Teaming with MCI to deliver hosted voice and data.
Cisco looks to small business for billion-dollar growth
With its Hosted Small Business Services (SBS), Cisco is teaming first with MCI to offer hosted services based on small-office network gear – mixed Cisco/Linksys technology branded as Linksys One. The offerings, including hosted VoIP, messaging, access and firewall services, will be designed for companies with fewer than 100 end users and cost about $1,000 per month. The services will be sold and supported by local resellers.
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Big strides for small net firms
Cisco says its Hosted SBS approach will give small companies enterprise-class network and IT capabilities. But resellers and carriers – which often compete for these same small-business customers – will have to buy into the program and cooperate for it to work, analysts and observers say.
One of “the last places on earth where the LAN fundamentally needs a complete upgrade is in small businesses,” says Steve Kamman, senior networking and data infrastructure analyst with CIBC World markets. Hubs and sneakernets are still common network technologies in small companies, especially outside the U.S., he adds.
The company with fewer than 100 employees has always been a tough nut to crack for enterprise equipment providers, because these companies often use consumer-oriented network gear. Also, the cost of having to contact so many disparate companies can squeeze profits.
But IT spending by such companies is hard for vendors to ignore. Businesses with fewer than 100 employees will spend more than $12 billion on network and telecom equipment this year, according to research firm AMI Partners. Worldwide, small businesses are expected to account for 24% of all IT hardware and software spending next year, Gartner says.
Cisco plans to announce Hosted SBS as an “Advanced Technology” – joining the ranks of its IP telephony, security, optical, storage network, wireless and consumer business lines. Each is generating $1 billion in annual revenue, or that is Cisco’s expectation. Cisco’s Advanced Technologies contribute about 21% of its product sales, while switches and routers make up most of the rest. But revenue from the newer products is growing at 25%, compared with 3% growth in switches and 13% in routers.
Cisco’s past efforts to get a big piece of the small-business market did not work. “Dumbing down” its enterprise products came up short, because customers were finding better value from commodity products, says Marthin De Beer, vice president and general manager of Linksys’ small-business group. “We weren’t giving [small businesses] what they wanted.”
Carriers have also failed at penetrating small business with hosted VoIP and security services, because the offerings have been complex to install at customer sites, while pricing has not been competitive with traditional hosted Centrex or managed telephone key system offerings from telecom resellers, says Nigel Williams, vice president of Linksys’ channel and service provider business.
These issues are solved by the lower-cost Linksys gear, which can be set up in less than one hour and configured remotely, Williams says.
Cisco/Linksys inside
The central piece of customer premises equipment under Hosted SBS is the SVR Services Router. The box includes a non-IOS WAN router operating system, T-1 and broadband connectivity ports, and a 16-port 10/100M bit/sec power-over-Ethernet switch.
A Session Initiation Protocol (SIP) proxy server, firewall and local DNS and DHCP servers also run on the platform. The SVR Services Router runs a modified Linux operating system and can serve as a local platform for e-mail and other applications.
For VoIP, the Linksys One PHM 1200 is an IP phone that ties back to a centralized SIP-based call server in the carrier cloud. For internal calls, the phone uses SIP-based point-to-point signaling, instead of tying back to the carrier network and using WAN bandwidth. Individual voice mail boxes are stored locally, so they are still available if the WAN link goes down.
Another VoIP survivability option is the VGA2000, a gateway that connects analog devices and fax machines and provides local calling in case the IP phones cannot reach carrier SIP servers.
Cisco says these devices are the first co-developed products among its Linksys and Cisco development teams.
“We’re getting the full ball of wax in one box, instead of having to buy and install,” a router, firewall, phone system and LAN switches separately, says Bob Crenshaw, president of Exceleron Software, a Dallas company with 35 employees. Crenshaw says Exceleron had the Linksys One router and phones delivered by a local reseller, then set up and configured remotely. “We didn’t have to have a technician here all day; we plugged them in, and it all worked.”
He says the service/equipment bundle will allow him to relieve one of his employees from the double duty of writing software and supporting the company’s small network and telephone key system.
“I can put that person on another job, something that will help make us money,” he adds.
Channel challenges
The Linksys One model relies first on carriers such as MCI to tap local resellers to sell the equipment/services packages to small companies.
“We are going to have to go out and find the right [value-added resellers]” to make the business work, says Phil Meeks, senior vice president of strategic alliances at MCI. In the future, Meeks says additional services, such as hosted ERP and CRM applications or office productivity software, could be provisioned to small companies.
But the interdependent model of Cisco’s Hosted SBS strategy could take time to develop, with obstacles among the various carrier, vendor and channel partners.
“The issue is what channel they’re going to market on, and if those channels compete with each other,” says Frank Dzubeck, president of Communication Network Architects.
“The big bitch against Cisco by the VAR channels is the fact that they have, in the past, given better pricing to the RBOCs, who then undercut the VARs,” he says. “The RBOC is the first and primary channel to small business in lots of cases.”
The biggest hurdle will be getting local resellers of Cisco and Linksys gear to come into the fold with carriers such as MCI, soon to be part of RBOC Verizon.
Hosted application services “is an area where some telcos continue to maintain dreams of getting into someday, their utter failure to execute notwithstanding,” CIBC’s Kamman says. “It will be interesting to see if they are willing to do this on a co-branded basis.”
