Last week I began this series on large companies in turmoil by looking at Intel, which I saw trying to guarantee its future through enlightened acquisitions that actually emulated this week’s company — Cisco Systems. So if Cisco already knows how to assimilate other companies and technologies to stay ahead of the market, how can they have a problem? Cisco’s problem is their market is mature and being commoditized with all boats sinking. And this time there isn’t an obvious new idea to buy.
Cisco is a becoming a very expensive utility appliance. The revenues streams at Cisco that are at risk:
– Enterprise routers for T-1 services versus DOCSIS 3.1 and in the future 4G LTE-A
– LAN switches versus Wi-Fi with 802.11ac
– Why do I need a desk phone?
– Security services
Cisco is old and tired according to a friend who worked there. “When I was at Cisco during 2000,” he said, “anyone with more than four years of service was an odd duck, you cashed out with your options after four years. Today I still see the same people from 2000 and wonder, ‘What are you doing?’ Everything is static and big corporate, the juice went out the door in 2000.”
The core problem for Cisco is customers are beginning to ask why they should pay $550 per month for a T1 with a $3,000 router when you can have DOCSIS 3.1 at $99 and a $300 router with VPN tunneling to create the private VPN WAN network?
For that matter, why buy complex very large and expensive switches from Cisco when Wi-Fi at 1.3Gbps is available?
Why pay $1,000 for a Cisco VoIP phone at your desk? Who is calling you at your desk anymore?
Flip cameras were a bust: the profit margins were too low. Ditto for Linksys. Cisco isn’t selling many of those $300K telepresence rooms, either — another market being gobbled from beneath.
The Cisco IP everything vision has run out of steam, as has much of Cisco’s technology. To look under the hood, the Cisco Next Generation routers still use a single threaded OS to support all functions even with a dual core on the router. The same is true with the edge and Enterprise switches.
Very old operating system technology is still running the Cisco IP world. Cisco has just started to move into Linux, (Nexus) as the OS and just starting to become stable after five years.
Worst of all, software defined networks (SDN) are poised to eliminate entire Cisco product lines, replacing them with commodity equipment running open source software.
This does not mean Cisco is doomed. With $48 billion in cash they can buy a new future or two. It’s just that their old markets are fading fast and new markets of big enough size just aren’t emerging.
It doesn’t look good.
Well, I think that CISCO is not just in troubles. I think it’s choking.
Companies like Huawei and Fortinet are providing cheaper (by far) products and services with comparable features.
CISCO just sat (or fell asleep) on its own laurels and gave up with both innovation and marketing strategies.
It’s the same story as IBM, Bob.
What about Cisco’s UCS platform? I know there is Open Compute but not sure how that fits yet.
I know what I wish they’d do:
City wide internet to replace all the comcast.
Some days…. I’d pay more JUST to put a finger in comcast’s eye. But having city-wide wifi that you’d just have everywhere you go is kind of priceless.
Unless you don’t live in a city…
There are definite disadvantages with living in the country. Running high-bandwidth lines to sparsely populated areas is obviously expensive.
But I’m in an important metropolis. I should be receiving the benefits of high population density. And I think it’s beyond stupid, how almost all of Silicon Valley has far worse choices for Internet access than Chatta-nowhere, Tennessee. Telco apologists should be ashamed of themselves, constantly bringing up rural populations as the reason why the US has such pathetic broadband.
Kowtowing to the US security complex in return for protection against Huawei is a losing strategy. Even Microsoft is now paying lip-service to customer security and privacy. If Cisco can reinvent itself as a protector of freedoms against intrusive governments (USA, UK, China, Iran, Venezuela, etc.) there might be hope. But I fear their credibility is shot.
The NSA will keep Cisco flush with money, no worries.
The NSA budget is $10 billion. Cisco needs $50 billion in sales. The NSA doesn’t have enough excess cash to make any difference.
Not to mention the infamous “Cisco Tax”: Your $3,000 router requires over $500 per year for support and software updates. As opposed to small, unknown companies like HP that will sell you a comparable router for $2,000 with free lifetime support and software updates.
I had to fight many battles with the Corporate Network Gurus who thought the word “network” was spelled C-I-S-C-O and couldn’t tolerate anyone contaminating “their” network with non-Cisco equipment. Nobody every got fired for buying
IBMCisco.That kind of market mind share will carry Cisco through for a few more years.
there is still a lovely market for enterprise equipment in backbones. but Alcatel-Lucent, the guys who bought Bay Networks and couldn’t make a buck with it against cisco, have some big guns now that compete at all layers. it’s nice equipment at a little better price, which if you know telecom, is a bit of a surprise. there are all the “suspect Chinese companies” which really shave the cost of installation. HP even figured out the core switch business for data centers.
tough market.
