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(COMTEX) Cisco's goal: End-to-end ownership
Cisco's goal: End-to-end ownership
PC Week Online (November 25, 1997) - Since joining Cisco Systems Inc.
in 1991, CEO and President John Chambers has taken the San Jose,
Calif., networking vendor from annual revenues of $1.2 billion to more
than $6.5 billion. His goals for the next year are just as
lofty--continue to be No. 1 or No. 2 in every major networking segment
and provide a complete end-to-end solution for customers. During
Cisco's first-ever appearance at Comdex last week, Chambers met with
Executive News Editor
PC WEEK: How do you see Cisco delivering on some of the technology to
enable your vision of the Internet revolution?
CHAMBERS: Our approach hasn't changed in terms of being No. 1 or No.
2 in every product area we go into. You do it by developing it
yourself, or if we miss or just don't get into it quick enough, to
partner or to acquire. We'll continue to acquire probably 10-plus
companies this next year, and we're going to continue to partner
aggressively and look at strategic partnerships. A strategic
partnership requires that the customer gets a major benefit.
Secondly, it must be worth at least $500 million if not $1 billion by
the year 2000. Third, it's got to create a sustainable competitive
advantage for the partners. By that definition there have only been two
that have ever worked, and we're going to try to do eight to 10.
Then we're going to tie together the products, both logically and
physically. So the goal is to have an architecture that encompasses IOS
throughout and very often a chassis solution where we enhance the
products to go directly into the chassis . Then you begin to talk
about true end-to-end cost of ownership.
Our goal is to continue to do best of class, in individual
functionality and total cost of ownership, with every technology--it
doesn't really matter to us, let the market determine it. We'll bet
heavier on those we think have a higher likelihood of being No. 1 or
No. 2 .
PC WEEK: Which are those?
CHAMBERS: Let's break it into segments. In the wide-area space, frame
continues to grow, but mainly out of the existing customer base. ATM is
growing reasonably, but it's so dependent on the service provider. The
carriers will probably go with ATM wide area more than IP. The ISPs
Internet service providers and deregulated carriers will probably go
IP because of the cost and time to market.
PC WEEK: Do you influence the carriers, or do the carriers influence
you?
CHAMBERS: We tell them the tradeoffs, and we let them pick. But by
nature they tend to go more with a voice base because of comfort level
and less risk taking, whereas the ISPs tend to go more with a data type
of base--they're more interested in the cost structure. But you're
going to have a group of new players that is going to go IP for voice
over fiber, and that could change the whole competitive landscape.
PC WEEK: How viable is voice over IP ?
CHAMBERS: It's very viable. I don't know if they can pull it off to
the extent they want, but my CTO believes they will.
PC WEEK: What other markets are you targeting?
CHAMBERS: If you come down into the dial marketplace, we're picking
up momentum there very well. We grew quarter over quarter comfortably
in excess of 25 percent. We're gaining share rapidly on Ascend
Communications Inc. and 3Com Corp. in this area.
Other technologies that are obviously competing are cable. Cable
companies have decided, and rightly so, that the competition isn't each
other--it's the telcos--and you'll see them come out with common
standards. We're positioned reasonably well in that scenario, both with
ourselves, our cable modem partners and with Intel.
Digital subscriber line is another key area, although it will be
awhile before revenue growth occurs. The existing carriers and
regional Bell Operating Companies like it because it allows them to
use their existing infrastructure and they have deep pockets behind it.
Wireless, satellite: Time will tell. They're interesting, but not as
high a probability in terms of market share as some of the others.
As you bring in LAN switching, you're going to talk about Fast
Ethernet continuing to grow extremely well.
For the first time since I've been here, I think we have a shot at
being the No. 1 Token-Ring player, although the market may be gone by
the time we get there. The market will be in transition at a minimum
because a lot of customers want a combination of Token-Ring and
Ethernet.
So you're now talking about out of 15 major areas we track, we're No.
1 or No. 2 player in 12. Token-Ring and dial are the two we're not, and
both of those are gaining very rapid market share. The only one we're
missing is network management.
Now, we worry about the 500-plus startup companies, we worry about
the big central-office switch companies, we worry about a re-igniting
of one of our key competitors, although all of our key competitors have
had major setbacks with their acquisitions.
PC WEEK: How is your approach different so you minimize those
problems?
