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How's it looking next year? Pretty good, says Cisco

The pre-2006 word from Cisco is the IT spending lull is petering out. The challenge ahead is getting users to learn to spend money again after so many years of serious belt tightening.

Some people wear their hearts on their sleeves. At Cisco Systems Inc., employees wear badges inscribed with a corporate mantra on their belts.

Standing before an audience of press and analysts who convened in early December at the company's San Jose, Calif., headquarters to hear about the company's corporate strategy, CEO John Chambers flashed a small white tag that he removed from his waist, saying, "For those of you who have followed us for years, [you know] our overall approach hasn't changed in terms of [wearing] three- to five-year goals on every person's belt, and having a one-year initiative to achieve those goals."

This cheeky gesture of confidence from Cisco's top officer set the tone for the next two days of executive-led sessions in which Cisco outlined aggressive revenue growth projections and expansion of its Intelligent Information Network (IIN) initiative with the unveiling of its new Service-Oriented Network Architecture (SONA).

In short, Cisco's plan for 2006 and beyond is -- full of bluster and buzzwords as it may be -- to come out swinging.

Growing the market
The company has committed to sustaining a 10% to 15% revenue growth, every year, for the next three to five years, and it has targeted overseas markets for much of the muscle behind that financial goal. However, some experts cautioned that whether Cisco can sustain that kind of revenue growth is something that remains to be seen.

"When you consider Cisco's size, maintaining a 10% to 15% growth rate is going to be challenging, because the market that they are addressing is certainly finite," said Joel Conover, principal analyst of enterprise infrastructure at Current Analysis Inc. in Sterling, Va. "However, Cisco has vast untapped markets outside the U.S. Asia alone is huge."

Shoring up its financial growth goals, Cisco claims it already owns 26% of its overall total addressable market (TAM), a set of market segments where Cisco plays. Combined, these segments are projected to reach $133 billion in 2009, up from $83 billion in 2005.

So what are the markets that Cisco will be keen on in 2006 and beyond? Service provider, consumer and commercial markets, according to Cisco. Also, of course, there is the enterprise market where, according to Chambers, aging equipment has languished since the late 1990s when IT spending hit the wall (and where, hopefully, companies are ready to blow off the dust and start upgrading).

"Putting a new business strategy on top of old technology isn't good," said Chambers, who repeatedly said Cisco believes in a guiding principle for companies that sell to them: The network will become the platform.

"A year ago things were [based on] short-term results -- [users asked questions like] 'What can you lay on top of old investments?' This year we are seeing more balance and we will [continue to] see that in spending patterns," Chambers said.

Citing a commonly acknowledged statistic, Cisco asserts that the vast majority (70%) of IT spending goes toward operations. That's a waste of money, theories suggest, when weighed against the benefit of purchasing new software and hardware, and the welcome advances in enterprise performance and efficiencies those investments might bring.

"Enterprises can take those savings and roll them into applications development," said Charlie Giancarlo, Cisco senior vice president and chief development officer. "It's estimated today that only 30% of IT spend goes to applications performance and that 70% goes to keeping the lights on."

Making networks smarter
Cisco is pinning at least some strategic hopes on discretionary spending that will be freed up in the era to come. The company is encouraging companies to push intelligence directly into the network via a subset of SONA, referred to as applications-aware networking.

"Customers have a given amount of discretionary spending, so how does Cisco get a larger share of the customer spends within that?" Chambers asked. "There is a new degree of interaction that's going to occur with the Web. … There will be intelligence in the network; it's how the platform will offer applications and services to users."

"The whole concept of 'network is the platform' and SONA is part of, maybe, a bigger ploy to try to shift the cost," Conover said. "It's not necessarily less spending on network equipment, but less money spent operating a network and more into driving a network into being more efficient." It's a worthwhile agenda, Conover said, but he also noted that it's a common message bandied about since the day networks were invented.

At the center of Cisco's push toward its "more management, less work" philosophy is the idea of SONA, which builds on the company's year-old IIN strategy. SONA, referred to by Cisco as "the architecture of architectures" because it is the latest of many, includes built-in services and allows a network to link all the resources in a company, thus creating a platform over which theses services run. The network is the platform under this scenario.

SONA, according to Cisco, is all about placing the intelligence in the network so administrators are better assured of secured end-user traffic patterns, allowing them to apply prioritization among the various applications carrying information to and from data centers.

SONA also enables storage and server virtualization to make all applications safely and rapidly available to users anywhere. Cisco's recently announced products under that umbrella are dubbed Application Networking Services, which is also the latest in a string of new Advanced Technology units launched within the company.

IIN, SONA and other acronyms-come-Cisco-buzzwords are a part of the company's years-long strategy to identify and then babysit a prospective technology until it becomes a full-fledged market. "It takes the ability to catch these market transitions, which we have put in place three to five years before they actually occur, to be successful … and have the courage … and take the risk to do that," Chambers said.

Creating industry buzz
In light of Cisco's announcements, "applications-aware networking," "intelligent networks," and "the network is the platform" are now becoming popular buzzword phrases, with several vendors saying they are already, or will be, in that space.

But whether Cisco coined the phrase "the network will evolve into the platform" or "applications-aware networking," in 2006 and beyond, there will always be other players who say they got there first, or at least do a more thorough job in their niche market because they focused on a particular technology to develop and sell.

So says Consentry Networks, a small startup with well-known industry names at the helm. In true startup fashion, the saying, "We compete with Cisco, but, of course, they don't do as much as we do," applies here.

"What's tricky about the applications-awareness stuff is when you ask yourself, what special sauce does that apply?" said Michelle McLean, senior director of product marketing at Milpitas, Calif.-based Consentry. The company manufacturers a product line called Secure LAN Controller, which ensures that traffic inside the network comes under increased scrutiny and ensures that users are following established policy or meeting regulatory requirements. The technology also applies policy enforcement.

"It takes understanding applications, and networking people don't understand that very well, so the special sauce comes in when you want to exert control and you have to be in the data forwarding path. The hard part is lending all this sophistication and packet analysis while not slowing down the process," McLean said.

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