Partnering its way to the top

John Chambers talks with the fire of a southern baptist minister. Chief executive at Cisco for the last three years, he claims a major reason for the company's success is divine providence.

'We were in the right place at the right time,' he admits. The right place is Silicon Valley, and with the right timing, Cisco has almost tripled it's turnover in the last two years. It now sells $6.44bn (#4bn) of networking hardware every year, and has an estimated 80% global market share of the top end routers which guide traffic on the Internet.

Between now and the millennium, Cisco wants to establish itself as a major partner in what may become, according to Fortune magazine, a 'triumvirate of Titans'. Not surprisingly, Chambers is proud of the endorsement. The deals with Microsoft, to integrate its directory software with Cisco routers, and Intel, to work together on set-top boxes, are the culmination of an acquisitions and alliances policy which has underpinned Cisco's growth in the 1990s.

Over the last three years, the company has bought more than 20 networking companies in the US. Bob Michelet, director of corporate relations at Cisco, says: 'Everybody laughed at us. Now they're following us.'

Typical 'target companies' for acquisition usually have between 50 and 100 employees, and 'deep technical talent'. Companies bought include Grand Junction, Lightstream and Stratacom.

The only failure was last year's purchase of Granite Systems - a networking start-up with no products, but a promise that it could bring gigabit Ethernet to market. (The super-fast version of Ethernet is tipped as a hot alternative to ATM on the backbone.) But while rivals such as Bay and 3Com have started shipping gigbabit Ethernet products, Cisco hasn't.

Cisco will have to offer gigabit Ethernet eventually, if only to keep to its promise of becoming an end-to-end supplier. The fewer holes in its product line-up, the more sales it will make, according to Chambers.

'Customers want us to be an end-to-end vendor. It's about support, and help-desk costs. You can achieve dramatic cost-of-ownership changes with one supplier.'

'Five years ago a company buying hubs would have chosen one supplier for London, one for Hong Kong, and another for New York. Since then they've moved to just one hub supplier. And now they'll have just one strategic supplier for networking.'

But end-to-ending will also help pull in sales in the growing market supplying small and medium-sized businesses. Chambers says Cisco's move down market will almost reach to the floor. 'We won't go into network cards - we'll partner with Intel for that. But are we going to the low end? Absolutely.'

At the other end, Cisco is betting that voice and data integration has finally come of age - to create if not an Internet Tsunami, at least a networking wave.

'We missed the boat on that, but the good news is that nobody else moved on it either. It seems that we are copying Microsoft - it missed the Internet, and then moved into reaction mode.'

Around twenty voice and data integration products are under development at Cisco. Two were announced at Interop in Paris this week, and will ship early next year as voice-cards for both wide area and local area switches. By digitising and compressing voice traffic, Cisco hopes to appeal to cost-conscious businesses who want to cut their phone bills.

But Cisco admits that its first customers will be either carriers, or large corporations. The integration products will be based to a large extent on ATM and frame relay technology acquired with Cisco's largest acquisition to date - Stratacom, bought for around $4bn last June.

Chambers started at IBM, where he spent six years. 'IBM moved away from the customer, and didn't understand partnering. This business moves too fast for anybody to do it all on their own,' he concluded.