Cisco CEO John Chambers is fond of saying that down markets are the best time for building market share. With its incumbent competitors in disarray -- Nortel and Lucent are struggling with their finances, and Alcatel is tussling with an IP strategy despite multiple acquisitions -- it appears that Cisco may even make headway in the elusive service provider market, in addition to its core enterprise business. But down markets also heighten appetites for cheaper and potentially disruptive technologies, and Cisco is not without its vulnerabilities.
Technology: Cisco has built two formidable barriers to entry in the IP routing and switching markets -- the IOS operating system and its internally developed silicon that is used across its product line and manufactured at foundries. The question is: are they insurmountable?
At the moment, for Dell, there's nothing in the switch market like the Microsoft operating system or Intel PC motherboard that underpinned its manufacturing success in the PC business. Rather, Dell has bought switches built by Taiwanese manufacturers using Layer 2 reference designs from Broadcom. But Broadcom hasn't yet developed chips for Layer 3, making it difficult for Dell to even replicate one part of the equation that has made for its dominance in the PC world.
But is that the only way to commoditize IP switching? With Marvell snapping at Broadcom's heels, Layer 3 routing silicon is not on the top of its spending list right now. But Broadcom is not the only chip vendor Cisco rivals can turn to. Intel has made explicit it is developing the necessary technology, integrated into the silicon it sells to work as a server, router, switch or high-end PC when inside a box made by one of its hardware OEMs. The chip vendor has been consistently investing in network processor technology, and has plenty of incentive to find ways of diversifying from its core PC and server business.
What about replicating the operating system? There isn't really a single vendor to turn to, but a few startups concentrated in the application switch and firewall/VPN spaces -- Inkra, NetScaler, Array, Redline and Fortinet, among others -- have shown how to build a low-cost device based on either internally developed silicon, Intel network processors or field programmable gate arrays using a Linux kernel and proprietary software. Since integration into existing networks is a fundamental requirement for these companies, interoperability with either network management software or vendors' own management systems is an imperative. The trend toward XML- or Corba-based network element management systems plays to the advantage of the startups. That competitive advantage could be diminished through the work done by third-party routing software vendors. NextHop, which licenses the GateD Layer 3 routing software, is one player in this space. Cisco clearly has far broader R&D resources to call on, and extensive product vertical product integration, but there's also an argument for focus.
NextHop is investigating how it can capitalize on the convergence between networking and security. Convergence pushes vendors to either migrate up the stack or integrate more networking capabilities. For security appliance and traffic management vendors moving into security -- typified by players in the SSL VPN space -- the growing need for routing on both sides of the demilitarized zone (the neutral zone between a private network and the outside public network) creates the need to integrate Layer 3 routing into their boxes. The process is probably the most advanced at the intersection of networking and security, but it will play out in the other spaces NextHop is targeting -- such as enterprise servers, Layer 4 switches and Web acceleration -- particularly if Web services take hold.
Cisco, however, isn't immediately threatened by that confluence of trends. In the computing world, Linux took some time to disrupt the server industry.
Strategy: The company has already dipped its toes in porting some elements of IOS to Linux, if the acquisition of AYR Networks is any indication. AYR -- the name is believed to be a reference to Cisco's marketing phrase "Are you ready?" -- is more accurately described as a "spin-in." Cisco acquired the remaining 83% of company it didn't own for $113 million in stock in July.
While Cisco was extremely reticent on its product roadmap and the impact of the AYR acquisition, the work AYR has done with using open source software on Cisco gear is intriguing. The acquisition doesn't mean that an IOS overhaul with open source elements is imminent, but there has to be a reason why Cisco would entrust AYR's CEO, Tom Grennan -- who had earlier worked on committed access rate software for Cisco -- with porting two major products like the Catalyst 6500 and 7600 routers to Linux. Linux hasn't been used extensively in telecom networking -- apart from areas like gateways and media servers – so there is still plenty of technical work to do.
According to sources, AYR first ported Linux to the 7600 router's central switch processor, route processor, wide area line cards and LAN line cards (the 7600 router is actually a modified version of the 6500, designed for metro Ethernet). Then, the company focused on porting or developing open source routing protocols and other networking elements necessary for a high-speed data router. Keyur Patel, who joined AYR late last year, has worked on the BGP protocol.
Of course, embracing Linux would not be without its risks. But it would free up R&D resources, which Cisco could dedicate to integrating higher-level functionality into its boxes from voice over IP to higher-level Web services protocols. In addition, it would whittle down margins for insurgent switch and router vendors, which would then have to scramble for R&D dollars to invest in functionality.
Competition: Cisco accounts for about 70% of the routing market, with its next-largest competitor being Juniper. Extreme and Foundry are the bulk of competition for Ethernet switches. Lucent, Nortel and Alcatel all compete to some extent with Cisco in the service provider market but fall short in terms of their IP capabilities. Nortel is keen, however, to mount a challenge to Cisco in the voice over IP market. Lucent is rumored to be considering a deal with Cisco that would sustain its ATM business.
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