Cisco Might Face Squeeze, but It’s Beaten Back Competition Before

Jon Oltsik, principal analyst at Enterprise Strategy Group (ESG), has authored a provocative piece at Network World on what he calls “the Cisco squeeze,” a market phenomenon in which the networking giant finds itself under siege on three separate fronts.

I encourage you to read Oltsik’s commentary and come to your own conclusions. That said, I took issue with two primary planks in Oltsik’s platform of argumentation.

My first objection relates to Oltsik’s contention that Cisco has enjoyed a “lack of true competitors” heretofore, and that it now finds itself subject to unprecedented competition.

I don’t remember it that way. As somebody who worked at Cisco back in the 90s, I recall heated competition with a variety of networking rivals, including the likes of 3Com, Cabletron, Wellfleet and SynOptics (which merged to form Bay Networks), Chipcom (later acquired by Cabletron), Nortel (which acquired Bay Networks), Newbridge Networks, and scores of others.

People might forget this fact, but at the time of the Wellfleet-SynOptics merger that formed Bay Networks, market analysts were emphasizing that the merged company had a market-share edge over Cisco .

If Cisco has met scant competition in recent years, it is because the company vanquished the competition if faced during the high-growth years of enterprise networking. Far from having no competitors, Cisco invariably demolished those that challenged it for enterprise-networking supremacy.

I think the relevant question isn’t: How will Cisco deal with unprecedented enterprise competition? Cisco has had competition before.

The real question is: How will today’s Cisco Systems, a corporate colossus extending into an eclectic array of “market adjacencies,” see off competition that is, in many cases, more resolutely focused on the enterprise-networking opportunity than Cisco itself?

Another objection I have to Oltsik’s piece is his implicit suggestion that Cisco’s “internal innovation” has enabled it to keep pace with market developments and requirements. Well, I don’t want to argue that Cisco doesn’t have engineers capable of delivering valuable innovation, but it’s at least equally true that Cisco has grown into the titan we see today on the basis of cleverly conceived, well-executed acquisitions of companies on the cusp of becoming its competitors for customer business.

For proof, look no further than Cisco’s first acquisition, of Cresendo Communications, which brought Cisco its Catalyst switch family and a number of executives who played prominent roles Cisco’s fast-paced growth.

A few years later, Cisco acquired Granite Systems for Gigabit Ethernet switching. Subsequently, Cisco acquired Aironet for its wireless products and technologies, and Arrowpoint for its load-balancing and traffic-management switching. Those are just a few examples, but they prove the point that Cisco always has used acquisitions as both growth engines and to fill holes in its strategic product portfolio.

For Cisco, acquisitions always turn on buy-versus-build decisions. Sometimes, when the company runs the numbers, buy trumps build. When that happens, acquisitions ensue.

There’s nothing inherently wrong with that strategy unless the acquisitions are poorly conceived or sloppily executed. Cisco has been fortunate to have a better track record than most companies that have used acquisitions to grow their businesses. For a stark contrast, please see the motley acquisition track records of Alcatel-Lucent, Nokia, and the insolvent Nortel.

Cisco does face new challenges, and Oltsik makes some valid points. But he gets it wrong when he suggests that Cisco hasn’t confronted serious competition before and that a “big acquisition” by Cisco in the enterprise space necessarily would represent a red flag.

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