Internet & Technology
Tuesday, May 29, 2001
Networking Giant Finds Its Voice
Cisco Systems is counting on Internet voice technology to turn fortunes around
By Sarah Z. Sleeper
Investor's Business Daily
When Cisco Systems Inc. (CSCO) powered the Internet boom of the 1990s, its revenue, earnings and stock price soared. But to re-establish itself this decade, the No. 1 network gear maker will need another trick.
That trick, Cisco executives say, could be gear that lets companies convert their phone networks to a standard called Internet Protocol. Voice over IP, or VoIP, uses Internet technology to transmit voice and other data over corporate networks or via the World Wide Web. It promises to give firms a low-cost, high quality digital communications option.
“All indications are that this will be a $20 billion-plus market in the next three to five years,” said Marthin De Beer, general manager of Cisco’s enterprise voice and video unit. “Within the next 12 to 24 months it will be a big part of Cisco’s revenue,” he said, adding that VoIP is one of the firm’s five key strategies.
‘A Credible Product’
This isn’t a sudden strategic shift for Cisco. Its VoIP system has been in the works more than four years. And, De Beer says, with the release of seven new pieces of software and hardware, Cisco’s VoIP system is ready for prime time.
“What stands out here is that you have a data giant that has actually got a credible voice product,” said Elizabeth Ussher. She’s a vice president of tech researcher Meta Group Inc.
De Beer says Cisco’s tools can be used to digitize companies’ private branch exchanges, or PBXs. Those are the telephone systems most firms use now. Internet Protocol PBXs, De Beer predicts, will topple the $80 billion installed base of PBXs.
Sales of IP-PBXs are modest now, just 5% of all new corporate phone systems. But many think the market will boom.
Sage Research Inc. of Natick, Mass., found that 52% of firms surveyed plan to install at least a partial IP system by September vs. 16% in September 2000.
Analysts say IP-PBXs have distinct advantages over regular PBXs. Because they are Web-based, they are easier to customize, cheaper to maintain than older networks and simpler to operate, says Bill Hills of research firm Aberdeen Group Inc.
They also present the option of so-called unified messaging, the combination of voice, data and video within corporate networks.
“The IP phone can not only let you make telephone calls,” De Beer said. “You can also press a services button and get access to all the content on Web servers inside of the company.”
Analyst Christopher Stix of Morgan Stanley & Co. says if Cisco’s VoIP initiative flies, its share price could go up. He just upgraded the stock from a neutral to an outperform rating.
Analysts differ as to how fast VoIP will grow. Stix says Morgan Stanley’s most recent survey of company chief information officers found that though 87% of companies plan network upgrades this year, only 22% plan to implement VoIP soon.
The Cisco system is called Architecture for Voice, Video and Integrated Data, or AVVID. It consists of hardware, software and telephones that convert a firm’s existing PBX to an IP-PBX.
Most products haven’t been comprehensive enough to tackle the entire conversion of a corporate PBX to IP-PBX.
“We’re seeing significant interest in purchasing of IP equipment,” said Hills. “As the major suppliers such as Cisco roll out the complete set of solutions that seems to cover every kind of scenario, this accelerates the pace of growth.”
Rivals to Cisco’s AVVID include Alcatel Alsthom SA (ALA) and Avaya Inc. (AV), as well as an array of start-ups.
Now firms such as Dow Chemical Co. (DOW) and Merrill Lynch & Co. (MER) are trying AVVID. And in Australia and New Zealand, several large deployments are in progress.
De Beer says that’s a drop in the bucket of Cisco’s total AVVID sales. “We are adding about 250 new enterprise customers on a monthly basis,” he said. “More than 50% of Cisco’s largest 500 customers are actively deploying IP phones.”
Big Rollouts Begin
In the last nine months, De Beer adds, “We’ve crossed that chasm from early adopters to early majority, and we’re now seeing large-scale deployments.”
Since March, Datek Online Brokerage Services LLC in Edison, N.J., has had 400 of its 1,100 employees using AVVID. According to spokesman Mike Dunn, it “takes up less space, which means smaller computer rooms, less cooling and other costs savings.”
The entire staff will be using AVVID by the end of the year. Dunn says the customer service staff will use it to answer inquiries via e-mail or voice. Most companies now have separate phone and Internet networks. But VoIP networks use the same lines for all data. That makes service faster. Also, one network requires less maintenance than two.
“Firms upgrade to VoIP because of the ability to do converged applications like unified messaging,” said analyst Stix.
Cisco says AVVID’s exact cost depends on many factors, including the cost of installation and the size of the network. But a March article in telephony magazine Business Communications Review pegged a 100-user AVVID set-up at more than $1,000 per person, about 50% more than a regular PBX.
Analysts say that initial investment won’t yield cost savings. But over time, VoIP users will save on maintenance, personnel and equipment.
Cisco demonstrates its own belief in VoIP by using AVVID. Of Cisco’s 300,000 employees, 29,000 use it now. By year-end, the whole company will.
“We’re betting our own company’s future on this,” De Beer said.
Sales of AVVID, De Beer says, will pull along sales of other Cisco products such as switches and routers.
Hills agrees. “If someone chooses to put in a data network architecture for all their telecom services, then they’re going to buy more Cisco gear overall.” |
