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Is Cisco Vulnerable?

Taken together, those aren't good signs for Cisco. Yes, the company is still profitable, and yes, the company still has the lion's share of the router and infrastructure market and is still doing innovative and interesting things. But listen carefully to analysts and VARs. Indeed, the story sounds like a replay of where IBM was in the mainframe- computing industry 20 years ago, and several sources recently brought up the analogy quite clearly.

Bill Krause, the CEO of Caspian Networks who led 3Com during the glory years of the 1990s, says, "Cisco is like IBM 20 or 30 years ago: They got undone not by better, faster and cheaper products, but because the PC took a different approach. At 3Com, they didn't try to Strengthen upon serial communications and RS-232, but by using Ethernet to network PCs together." Krause isn't the only one to compare Cisco to IBM.

Chris Meaney, director of secure networks for Siemens Enterprise Networks, echoes his thoughts: "They are like the early 1960s IBM: While nobody ever got fired for buying Cisco, I don't want to become their captive customer." Meaney runs the division of the communications giant that does consulting services, and up until two years ago was a large Cisco VAR.

Meaney is typical of the VARs who have fled. Some of them still sell Cisco gear, but their hearts and minds are elsewhere. These VARs have begun to look for greener pastures, finding new alliances, and partnering with companies who have more advanced technology and who treat their solution providers better. Many agree that selling against Cisco has never been easier, and Cisco's competitors have better product portfolios and profit potential.

"The life-cycle costs for maintaining Cisco networks were a huge penalty for us," Meaney says. "We picked the wrong players, and now they concentrate on Enterasys and Extreme as their suppliers," he says. "Cisco forces their customers into a lot of unnecessary upgrades and other things that they have to buy."

Meaney took a long, hard look at his product portfolio and moved off Cisco during the past two years. Take intrusion-detection systems (IDS) that monitor networks for potential break-ins. "We believe the Enterasys Dragon IDS is one of the best IDS products on the market today, and provides a more secure environment than the equivalent Cisco IDS."

"The former Silver, Gold and Premium Cisco partners are looking for a higher access to engineering and executive management, and for a vendor who isn't as overdistributed as Cisco is," says Bob Ray, channels chief for Enterasys.

"VARs are competing with four, five, six or more others when they go into sell Cisco gear," says Chris Todd, senior vice president of worldwide sales for Extreme Networks. "They end up trying to differentiate themselves just on price in that kind of market. They offer them something more--the ability to make some real money and provide value to their customers."

"Everybody in town sells Cisco," says Albany, N.Y.-based Sandy Cohn of Atec Group, a networking VAR. "It is not a level playing field because of the tiered system Cisco has. If you aren't a Gold or Silver partner, it is hard to compete." Cohn has been very happy with his partnership with Enterasys: "I like the fact that they have this intense desire to work with the channel, and work with us. Their reps visit us constantly, more so than almost any other vendor they deal with. They help us formulate business plans and supply us more hands-on training than they have ever seen from a vendor."

Just like IBM mainframes became an endangered species in the 1980s when PCs became popular, Cisco's core routers might become today's 390. While Cisco's core technology is more open than IBM's was, it's still difficult to swap out a Cisco router for another vendor's. The problem is that Cisco is finding itself between a rock and a hard place. The rock is its core networking technologies, which are being leapfrogged by its competitors as they develop new routing algorithms to handle new applications and uses of networks. The hard place is this collection of new technologies--such as networked storage, advances in security and detection technologies, and IP telephony and multimedia applications--technologies that require Cisco's partners to bone up on them and satisfy ever-more stringent certification exams.

"Cisco has generally lagged behind Juniper in terms of new product introductions and overall performance. They have not seen a substantial new product introduction from Cisco in some time," says Steve Kamman, an analyst for CIBC in New York. "We have been well ahead of Cisco in innovations for some time," says Kevin Dillon, director of portfolio marketing for Juniper. "We have been innovating for the service-provider market and finding that many enterprises need to scale up their networks and need the quality and level of service of their backbone routing technologies." Indeed, Juniper's service-provider market share, according to Gartner Group, stands at an all-time high of 30 percent as of 2Q03.

There are some signs of innovation happening at Cisco. At its annual Las Vegas partner summit in April, Cisco announced new stackable switches that can adapt and learn their configurations automatically. The issue, though, is that this is for the low-end part of the product line: Enterasys and others have been doing this for some time in their core routing products.