Don’t they have a sideline in technical training/certification? Perhaps they could make money teaching people how to make their own products obsolete …
Agree to some degree, but think you have over simplified too:
– UCS (their server line) is a success, but probably not as high margin as routers once were.
– SDN is very complex and doesn’t deliver a whole lot yet unless you’re at Facebook or Google scale. Cisco’s Insieme spin-in may well deliver something at Enterprise scale that’s more relevant than the OpenFlow based start-ups.
For sure they will look very different in another five years, but for right now nobodies getting fired for buying Cisco so while their revenue isn’t growing it’s still up there.
Comment from a Cisco insider: Cisco UCS is a real winner. They are so close to winning the whole “server” battle, but I’m not sure they even know how close they are. Their fight over the networking stuff is sucking resources that could actually let them stomp their server competition. Sad but true.
H-P knows that UCS is a threat. Cisco is #1 target.
H-P replaced all Cisco gear with 3COM/Brocade routers as soon
as UCS was announced.
Anyway, H-P has always had all the components of UCS in the Proliant line.
Virtual Connect/Flex 10/Systems Insight Management.
The problem they cause was having some lame developers write SIM in crappy Java
code that is badly flawed… They need to have a stellar rewrite and rollout of this product
to compete. Most customers don’t even know that they can install it and don’t. That’s why
we have HP One or whatever it’s called. wraps SIM/ HP Operations Manager and I think OpenView
together.
The other problem was that Proliant licenses/software used to be sold like hot dogs/hot dog buns on steriods. They have at least consolidated that to 3 lines , SIM, Insight Control, Insight Dynamics etc
but support is still a problem. Lots of people paid to be ‘installers’, but few, if any, maintainers.. 🙂
I used to love Linksys before Cisco bought them. Used to buy their routers exclusively. Then after the deal bought 2 models. Horrible performance at way too high a price. Now I just can’t see myself buying anything from Linksys. And that makes me wonder how are other Cisco properties being managed.
After talking to friends who work with Cisco enterprise equipment, it looks like Linksys wasn’t an anomaly. Cisco are just not very good. Resting on their laurels for quite a few years now.
Cisco sold Linksys to Belkin.
I’m not happy with Belkin, either. One of my friends just bought, in 2013, an 802.11n Belkin router with no understanding of IPv6. It does have an option to pass through IPv6 traffic, but it doesn’t work with Comcast’s DHCP-PD. The effect is that my friend’s home network has no IPv6 connectivity. In 2013. This is stupid.
Linksys fell victim to the same problem with the IBM PS/2: The Intel 386 chips were good enough to replace a lot of low-end mainframes, and there was no way the big iron division was going to allow that.
Cisco made a ton of money over the years with their PIX firewalls and small office VPN stuff that runs IOS. The Linksys stuff was just as good at moving packets, just much cheaper. Linksys hardware running DD-WRT firmware is just fantastic, but a little more work.
I don’t get Linksys anymore.
For $40 on sale, you can get a WRT54GL. That’s 54 Mbps 802.11g on, what, a 200 MHz Broadcom processor with 16MB RAM and 4MB flash?
The same $40 on sale can get you a Buffalo WZR-300HP. 300 Mbps 802.11n with 400 MHz Atheros processor with 64 MB RAM and 32 MB flash. It even comes with its own version of DD-WRT. A few tens of dollars more, and you have 600 Mbps dual-channel 802.11n and faster processors and more memory. A lot more tens, and you get 450/900 802.11n or gigabit-class 802.11ac. I just don’t see why a normal hacker would want the obsolete WRT54GL.
I’m shocked you didn’t mention the effect of the NSA revelations on Cisco’s international sales. I read Cisco thinks it will cut those sales by billions.
“DOCSIS 3.1 at $99” SOLD! (Where’s the link? I’m ready to buy.) http://arstechnica.com/information-technology/2013/12/why-comcast-and-other-cable-isps-arent-selling-you-gigabit-internet/
It would be handy if Cisco could finally learn user interface design (perhaps hire Julie Larson-Green). I’ve been CCNA-certified for 6 years and still get tripped up configuring Cisco, esp Wireless and Voice in not-so-complex offices. Their prices are still a punch in the guts every time as well, and a Cisco support contract is a waste of money if you’re < 10,000 seats, they don't want to talk to me, kept getting transferred all over the world.
