Learning from F5’s Success Against Cisco

Earlier today while perusing the morning chatter on Twitter, I learned via Brad Reese that market-research firm Infonetics says F5 Networks has opened a commanding nearly 20-point lead over Cisco Systems in the market for application-delivery controllers (ADCs).

Citing the Infonetics data, which reaches as far as the first quarter of this year, Reese professes astonishment that F5 has surged so far ahead of Cisco after being in a neck-and-neck battle with the networking giant as recently as the fourth quarter of 2008.

I can’t say that I’m surprised at F5’s success. Despite Cisco making several acquisitions over the years in the load-balancing and application-delivery markets, it never has been able to find the silver bullet to smite F5.

We can see now that load balancing and its descendants were markets that got away from Cisco. If you look back into the ancient history of networking — yes, let’s go back as far as 1996, shall we?  — we see that Cisco first tossed its  LocalDirector into the ring to dispose of F5.

After LocalDirector was discontinued in 2003, Cisco turned to technology it had obtained as a result of its extravagant acquisition of ArrowPoint Communications, for a whopping $5.7 billion, in 2000. Before the discontinued of LocalDirector, Cisco went through an uncomfortable period where LocalDirector, technology from ArrowPoint, and other in-house technologies jostled for dominance in Cisco’s load-balancing portfolio. It wasn’t pretty, and it was confused for field-sales representatives and channel partners alike.

At this point in my narrative, I will digress, but stay with me.

In retrospect, Cisco might claim, given the obscene valuations of public and private companies back then, that its ArrowPoint purchase wasn’t as crazy as it looks from our current perspective. To support its point, Cisco might cite Nortel’s acquisition of Alteon WebSystems, an ArrowPoint competitor, for stock initially valued at $7.8 billion (but which was worth less by the time the deal closed).

But citing Nortel’s acquisitions as a rationalization for one’s own corporate debauchery probably isn’t the strongest defense. As a loquacious lawyer would say, that sort of rationalization might explain one’s actions, but it does not excuse them. Besides, Nortel eventually sold its Alteon assets to Radware for $17.65 million, which tells you all you need to know about why Nortel is a defunct company.

Returning from my historical perambulations, I want to draw a couple of inferences from the trip down memory lane. First, all those companies — not just Cisco, but Radware, ArrowPoint, Alteon (and later Nortel) — were F5 competitors. Second, once upon a time, given the erstwhile valuations of the likes of ArrowPoint and Alteon, the market attached whopping value to the space and felt it was ripe for big-vendor consolidation and a changing of the market-leadership guard.

But it didn’t happen. Despite all the big vendors buying companies around it — Intel also acquired a company called iPivot, for $500 million in 1999, that was trying to solve server-bottleneck problems — F5 more than held its own. And it continued to do so, even though Cisco has kept taking runs at it.

So, considering the big picture, why has F5 succeeded against Cisco where so many others have failed?

One of the reasons, and I have seen and heard others mention it, is focus. Unlike some vendors who’ve failed miserably against Cisco over the years — Nortel, the pre-Chinese incarnation of 3Com, Cabletron and its scattered progeny — F5 had market discipline, focus, and unswerving resolve. It was not blinded by hubris or delusions of grandeur. The company went deep rather than wide, stuck to what it knew best, and worked hard at staying close to its customers and building the best products on the market.

When F5 has chosen to expand into new markets, it has not done so hastily. The company has taken a measured approach, adding products purposefully and making acquisitions (most of the time) of the tuck-in variety, ensuring that such purchases are accretive in the near term. This was all part and parcel of F5’s business and market discipline.

What else? I think the company’s channel-sales structure was carefully planned and well built, drawing from best practices in networking and other sectors. After learning some hard lessons, F5 stressed quality over quantity (as in number of) partners. F5 constructed a sales-support apparatus that could scale effectively, providing all the necessary backing that channel partners needed to prosper.

In technology partnerships, F5 has been similarly focused. Look, for example, at its application-related partnerships with Microsoft, SAP, and Oracle. F5 knows where BIG-IP plays in those application environments, and it has derived considerable value from providing proven and innovative solutions that help customers run those applications more productively.  Again, discipline has been key. The same holds true for the company’s other technology partnerships across areas such as infrastructure, management, security, telecommunications, and virtualization.

Its solution sets and vertical-market programs have grown in a similarly deliberate manner.

Another important consideration — and, again, it’s something others have mentioned — is its community outreach to customers, IT professionals, and developers. In that regard, F5’s DevCentral has been indispensable. A lot of attention and resources are invested in DevCentral — and it shows. The site went through a refresh earlier this year, but it invariably has provided a welcoming forum for collaboration and discussion not only relating to F5’s products but also to some of the broader data-center challenges faced by IT professionals.

F5 demonstrates that it’s possible to compete and win against Cisco. As Cisco extends itself into market adjacencies, it is advancing into areas that are new to it but that often already have incumbent vendors. Those companies — in the smart grid, in next-generation IP video services, in digital signage, and in many other areas besides — should study the F5 playbook. It offers practical guidance on how to keep the giant at bay.

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