With a strong presence in enterprise networks, Cisco's recent announcement that it plans to train its guns on the midmarket wasn't a surprise. But it's sure to cause market ripples for rivals.
Late last month, the $US12.2 billion networking vendor said it would offer midsize companies, via a reseller channel, fixed-configuration LAN systems for both Fast Ethernet and Gigabit Ethernet. The midmarket represents a business target made up of companies with approximately 500 employees and less than $US1 billion in sales, according to Michael Speyer, an analyst at The Yankee Group.
3Com responded with its own announcement, touting midmarket networking products such as its Gigabit Ethernet-over-copper technology in its SuperStack II line of network switches and a Layer 3 module for SuperStack, which is marketed as less costly than buying a separate switch.
Stan Schatt, an analyst at Giga Information Group, said Cisco, which traditionally has gone after enterprise big game, is targeting micromarket segments. And the midmarket is a place where it may be easier for Cisco to add new sales, Schatt said, because there's already a 90 per cent market penetration in the big corporate space where Cisco has excelled.
Unlike small and midsize businesses that buy on price, midmarket companies want high value in the networking components they purchase, and they're willing to pay for it, Speyer said. But he noted that midmarket users don't have the scaling requirements of large enterprises, so it's easier to sell a prepackaged network.
Cisco's midmarket focus may be disconcerting to companies like 3Com, Intel and Hewlett-Packard, which are eyeing the same customers, Schatt said. But it could mean major trouble for startups and small network equipment providers. Cisco buys chips for its switches and routers in such volume that it can be very competitive on price and cause competitors to squeeze profit margins, Schatt said.