I've not seen any office with only Cisco boxes. It seems most use a manageable mix of networking including HP ProCurve, the Fortinet line, Juniper (who are also quite expensive), some Linux boxes, Meraki (now Cisco!) and lastly some Cisco Catalyst or routers where the high $$$ can be clearly justified.
The new IOS XR, based on QNX, looks interesting, but its only in their brutally expensive boxes. I only got the CCNA as resume-fodder, I may not renew it next year.
Cisco is not longer an interesting company, lots of challenges. I have been talking with many people from business, intelligence, including government tech contacts and the true it is Cisco has its last days comming, basically when John Chambers announces he is leaving Cisco as part of his retirement. End days coming ahead for Cisco, sell your stocks.
It doesn’t help that Google and Facebook are developing their own switches on their own custom FPGA chips. This will only make the network even more of a dumb pipe, something Cisco made a big deal about when Lucent was still pushing out ATM and SONET networks.
Too bad about Flip cameras. Great product and should have been able to survive on its own. Why did Cisco need a huge margin from it?
I had heard a few years ago that Cisco routers could detect each other and use an optimized protocol to communicate. I thought this was their secret strategy for taking over the Internet by producing faster throughput. Seems like it didn’t happen, although Cisco is the most successful infrastructure company. Guess the commoditization of infrastructure is hurting them.
I dunno about taking over the Internet (wait – didn’t they already own it at one point?), but I was doing a little packet sniffing in the office a while back and was surprised to find that not only did all the Cisco devices on the local net discover each other, but a desktop phone, of all things, actually collected a list of all the Cisco devices with their MAC/serial numbers and sent it back to the mothership at corporate HQ on a schedule. I’m sure it’s all configurable and benign, but it was still a surprise to see that list heading out across the VPN.
In many types of business there is a life cycle. At some point the product or service becomes a commodity, competition increases, and the price drops. The wise market leaders invest in the delivery of their product or service to become the lowest cost, highest volume supplier. This allows them to maintain their market position and profitability in an increasingly challenging market. The key to the process is becoming highly efficient, being able to do more with a fraction of the people you used to have.
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I worked for a company whose patent on their big money making product was running out. We spent years improving manufacturing. When competitors tried to enter the market we dropped our price to a level they couldn’t handle. This firm still has 90% of the market. There are competitors but they can’t compete on volume, quality, and service. The product is still profitable today.
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A few weeks ago I bought a 24 port 1Gig switch for $90. A comparable Cisco product is about $300 – $500. Is the Cisco switch better? Does it do more? Yes. But is it worth a 3-6x greater price? If my cheapo switch fails, it is cheaper to buy a replacement than to pay Cisco for maintenance.
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Cisco’s products are very expensive. I doubt they are in a position to compete on price. Much of the technology needed to make their products is now available on commodity silicon. This reminds me of an argument I had once with IBM, DEC, and Compaq. They were all wanting to put ethernet ports in their PC’s. It was a good idea. The problem was HOW they were going to do it. They were all spending massive amounts of money to design their own chips. 3Com, Intel, and Novell had perfectly good chipsets for $5-10. If you could buy the technology so inexpensively, why spend a fortune re-inventing the wheel? Cisco is in that situation today
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Cisco also sells its products the same way IBM does, through resellers, distributors, and commissioned sales people. This adds an automatic 25% to the price of the product. The only people who made money on my cheapo switch was the retailer and the manufacturer. There was no one else in the food chain.
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Cisco is not alone with this problem. IBM has not invested in making its products better, faster, cheaper, … Neither are in a position to compete against emerging agile competitors.
I agree with Bob’s assessment–Cisco is dying.
What is John Chambers known for these days? The only time I see him making public comments, he’s complaining about the US tax system. I guess if you’ve run out of ideas to grow the company, the only thing left is to cut costs. Time for some new leadership at Cisco.
Even if UCS is a good system, so what? It’s a low margin business. Oracle and IBM are trying to make money from their server lines with integrated stacks (Exa and Pure). Cisco doesn’t have the software or storage to compete so they join with VMware and EMC to form VCE. But the profit in that venture is the software and it’s going to VMware.
Rumor has it IBM tried to sell it’s Intel-based server line earlier this year. Say what you will about IBM, but they seem to have a decent track record dumping product lines at the right time.
For the server makers, the cloud is becoming a very disruptive force. Since Amazon, Rackspace and Google buy whitebox servers, every customer who moves to their clouds is one less opportunity for Dell, HP, IBM, Cisco, Oracle. Facebook buys whitebox too, so they don’t profit from their growth either.
