Cisco loses its cool as competition heats up

By Martin Courtney
10 May 2011 View Comments
Cisco sign - silver lettering on stone

Cisco is warning IT chiefs that installing “good enough” local and wide area network (LAN/WAN) kit bought at best price will not guarantee the performance, reliability and security businesses need to support mission-critical applications and expand their service provision, including private cloud and virtual desktop infrastructure (VDI) rollouts.

The thinly veiled attack on its rivals in the enterprise network switch and router market, which include HP and its H3C subsidiary (formerly 3Com), Juniper, Avaya/Nortel and Alcatel-Lucent, reflects Cisco’s alarm at gradual erosion of its dominant market share (still between 60-65 per cent, according to various estimates) and profit margins in recent years.

It also looks to address the ongoing perception among many buyers that Cisco products are overpriced and offer complex, proprietary features that many organisations do not require or do not trust to integrate with non-Cisco platforms.

“The market has significantly changed from where Cisco could dictate the terms and conditions,” said Mark Fabbi, vice president and distinguished analyst for networking and datacentre infrastructure at research firm Gartner. “It will respond to threats on a one-to-one basis with customers by discounting, but this is the first time we have seen it respond so publicly and broadly to competitive threats.”

Matthias Machinowski, directing analyst for enterprise networks and video at Infonetics Research, believes Cisco is finally beginning to feel the heat.

“Up until now, Cisco’s market share has remained steady so we can’t say that there has been an exodus of Cisco customers,” he said. “But Cisco has had to adjust its pricing/products (in order to maintain its market share), so it is certainly feeling the effects of competitive pressure.”

Joining Cisco executives for the webcast kicking off the supplier’s “When Good Enough is Not Good Enough” marketing initiative was Bob Cagnazzi, chief executive of Cisco partner and reseller Blue Water Communications. He believes that buying low-end “commodity” LAN and WAN products from multiple vendors might short-change IT departments in the long term, whereas standardising on a single manufacturer platform is more likely to guarantee the performance, reliability and security that enterprises and public sector organisations are looking for.

“In today’s environment there is a lot of price pressure, and a need to justify any spend to the CFO,” he said.

Fabbi argued that standardising on a single vendor is not a cost-effective approach for many buyers, nor can it be relied on to provide the resilience and integration they are looking for.

“From client interactions and end-users that we interview, we see no evidence that there is any significant value in end-to-end single vendor networks,” he said. “The point that Cisco is missing is that the network is not a homogenous mass; it is a collection of different capabilities, features and devices, and you have to be able to mix those to match individual requirements, meaning a multi-vendor, best-of-breed approach.”

Cagnazzi, however, also doubts whether non-Cisco, commodity “good enough” network products can support crucial enterprise initiatives such as private cloud and virtual desktop infrastructure (VDI).

“I think they [Blue Water clients] would be very reluctant to push a private cloud solution on a ‘good enough’ network,” he said. “The network is also all of the conversation when it comes to VDI and the last thing the IT department wants is to hear users complaining about lack of availability.”

Fabbi argued that LAN switching is a much more mature market than it used to be, and HP/H3C, Juniper and Brocade all offer products and features designed to support precisely the scalable, virtual enterprise environments Cagnazzi is talking about.

“What users require is equipment that is fit for purpose,” he said. “The reality is most organisations have over-spent on LAN infrastructure, buying a bunch of things just in case, but just in case never comes.”

The fact that Cisco has been drawn into trading arrows with competitors rather than remaining aloof highlights growing concerns among its senior management over its strategy. The company’s veteran chief executive, John Chambers, recently admitted to employees that Cisco has lost some credibility in the industry by failing to execute on a solid roadmap, has lost executives, and has struggled to focus its consumer business.

LAN/WAN infrastructure remains a significant area of investment for IT departments - Infonetics estimates £11.1bn was spent on Ethernet switches in 2010 - despite the fact that products are expected to have a useful deployment life of at least seven years, according to Gartner.

HP/H3C last month announced that a networking trade-in promotion previously available only to US customers has been extended to Europe, offering a further 20 per cent off the list price of wired and wireless switches, routers and security appliances if they replace Cisco equivalents.


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