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Bad Packets: Cisco still the Microsoft of networking?

Some analysts, citing the emergence of "Cisco-free networks," have been brazen enough to see a comparison with Rome, circa 400 AD., and have suggested that the various Goth tribes, generally considered to be led by Juniper, are assembling to circle and sack the capital and split its riches to suit themselves.

Wes Simonds

"When Alexander saw the breadth of his domain, he wept, for there were no more worlds to conquer" -- so history tells us.

Well -- I can't say that's a legitimate quote, since I am lifting it not from a textbook, but from the classic destructo-noire film Die Hard, in which Hans Gruber (played by Alan Rickman, who cites the quote), is in fact defeated by Bruce Willis' revamped Roy Rogers.

I've sometimes wondered whether the line was included more for cool factor than relevancy, since after all Rickman is really just a thief, not a conqueror, and Alexander the Great had very little to say on the subject of ripping off $600 million in negotiable bearer bonds.

At any rate, Alexander's perspective must have been the perspective of Cisco only two scant years ago. One of its most potent competitors, 3Com, had largely abandoned the enterprise routing and switching market, by default leaving it to Cisco to plunder. And so by the spring of 2000, Cisco had become, by dint of relentlessly savvy marketing and a robust appetite for gourmet startups, at once the most versatile, the most powerful, the best-branded and the most wealthy networking firm in the world -- in effect, the Microsoft of networking.

CSCO certainly reflected these basic truths. In the five years prior to 2000, a casual examination of the stock charts shows that CSCO's growth paralled MSFT's growth in an uncanny tango. Where Microsoft's Fred Astaire spun, leapt, shrank, and at times waffled, Cisco's Ginger Rogers did exactly the same. The two graphs are nearly perfect mirrors of each other, reflecting in turn the market's perception that they were giants of nearly equal stature, whose futures appeared to be equally bright, and who were equally worthy of investment dollars.

And then, in the spring of 2000, Cisco actually did the unthinkable: it passed Microsoft by a comfortable margin, and Cisco became for a time the highest-valued company in the world.

Well, things have changed a bit since then. CSCO is no longer the rosy-cheeked darling of Wall Street; margins are a bit slimmer, market growth is definitely not what it once was, and the latest word suggests rogue upstarts threaten Cisco's empire.

Some analysts citing the emergence of "Cisco-free networks" have been brazen enough to see a comparison not with Alexander, but with Rome, circa 400 AD., and have suggested that the various Goth tribes, generally considered to be led by Juniper, are assembling to circle and sack the capital and split its riches to suit themselves.

Gartner waves aside such speculation, citing all the traditional reasons true believers bought CSCO in the first place: depth of product offerings, speed of execution, power of brand, and sheer industry momentum. That is, Cisco was, still is and will remain the Microsoft of networking.

I'm not so sure; I think the truth lies somewhere in between. I grant all of Gartner's points without exception, but I think they're missing a basic market truth.

One of the appealing things about networking as a class of technology is that it shakes out pretty much the way a free economy is meant to work. The calculus of product features, service, price, and all other factors work out in the form of sales as customers see fit. Customer response, in fact, dictates price.

But if customers change their minds down the road -- if they become, for instance, more price-sensitive in a poor economy and more prone to focus on essentials -- they can switch. And they do switch; in fact, they switch switches. Cisco is known for offering every imaginable feature, but sometimes people don't want to have to pay for every imaginable feature, and nothing about networking forces them to do so.

After all, networking technology is collectively built atop intrinsically interoperable protocols and standards. It must be, to do its fundamental job of bringing connectivity to diverse network nodes from diverse vendors. Thus the customer always has the option of jumping ship.

This is very unlike the world of Microsoft, in which, to quote Microsoft CEO Steve Ballmer, it would be very hard indeed to "blow a hole in the Windows boat." While Microsoft is very fond of citing the fact that they have never in the course of a fiscal year made more than a quarter of their revenues from operating system sales, it's obvious that so long as they retain sole control of the API which the vast majority of the world's business software is built with, their future is assured. Windows is not merely a serious income stream, but also an incredibly powerful tool for retaining client business, for assuming control of any fraction of the software industry Microsoft pleases, and for hardball-negotiating any PC vendor Microsoft decides to intimidate.

Windows is, in short, the ultimate defense in the retention of a business empire. Cisco simply has nothing similar, and can never have anything similar due to the interoperable nature of networking. Thus Cisco is probably more vulnerable to attack from upstart competition after all.

All of this, of course, brings us back to the question of who, in the digital economy, is a conqueror like Alexander, and who is only a thief, like Hans Gruber... but that's another tale.

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