Cisco empire faces new territory

Cisco empire faces new territory

Although it dominates the networking hardware market, Cisco Systems is facing a wide variety of challenges, including emerging technologies, new rivals, and, most recently, the disturbing spectre of an investigation by the US Federal Trade Commission. John Chambers has been the company's president and CEO since early 1995. He sat down recently with IDG staff to discuss how Cisco will meet some of these challenges.

IDG: With the convergence of voice and data, you are facing a new breed of rival. Who do you consider to be your key competitors?

Chambers: It's interesting how each [of the telecom vendors, such as Northern Telecom and Lucent] view Cisco as their toughest long-term competitor, either on or off the record. And here you have a little company in terms of its percentage of the market for integrated data, voice, and video.

On the other hand, it's quite an honour when they say they view Cisco as their competitor of the future.

Our approach to the market will not be to try to be all things to all people: we'll pick only those areas where we can be No 1 or 2, and we will partner to achieve what we have to.

I believe those who learn how to partner and work together toward common goals will be successful.

As we move toward converged networks, will traditional circuit-switched networks disappear?

What was happening was circuit volume was going up on a worldwide basis, driven in some countries by infrastructure build-out and in others - like the US - by a second line requirement, etc. And then companies began to realise that it wasn't data, voice, and video consolidating onto a network, it was voice and video coming into the data infrastructure. Then the question became, "Why would I continue to build a lot of circuits?" And then people began to understand that you could deliver not only very high-quality IP voice but also deliver it at a dramatically lower cost, which accelerated the decision about, "Why would I ever continue to build-out circuits?"

If you believe that circuits are going to go away and you know it costs more to deliver voice this way, then why continue to build [circuit-switched networks]? You might see a second bump as [carriers] begin to meet the short-term circuit needs that are there now, but the trend toward IP is inevitable.

Do the carriers - including state-owned overseas carriers - understand how this market is evolving?

Those who don't get left behind very quickly. The majority already do, and the new service providers such as Level 3, Qwest, and Worldcom understand it very well. But having been the speaker at several annual meetings for the world's largest [state-owned] telcos - and we were often the only outside speaker invited - they understand it as well.

How will Cisco break into the telco sales channels?

We're already there in a pretty strong way. The first time I heard CEOs sincerely interested [in the possibilities offered by voice over IP] was over 18 months ago. And now you have government leaders around the world interested in the implications.

The real challenge then for us is, how do we get our support structure in line with what they want and begin to support and sell to them in a more robust way? However, we don't want to make the mistake of traditional telco vendors who have staffs and organisations that, candidly, will be non-competitive in this new economy.

So how do you convince the enterprises and telcos of the advantages of IP-based services?

The key is how do you take it out of technology jargon and express it in the way business and government leaders understand?

You need to make them understand the power [of new technologies], but also, candidly, the threat if you don't [adopt them], which has very serious implications for the survival of your company.

It's the same thing with the large telcos. If there was not the challenge of either deregulation or new competitors, telcos would not be moving at the pace they do now. Once they have a competitive challenge and understand where they have to be in the future, then you've seen a dramatically different change.

Is uncertainty in the global economy affecting your sales?

A larger and larger percentage of all capital spending goes into information technology, particularly the networking of information technology. So, by definition, when capital spending slows, a segment of business will slow.

There are two balancing facts to that. The first is that the service providers are realising that voice, data, and video will not only converge, but will also converge underneath the data infrastructure.

And the second is that if you believe that this is a critical component of your IS strategy for the future and you believe - as I do - that this is going to move at an Internet pace of seven years in one, then to delay this even during very tough times can result in some pretty serious economic challenges for a company.

Finally, can you comment on the Federal Trade Commission's investigation of Cisco's meetings with other vendors?

What the investigation is really saying is: "This is where education of government is so key" and candidly, it is where we made our major mistake: we educated many of the Government agencies - just not the FTC. It was our mistake; it was naive. We should have gone to them as well as to other Government agencies.

And so educating the Government on what you're doing, and why you're doing it, and playing above board is key.

The issue with the FTC is a non-issue; it's not going to be a major factor, but if I had been engaged earlier, it would have not been an issue at all. It probably - and you never know for sure - was something that was raised by one of my very large competitors.

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