Cisco CEO John Chambers isn't in the limelight as often as Microsoft's Bill Gates and Intel's Andy Grove - although given a bit of leeway it's hard to see him knocking any free publicity back. And he's not at all shy about proclaiming Cisco's dominance over the network industry. In an interview with IDG's John Gallant, Chambers explains how Cisco plans to maintain its control and talks about the threat from a new generation of routing start-ups, the evolving competitive landscape and Cisco's slow start in Gigabit EthernetGallant: One of the things that is mentioned quite often these days is the Wintelco triangle - that Microsoft, Intel and Cisco have significant control over their respective industry niches. Is Cisco in the same position in the network industry?
Chambers: If you look at our market cap- italisation, which is the financial community's expectation of the future, we are the size of the next 10 competitors combined. The financial market has already voted that they view us that way. We have the chance to shape the future of the industry. You will see us do that in a kinder, gentler way than some of the leaders have in the past, such as IBM.
Gallant: Do you feel the technology position you have today is as secure as, say, Microsoft's?
Chambers: Our goal is to make Intel CEO Andy Grove look relaxed in terms of his own paranoia. We worry about everything; I'm not secure at all. I'm extremely paranoid, and I think that's very healthy for a company.
Having said that, do I believe that we are the only company in the communications industry that controls this future? Yes, I do. So it's a matter of how well we execute, how we stay close to our customers and avoid the mistakes of companies that got into this position, or close to it, and then mis-stepped.
Gallant: Most people tend to look at that kind of control as a negative. What's the benefit to customers?
Chambers: Well, let's talk about a huge trend that is occurring at a pace faster than anybody dreamed. Customers are going to fewer vendors in the network. If you have fewer vendors in the network and perhaps a strategic vendor, and if you could bring in other partners that take it beyond the network, such as Intel or Microsoft or Hewlett-Packard, then the payback to the customer is huge. So what you are seeing in the enterprise accounts, in the service provider accounts and now the systems integrators, is not only fewer vendors but very serious consideration given to a primary vendor of the network, period.
Gallant: Do you see Microsoft as an ally or a threat? You are working with it in developing directory services, and yet, it has been fairly vocal that this Steelhead routing/remote access product is a competitor to some of your products.
Chambers: If you ask Bill Gates or executive vice president Steve Ballmer, both of them would be very articulate in saying Cisco is a partner, period. We are not going to compete.
There was some initial positioning by some people in Microsoft and, candidly, by some outside people who wanted to stir the pot, about how Steelhead would be directly in Cisco's space. But if you look at their support structure, their distribution structure, it's not in their best interest to do that and I think they understand it.
The benefits of us working together far outweigh that one area of problems.
Gallant: Your competitors to date have largely been the other three of the so-called "Big Four" internetworking players. With 3Com's acquisitions, there's really a "Big Two" and then there are Cabletron and Bay Networks. Are you more concerned about those vendors still, or worried more about the Lucent Technology's, Nortels, and other big phone switch companies getting into the data market?
Chambers: We focus on competitors by market segment. In the traditional market it was probably Cabletron first, Bay second, 3Com third. But in ATM it was Fore Systems. In low-end access, it was Ascend Communications. In wide-area switching, it was Cascade Communications (now owned by Ascend) or Nortel. More recently, in this area called interfacing the mainframe, our competitor is IBM.
But as customers move to fewer vendors in the network and perhaps one single partner, then you've got to look not only by product type, but by customer focus. So we now look at service providers, enterprise accounts, small to medium business and, beginning some time in the next calendar year, the consumer.
In the service provider marketplace, it is some of the large players that you've said and it remains to be seen if Lucent and Nortel would be long-term competitors or partners. It is new players like the Ascend/Cascade combination, if they make that work. Time will tell, because doing mergers across geographies is extremely high-risk.
In the enterprise accounts, surprisingly enough, it's still Cabletron. They have the most direct sales force. Small to medium business, 3Com and Bay. To the consumer, it's pretty wide open with a whole bunch of different players. We'll go after that through partnering.
Gallant: What do you think of 3Com and its merger with US Robotics?
Chambers: I love beating 3Com's CEO Eric Benhamou whenever possible. But I think the merger speaks to how rapidly we are pulling away from the rest of the industry. The fact that Eric would do a combination with a company of equal size, half-way across the country, speaks to how much risk he was willing to take onto attempt to stay close to Cisco.
I would argue that it was also as much a focus on Intel as it was Cisco in terms of modems and network interface cards - the majority of 3Com's revenue. Intel is probably a much more serious competitor to their future revenue strengths than Cisco is.
Gallant: Specifically, what are the weaknesses in the combined 3Com/USR story?
Chambers: Well, let me talk about some of the challenges they have. Mathematically, I've never seen a company that combines two equals end up in a No 1 or No 2 position in the industry. When Wellfleet and Synoptics combined, they were bigger than Cisco. Three years later, we are three times their size.
The second challenge that they face is determining an innovative product strategy when their market is so diversified. There is a lot of difference between products that are not commodities, but close to it, like modems and NICs as opposed to systems. They require different expertise, and your ability to combine them in such a way that customers benefit is very, very tricky.
The third thing is that they are missing large product areas. If you look at 13 to 16 areas of products, we are No 1 and No 2 in all but a couple of those, where they are missing more than half.
Gallant: Speaking of vendors that merged across geographic distances, what do you think of the changes at Bay Networks under new CEO David House?
Chambers: They've done a nice job stabilising the company. But I would draw a parallel to when they first combined. There was a lot of concern then.
But about a year later, there was an upturn and all of the articles came out about how they turned the corner and things were going very well. My comment to Andy Ludwick (former Bay CEO) at that time was that you will see waves and you've only been through the first wave. Your real test will be the next 12 months because the hardest part of the acquisition is now to come. The real answer is what Bay looks like two to three years out.
Gallant: Do you think a company that stumbles like that can come back in customer confidence?
Chambers: I don't think it can ever return to the No 1 or No 2 player. It's a mathematical challenge, but also in terms of customer confidence. Bay, like 3Com, has loopholes in their product line. They have good point products, and a large amount of their success over the last quarter or two has been because they've got a real good switch called Switch Node.
Gallant: You bought into Gigabit Ethernet early with Granite Systems, but you are relatively late to market. Is there a problem with that technology?
Chambers: Our view on the opportunity of Gigabit has not changed. We think with the price points, the functionality, it's going to be a major player in the market. But, when people say they've got a product, the question is: is it really a true Gigabit switch with all the functionality of software?
We cannot, nor will we, do the same thing a start-up does, which is bring out a product and not worry about customer satisfaction when you launch and let your customers shake it out for you. Our customers put our products straight into the core of the network that runs their business, and so the expectations of quality are high.
We also made the decision not to design a stand alone product. The density of our chip is the price/performance advantage that we have. It's pushing the edge of technology, and when you boost the technology that much, your ability to bring it out is a little bit slower.