But auto-configuration is just one issue. Another is being able to deploy networks that can handle the demands on quality of service that this new breed of multimedia and IP telephony applications place on them. And another is expanding the corporate network beyond the corporation's boundaries to handle identity management and scalable provisioning of networked applications and circuits. Enterasys, Caspian, Juniper and Extreme Networks--among others--are pushing their approaches here, and all of them are making inroads into traditional Cisco territory. It is true that these inroads aren't much in terms of the total dollar networking volume at the moment. But they are gaining in key accounts and in places where these advanced applications are now taken more for granted, such as in Asia where new networks can be built from the ground up without any legacy Cisco infrastructure.

"The U.S. has become a third-world country when it comes to telecom and networking infrastructure. In Silicon Valley, where I live, you are lucky to get a 56 Kbps dial-up line while Korea has 58 percent residential broadband penetration," Krause says.

At the foundation of these new networks are what Krause calls flow-based routers that examine the content of the packets coursing through their interfaces and make decisions on how to handle the stream as a single entity, rather than as a bunch of unrelated packets. It is a unique idea and one that trumps what Cisco can currently deliver.

Cisco certainly understands that the nature of networks is evolving. At its partner summit in Las Vegas, CEO John Chambers demonstrated a real-time construction application that could track architectural changes, warn of potential fire alarms at the job site, and even produce a scale model of the building all within a few minutes' time. But the problem for Cisco is that none of this is necessarily tied to any particular Cisco router or built on top of the company's treasured IOS software that runs inside its routers.

Indeed, the company continues to circle its wagons around IOS, to the detriment of innovation elsewhere. In Vegas, Cisco vice president and channels coordinator Paul Mountford told VARBusiness that he hopes a lightweight version of IOS will soon be built into Linksys routers, and the company has been on a mission to move IOS into its Aironet wireless access points since that acquisition. Granted, IOS is a solid piece of software engineering and the cornerstone of Cisco's ability to deliver advanced network services and security features. But it may not be good enough for these new network infrastructures. And, in an odd twist of circumstances, Enterasys is one competitor that uses the same command syntax of IOS on its gear, to ease the transition and learning curve as network consultants migrate off of Cisco products.

The problem is that IOS was designed in simpler times, when networks were more stable, static and connecting homogeneous devices. "The current architecture doesn't facilitate better predictability and higher levels of quality of service," Krause says. He uses the examples of video-on-demand, IP telephony, net-based gaming and other higher-demand applications that stress out current networks. "We need more than incremental improvements to the core network. They need vastly different architectures, and that will create their market niche and their opportunity," he says.

On top of these challenges, another issue is Cisco's entry into the commodity home networking market by buying Linksys. Many of its competitors, such as Extreme Networks and 3Com, have moved out of this space because of low margins and high support costs. "Cisco has made a commodity out of the edge of the network, making lower-cost products, and making more of a challenge for resellers to make money," says Gordon Stitt, Extreme Networks' CEO. "We are trying to move away from selling commodity products and toward using the channel to deliver value to their end-user customers."

Bruce Claflin, 3Com's CEO, wishes Cisco well with this strategy. "We are passing each other in the elevator. I wish them the best, but I'd much rather be going in their direction than theirs," he says, as 3Com is moving more upstream and focusing on enterprise networking, after years of trying in the consumer market.

Many of Cisco's competitors would argue that they are better placed than Cisco to take advantage of these sea changes in the network, and have the products and the channels to do so.

"We and Cisco grew up together," says Bill Clark, director of product marketing for Enterasys. "Both of us have comparable speeds and feeds. But their tools are simpler and more scalable and manageable, and offer their customers more redundancy and reliability. The challenge for us is significant, [but] their technical vision will help us win more Cisco customers over in the future."


Cisco and Palo Alto Networks Cut to Neutral at Bank of America

No result found, try new keyword!Cisco Systems and Palo Alto Networks are lower after Bank of America analysts downgrade shares of the tech companies to neutral from buy. The analysts said that they saw "signs of weakness below ...

Cisco's cloud network push will tie licensing change to generational product refreshes

No result found, try new keyword!Deals will also be consistent across Cisco's range. The networking giant won't introduce the updated licenses all at once. Instead, they'll be tied to generational change for its major product ranges.
 




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