CHAMBERS: It comes back to the selection process. We study why people
miss and say, What are we going to do differently? It gets back to the
five key areas: First is a common vision. Next, you've got to produce
short-term wins, otherwise people lose interest. Third, there has to be
long-term strategic vision. Fourth, there's got to be a good chemistry
match, and if you're doing a merger among large companies, geographic
proximity. I'm not sure we could have pulled off the Stratacom
acquisition from across the country, and we're the best in the industry
at it.
Look at all the acquisitions that are done, and look at how many
violate not only one, but perhaps two or three or four of those rules.
It's like picking your partner in life: If I'd have picked my partner
out after the first date, I probably would have made some big mistakes.
PC WEEK: Regarding your planned acquisitions or partnerships, are
those within the categories that you're already No. 1 or No. 2 in, or
are those new categories you're trying to break into?
CHAMBERS: We're spending $800 million on R&D this year. We spent
close to $6 billion in acquisitions over the past few years, and we
still don't have probably half the areas we want covered. Almost every
area has opportunities, and you will see us move across multiple
existing areas.
Having said that, the real major new area is data, voice and video
integration. You have to be realistic; our expertise is in data. We
know a little about voice. Three of our last four acquisitions were in
this area. Lots of people say the new market is voice and video, and
you've got to get started. If that's what they're saying, it's too
late. We started on this path two years ago. We have 15 to 20 products
coming out, and that's only half of what we're going to need, and
that's probably too conservative.
PC WEEK: Are you doing that integration by building on existing
products, or does it require a whole new design?
CHAMBERS: A combination of the two--there are certain areas that will
require a new architecture. But at the same time, as we get better at
this we'll use a lot more products that already exist. You can no
longer design products just as a pinpoint product. Those days are
rapidly coming to an end. You've got to be able to look at total cost
of ownership, and think about whether you can put it right in the
chassis.
PC WEEK: How far are we away from the Web dial-tone?
CHAMBERS: If you don't change your network much, and you're
application load goes up at a reasonable pace, you should be solid, at
99.99 percent reliability . But if you're changing the volumes of your
network rapidly, the application loads are changing rapidly, you're
using a whole lot of new products that do data with video, then you've
got some challenges. And will people pay for the reliability? That's
the real key: to build what the customers will buy, not necessarily the
complete redundancy they say they want.
PC WEEK: Technology's moving at a rapid pace, but there's still a lot
of legacy stuff out there. How willing are companies to upgrade the
systems they need to take advantage of the new technology?
CHAMBERS: If it's purely a legacy upgrade, it's very difficult to
take away from the installed vendor, so we're not going to go after
legacy voice. We'll go after people who believe they're going to
combine data, voice and video or want to go to an architecture which
will allow them to do it.
PC WEEK: What about aging systems that aren't going to support
integrated data, voice and video?
CHAMBERS: We'd love to turn them over. It's scary, but 90
percent-plus of my business each month is brand-new. You're going to
see an upgrade opportunity for Cisco and other companies in this
market. Time will tell how well we execute on that.
PC WEEK: Microsoft Corp. is really harping on the issue of cost of
ownership. What's your approach to making things easier for customers?
CHAMBERS: Regardless of how powerful the player is, if they don't
know how to partner, they're not going to survive. Secondly, the
industry is moving too fast for any of us to do it by ourselves, even
if we wanted to. So if you look in terms of what it could really mean
to the customer, look at what we and Microsoft can do together--common
directories, think of what that means for the customer. Think of what
it means for Microsoft: When we got behind Microsoft, that probably
means they've won that directory services battle. We also will offer
together a common approach to security, a common approach to
multimedia, a common approach to refocusing the cost of ownership.
Microsoft has been a good partner for us. But you have to remember,
to partner with Microsoft you have to keep up with them. That's what
people don't understand. If you don't keep up with them, they don't
respect you.
PC WEEK: What's your biggest threat? What keeps you up at night?
CHAMBERS: Fear of getting too far away from the customer. Not
keeping up with their expectations. Almost every major computer company
that gets successful falls into a trap of thinking they know better
than the customer. Both my prior companies, IBM and Wang Laboratories
Inc. , did that.
That's why we tie customer satisfaction to compensation for every
manager in our company. I rank every VP in the company for how many
site visits they do, and also what the customer they evaluate is
expecting. That's why I review every critical account in the world
every night.
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By Rob O'Regan Copyright (c) 1997 Ziff-Davis Publishing Company.
All rights reserved. For additional Ziff-Davis online information,
access Ziff-Davis on Compuserve (GO ZIFFNET) or ZD Net on the Internet
(http://www.zdnet.com)
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