Cisco Expands Reach Into Telecommunications Market -- Breaking New Ground
May 19, 1998
COMPUTER RESELLER NEWS via NewsEdge
Corporation : San Jose, Calif. -- As Cisco Systems
Inc. changes its focus toward the high-end and
telecommunication markets, it is bringing both
turmoil and opportunity to its channel.
The San Jose-based company won its position as
the largest data-communications supplier by selling
routers, LAN wiring hubs and switches, but recently
the vendor forged into the telecommunications
space with Frame Relay switches, ATM switches
and voice-over-IP products.
For resellers, the change represents a classic good
news/bad news scenario. "Each time Cisco delivers
a new type of networking product, resellers'
potential customer bases grow," said Don Proctor,
product line manager at Cisco.
On the downside, resellers now find themselves with
a broader range of competitors than ever before.
Change is occurring because emerging market
forces, such as a growing reliance on the Internet,
coupled with new technologies, such as
voice-over-IP, are blurring the dividing lines between
data communications and telecommunications.
"Every major network-equipment vendor, including
Cisco, envisions a time when data, video and voice
are all integrated on a common communications
infrastructure," said Craig Johnson, principal at Pita
Group, a Portland, Ore.-based network consultancy.
Vendors have been making such claims since AT&T
Corp. was divested in 1984, but integration work has
been tedious and progress has been slow. Only
recently did this transformation start to accelerate
and the number of products moving through the
channel increase.
In April 1996, Cisco branched out from the
data-communications market with its acquisition of
Stratacom Inc., which delivered WAN
telecommunications equipment to corporations and
carriers.
Because these products are complex, have
long-lead sales cycles and can be difficult to
properly install, this purchase has had little impact
on most resellers to date.
For instance, Stratacom products accounted for
less than $1 million of Philadelphia-based Ficomp
Inc.'s $20 million in sales last year, said Gene
Cowden, vice president of sales at the networking
reseller, which carries only Cisco products and
videoconferencing equipment.
The Internet has had a more dramatic effect on the
way network products are distributed than the move
to integrated networks. Historically, companies
bought network equipment from VARs and often
managed the devices themselves. As networks
grew, these chores became more and more
cumbersome.
Internet service providers (ISPs) offered companies
the option of handing both equipment purchases
and network-management chores over to third
parties. Customers welcomed these new services.
In November 1997, Dataquest Inc., a San
Jose-based market-research firm found that in 1996
the Internet accounted for 12 percent of all network
equipment purchased--a figure that surpassed $2
billion--and listed Cisco as the early leader in this
space.
Because ISP network services are expected to
become even more popular in the future, Cisco
resellers must determine how to shift their business
focus and keep their coffers filled.
One way is to augment traditional enterprise
revenue with sales to ISPs. However, this market
segment is not as enticing as enterprise customers.
Because they are in the networking business, ISPs
typically do not require lucrative services, such as
network design and configuration, that corporate
customers are often willing to pay for.
Payments are another issue, because selling to
ISPs can be unprofitable. " We have found that
ISPs' payment cycles can be quite long-as much as
120 days after we send out a bill," said Ficomp's
Cowden.
Another option-to compete head-to-head with
ISPs-has been occurring in a growing number of
cases. Robert Dougherty, product manager for the
network solutions group at reseller LANcomp Inc.,
Piscataway, N.J., said the company's portfolio now
includes configuring and deploying firewalls on the
Internet or intranets, a service available from most
ISPs.
While LANcomp does not sell communications
lines, a number of resellers have moved into that
business. "Recently, we have seen a number of our
traditional resellers transform themselves into
ISPs," said Cisco's Proctor.
Overlap between resellers and ISPs is expected to
grow in the future because dividing lines between
voice and data communications should continue to
blur.
The ability for data networks to carry telephone
calls, called voice-over-IP, is viewed as the next
major networking craze. Vendors are moving into
this space, and resellers are expected to follow.
In April, Cisco signed a joint development
agreement with NBX Corp., Andover, Mass., to add
voice-over-IP capabilities to its 3600 and 2600
series routers, which Cisco's Proctor said are
primarily sold through resellers.
While vendors envision a rapid movement to
integrated communications, Pita Group's Johnson is
more cautious.
"The hype about integrated communications does
not yet match the reality of what vendors offer," he
said. "Suppliers are drawing lines in the sand and
marking their territory. They have only started the
needed product-line integration work that will make
integrated services widely available, and it will be
quite a difficult task. Two to five years will pass
before vendors deliver the level of integration that
customers desire."
But VARs should start getting ready now. "Since
the networking market has been evolving at a rapid
pace, we view Cisco's entry into a new space as a
good opportunity for us," said Cowden. "We have
already had success selling to ISPs and expect
areas such as voice-over-IP to offer us more
opportunities in the future."
PAUL KORZENIOWSKI is a freelance writer based
in Sudbury, Mass.
Copyright (c) 1998 CMP Media Inc.
<<COMPUTER RESELLER NEWS -- 05-18-98, p.
PG119>>
[Copyright 1998, CMP Publications]
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