If UCS becomes number 1, I suppose Cisco can be the leader in yet another dying market.
Cisco is the IBM of networking (maybe the IBM from the 80s, let’s say). A company which has great talent and a lot of great ideas, but which has grown to the point that its vision for product is mostly reactionary and complacent. Having trained for Cisco certs and worked with their product, I think they do have a few aces in the hole. Like IBM the mainframe manufacturer was 30 years ago, their enterprise and datacenter product will continue to make them money hand over fist. They are insanely overpriced and their sales training mentality is from another version of reality, but their stuff is the best at what it does and is the most solid in the industry. Reading “Accidental Empires” recently, I found the parallels uncanny. Slow product cycle, highly proprietary systems, significant revenue stream from service, highly trusted in terms of reputation…all of the things that spell out a large monopolistic technology company.
Regardless of what happens vis a vis WAN internet connections and wireless, they will not be displaced from the role of datacenter infrastructure provider, where some of their best tech is and they are overwhelmingly dominant. I’m certain their sales of basic routers and firewalls for small to medium businesses has crashed through the floor in the last 5-7 years with the abundance of cheap broadband, and I’m certain they are aware and not particularly bothered by it. I believe their acquisition (and subsequent release) of Linksys was intented to shore this up. And what they probably found is that organizations who ditched their T1 for DSL or cable often found they didn’t use any of the advanced capabilites of a Cisco (or Linksys) unit and simply plugged into whatever AT&T or Comcast sent them. If they did need the fancy stuff, they load balanced and kept the T1. That market (load balancers) was once dominated by $3000+ routers 6 or 7 years ago when I broke down and built one using a Linux distro out of frustration. They’re now available for $300 or less.
Cisco is responding to the changing market conditions, but primarily by acquisition. Their purchase of Meraki last year is a great example of this. They single handedly absorbed a major competitor of theirs in K-12 education and SMBs, as well as absorbing some of the most compelling network management IP in the industry. Cisco bought Meraki because they had to…Meraki offered everything that Cisco did at less up front cost and with an end-user targeted browser-based management system. Meanwhile, Cisco still serves out what is essentially a VAX derivative as the software on its own units that is not friendly or intuitive, and has only half heartedly pursued the simple concept of GUI. If Cisco boxes even ran basic UNIX it would be a huge improvement for their manageability, But this would harm Cisco’s in-house training profit machine so no dice.
Meraki and a network-based antivirus product (which I forget the name of) are two major assets in the SMB arena, but they are otherwise losing it forever most likely. Meraki (assume it doesn’t get too balkanized) is an amazing product in terms of the software and interface. If it were priced more aggressively it could be highly disruptive in the SMB and even high end consumer arena.
The only other thing I’d say is that in some ways Cisco will be safe by staying so close to the backbone, but otherwise they are hedging huge bets on the cloud. In another 5 years I would be surprised if they offer anything for SMBs other than badge-engineered commodity items. Meraki’s wizardry is all cloud based per their business model, which is an annual subscription.
Cisco could have made VPN and a lot of other local computing ideas ubiquitous and not just industry jargon, but to do so they would have had to compete against themselves by enabling end users. All of the centralized nonsense that has ascended in the last 10 years is built on top of network software technology such as VPN that Cisco pioneered. But ultimately Cisco never wanted to be a consumer-focused company and so now companies who do are likely going to chase them out of everything but the largest businesses. And if endless datacenter expansion and off-site hosted solutions for the LAN happen to lose their appeal for any reason, they are in big trouble.
Also…wireless gigabit in place of local gigabit and 10 gig? You do realize 802.11 technologies are half-duplex, no?
Try making a modern, usable, configurable product that doesn’t look like a piece of washed-ashore space junk.
Looks like more bad news for Cisco….
https://www.bloomberg.com/news/2013-12-11/cisco-loses-eu-court-appeal-of-microsoft-skype-merger-approval.html
I guess that’s another area they are number one in–whining.
What were they thinking? Trying to get the EU to do their dirty work and kill a competitor that’s carving into their sales? Do they really think people would go back to their overpriced pig iron if the Microsoft/Skype merger was invalidated?
The board needs to get rid of Chambers.
But Cisco has a point that bundling telecommunications into Windows is similar to bundling a browser or a media player into Windows. Where is the mandatory EU ballot? After all, people aren’t smart enough to seek and choose, they must be forced to make a choice.
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