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Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: James Connolly who wrote (6151)	8/22/1999 6:34:00 PM
From: James Connolly	Read Replies (2) \| Respond to of 10309

Interesting article about Cisco which I have posted before. ixix.com The question is, has Cisco's IOS been beaten to the punch by WIND's TMS ? The relevant section is below. Regards JC. II. The "IOS Inside" Consumer Strategy The foundation of much of Cisco's success can be attributed to its software rather than its hardware. IOS made Cisco routers the de facto standard in the networking world. Its user interface is the envy of other network equipment vendors. An entire generation of network administrators has learned to configure networks the Cisco way. To capitalize on the success of IOS, Cisco must commercialize it. It must sell IOS as a separate product to other consumer network product vendors, including its competitors. At first, this idea seems ludicrous. Why would Cisco want to hand over the cornerstone of their success to their competitors? And why would other network equipment vendors want to buy IOS? To better understand why this strategy would succeed in the consumer market, we must take a look back at the PC industry. In the 1970s, the computer industry was highly fragmented. There were hundreds of computer makers. They all designed their own hardware and wrote their own operating system, very much like today?s computer network business. Everything was proprietary; no two computers were compatible. That all changed when IBM introduced the Personal Computer. It was a radically new machine, made almost all from off-the-shelf components. The microprocessor was from Intel and the operating system from Microsoft. In a year, Compaq would make the first IBM compatible PC. In few years there would be thousands of IBM compatible PC makers. And in a few more years, IBM would lose control of the personal computer business altogether [4]. The winner in the sub-$1000 consumer PC market is not Intel or AMD or IBM or Gateway; the real winner is Microsoft! Profit margins on these cheap PCs are razor thin. But every cheap PC must still run an operating system. And the operating system of choice is Windows. To succeed in the consumer market, Cisco must be more like Microsoft and less like IBM or Intel. Cisco can vastly expand its market by selling IOS as a separate product and not as an essential component of a router or cable modem. Every analyst talks about the explosive growth of the network equipment market. But few realize that the embedded software running inside those routers and switches is what makes the most money. This is a huge untapped market. Making IOS into an open, modular, and extensible network operating system gives Cisco access to this yet untapped software side of the multi-billion dollar consumer network equipment market. Hardware vendors who do not have the time or resource to write embedded systems software from scratch will now have the choice of buying a brand name off-the-shelf product. Makers of consumer devices such as ISDN modems, cable modems, or SOHO (small home/office) routers would definitely consider buying IOS. Imagine a market of low-priced routers, modems, and switches made in Malaysia or Thailand all running IOS. The creation of this market will undoubtedly cannibalize sales of Cisco?s own consumer product line. There will be people who are willing to pay a higher price for the Cisco brand name. But just as most people stopped buying PCs from IBM when clones became available, we can surmise that most people will also stop buying from Cisco when cheaper routers running IOS become available. In selling IOS to the masses, Cisco would appear to be giving away their competitive advantage. That is not the case. The version of IOS running inside a SOHO router is not the same as the version of IOS running inside a half-million dollar core ATM switch. The software must be modular. High-end components obviously have to remain proprietary and closed while the low-end consumer product related components are packaged and sold. Software is a highly lucrative business; it has very high profit margins. Software is what made Microsoft into the most profitable and valuable company in the world. Consumer network devices are a commodity business. To succeed in this market, Cisco must leverage its core competence and concentrate on providing software to the commodity vendors. Cisco must sell IOS the same way Microsoft sells Windows!