line. PC servers top out at about the $20,000 price range. Tandem's servers begin at about $500,000. This year's acquisition of Digital and its
64-bit Alpha chip plugs the hole and gives Compaq a product it can sell against IBM and Sun and their high-end machines. Alpha is also an insurance chip in case Intel and Microsoft fail on Merced, their scalable 64-bit system.
Compaq still faces problems in keeping Digital's employees happy, integrating them into its vastly different culture and calming customer concerns that the company will discontinue OpenVMS support.
But with almost twice the market share of its nearest competitor, Compaq has a buffer to cushion any missteps.
Compaq, Houston
Smartest move: Legitimized PC server market with quality, low-priced products built from standard parts.
Greatest strength: Breadth of product line.
Achilles' heel: Tied too closely to Intel and Microsoft for groundbreaking, boundary-shifting products.
Chief competitors: IBM, Sun.
LAN HUBS AND SWITCHES: 3Com sails on
Think of Cisco as a major land power, dominating the core of the network world. Then consider 3Com's role: the naval force patrolling the edge of the network, regulating traffic flow with its fast, mobile products.
Though it has tried to assault the mainland and has secured a few beachheads, 3Com by all accounts is strongest in the LAN waters, especially in smaller organizations. It is easier to capture an island with a fleet than it is to overrun a continent.
"The small to mid-size business market is currently $8 billion, growing at 25% per year, with 3Com holding a market-leading 25% share," says Chris Stix, an analyst with SG Cowen, a Boston investment firm. "3Com leads the market in various product categories: small business network interface cards [NIC], switches, unmanaged 10M bit/sec hubs, Fast Ethernet hubs, Ethernet workgroup managed hubs, and Ethernet and Fast Ethernet workgroup switching."
Whew.
It's no wonder 3Com has had trouble managing its inventory, especially after buying U.S. Robotics, the leading modem manufacturer, whose inventory controls were apparently even worse than those of 3Com's. For this and other reasons, the acquisition took a heavy toll on 3Com throughout 1997 and much of 1998. Still, the acquisition brought the hot-selling PalmPilot and the Total Control hub under 3Com ownership.
Naval powers need allies. 3Com is teaming with Qualcomm and Motorola for wireless versions of the PalmPilot. Its aim is blocking another land power, Microsoft, and its foray into handheld computing.
In addition, 3Com has teamed with Newbridge Networks and Siemens to add brawn in the carrier market. And U.S. Robotics' V.90 modems and hubs are torpedoes making contact with ISPs and carriers.
3Com knows the network waters well.
3Com, Santa Clara, Calif.
Smartest move: Buying U.S. Robotics.
Greatest strength: Owns distribution channels.
Achilles' heel: More than one-half of its business is in commodity NICs, modems and hubs.
Chief competitors: Bay Networks, Cabletron, Cisco.
ROUTERS: What other company but Cisco?
Drop into an online chat room for Cisco investors the day before or after the router king reports its earnings. You'll think you're in a high school locker room: "Cisco rules! Go Cisco! I love Cisco!"
Pity the poor devil who doubts Cisco's ability to grow revenue and profits at the pace it has maintained for more than a decade: "You dumbhead, how do you feel now that it has done it again?"
Cisco has earned such loyalty with its lock on the router market. Seven out of 10 routers sold today have the Cisco label; four out of every five high-end routers come from the company.
Aggressiveness and discipline are the qualities that have made Cisco so successful. Instead of pulling back from Asia during the economic turmoil, for example, Cisco tripled its payroll there, excluding Japan. Bodies on the street give Cisco the chance to take market share. "Orders were up 40% year over year," flaunts John Chambers,Cisco president and CEO.
The enterprise still accounts for half of Cisco's revenue, but selling to service providers is the fuel in Cisco's business, and the GSR 12000 high-speed router is the fuel. The company says it has sold more than 1,000 GSR 12000s through late fall.
Chambers likes to boast of Cisco's paranoia, and the company does have real enemies. The biggest threat to the router business may be low-priced Layer 2 and Layer 3 Gigabit Ethernet switches, even those Cisco got when it acquired Granite Systems two years ago. Cisco downplays the value of such devices, promoting instead the idea that it will deliver such functionality through chassis that have routing and switching.
Cisco rules? We'll see.
Cisco, San Jose
Smartest move: Buying Granite Systems in September 1996 to freeze Gigabit Ethernet market.
Greatest strength: Its incredible market presence.
Achilles' heel: Router price tags, which are higher than those of Gigabit Ethernet switches.
Chief competitors: Bay Networks, 3Com.
REMOTE ACCESS: Ascend muxes it up
Inverse multiplexing was a technology that was supposed to make it easier and less expensive to connect small and remote offices to a network by calling up bandwidth as needed.
The idea had its 5 minutes of fame before vanishing, but Ascend Communications learned a great deal about telephony, ISDN and remote communications from its attempts to market inverse multiplexers.
The experience and knowledge paid off when Ascend aligned itself with PSINet and other ISPs to develop its Max, TNT and Pipeline products. Carriers bought the products in truckloads, even if they fumed over their shortcomings.
In 1997, problems with 56K bit/sec modem cards blew up in Ascend's face and turned the company into a pariah with some customers and, especially, some investors. But 1998 was a year of redemption -- almost. Sales and profits rebounded, and its ISP connections have proven invaluable in its attempts to sell WAN switching products.
Adding Signaling System 7 (SS7) capabilities to its bag of tricks promises to increase Ascend's ability to lure carriers and ISPs. With SS7 software, which Ascend got through the acquisition of Stratus Computer, a voice gateway can be added to TNT to send voice calls around the switched telephone network.
And the corporate interest in virtual private networks for handling voice, fax and LAN-to-LAN connections should make Ascend's remote access business a winner -- if the company keeps its focus.
Ascend, Alameda, Calif.
Smartest move: Buying SS7 vendor Stratus Computer.
Greatest strength: Cracked the ISP market early.
Achilles' heel: Loses focus.
Chief competitors: Cisco, 3Com, Intel/Shiva.
To part 2
|
