Smaller, cheaper and not from Cisco

Smaller, cheaper and not from Cisco

Routers might not seem sexy. But because they tell data packets where to go, they are the synapses of the Internet. And the router business, long dominated by Cisco Systems, is about to get hot.

Surprisingly, the company making waves is Nortel Networks. The Canadian manufacturer of networking equipment is known more for reliability than innovation. And while the company has been a powerhouse in selling gear to big carriers like AT&T, Nortel has not been a serious contender in the router business.

Nortel says that's because the router market last year saw a slow 7 per cent growth rate and a 5 per cent price increase, so there's little room for new competitors.

With slim chance of stealing market share through simple persistence, the company has decided to shake things up by slashing prices and moving the router into smaller, portable platforms - even handhelds.

The person most responsible for the new strategy is Bill Connor, now president of Nortel's enterprise solutions division. When Connor became head of Nortel's enterprise data networks unit in September 1998, a month after the company's acquisition of Bay Networks, he realised the importance of competing in the router market.

"I said, 'We've gotta have routing,'" Connor recalls. He was pleasantly surprised by the work being done by Nortel and former Bay Networks researchers. "It was like gold on a diamond," he says. "Not only did we have a lot of stuff in development, but it was pretty interesting -- even radical. Unfortunately, that's probably why it hadn't seen the light of day."

Along with cutting router prices to half of what Cisco charges -- a move some say smacks of desperation -- Connor and company have introduced the Open IP software initiative and the router-on-a-chip product lines.

Many companies, most notably Sun Microsystems with its Jini project, have tried to make it possible for devices to share data and resources over a network. But putting an actual hardware router in devices is a new tack that would allow the devices to route traffic and provide cheaper, more direct access to the Internet.

Nortel is not alone in this vision. "Companies like Nortel see that the router -- in many markets, anyway -- is going to become a cheap commodity," says Ford Tamer, president of Agere, a startup in Austin, Texas, that makes components used by hardware makers including Nortel and Cisco. "While everyone else is looking at the big tier-one telecom companies as the ideal customer, we think there's a lot of room for smaller, cheaper products at the low end, too."

The final piece in Nortel's strategy is its Open IP initiative, designed to create Internet Protocol standards for which upstarts and competitors could freely write applications. It's a risky move, since providing the accompanying software for a platform is a lucrative part of the business. Cisco's Internetwork Operating System currently runs on an overwhelming majority of routers, giving it a virtual stranglehold on the market. With an open platform and a smaller router, device makers, applications developers and others could build new types of messaging, voice or Internet applications to run on all sorts of devices.

None of the old-school networking-equipment companies -- Cisco, Lucent or Nortel -- has a proven history of working with or building a developer community. So far, though, Nortel has signed up an impressive list of partners. Intel and Microsoft say they will support Open IP in their products, while Motorola has signed on as a developer.

Cisco, for its part, could -- as it always has done -- simply buy a company to get into new markets. Agere's Tamer thinks his company could be a good target. "We expect to see some consolidation, or expect to be consolidated," he says. But for now, Cisco seems focused on buying high-end equipment makers -- especially in fiber-optic equipment.

Unseating Cisco may be an untenable task, at least in the short term, but Nortel and others could finally bring some competition to a market that is in danger of becoming stagnated.

"We're not going to kill Cisco," says Connor. "But there's a lot more opportunity than just selling big, dumb boxes to people. There's room for routers wherever an engineer can dream up a new use for them."

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