Despite the tough it spending environment, networking company Cisco Systems Inc. celebrated its 20th anniversary last week with hopes of double-digit growth in several key technology areas including security, storage and IP telephony. President and CEO John Chambers last week sat down with eWEEK Senior Editor Paula Musich to discuss Ciscos progress in building out what it sees as its six high-growth areas and where the San Jose, Calif., company is headed beyond that.
In what area is Cisco growing fastest?
Storage has the fastest growth rate but also the lowest base. So in an industry growing 10 to 14 percent, were growing over 150 percent, and we moved into the No. 3 position in the industry.
Its interesting that whats gaining a lot of momentum is how customers expect all technologies to play together: security across [the whole environment], how storage participates in the home environment, how wired and wireless come together. All are doing very well.
Perhaps the biggest growth factor for us is a combination technology architecture, where networks go from wired to wireless, enterprise to service provider, cable to commercial, and hot spots will all come together and, with intelligence, be almost completely transparent in terms of virtualization of services and resources. Whether the device is on your desk or in your hand, whether the application is processed there [or elsewhere], whether the storage is inside your office or in your data center—you will have transparency. Cisco is attempting to lead in each of the [advanced] technology areas. No company in history has been the No. 1 player for any sustained period of time in more than two major product areas. Weve a very good chance of doing this.
Were going to see if we can accelerate [growth] by helping customers understand how to apply technology with a lower cost of ownership and higher investment protection in an architectural way, and show how to make the business and process changes that are needed to pay for these investments—and how to get payback quicker so you can do more of them.
Youve said each high-growth area has the potential to be a $1 billion business. Which area has already hit that mark, and which is approaching it?
Security is currently on a $1 billion run rate. Theres an exciting race going on now between home networking, IP telephony and wireless. Even optical is growing again in terms of key deals. But with the three in a dead heat, the question becomes: Can we take four products to $2 billion? All of them wont hit. But if they all do, I didnt take enough risk—I should have done more.
Part of it is being at the right spot at the right time, which were trying not to mess up. But our ability to move into an area like IP telephony, which nobody associated with us, and potentially become the No. 1 player has never been done before.
Youve hinted at four or five other areas Cisco is thinking about moving into. What are they?
Ill talk about one. Im not trying to be secretive, but theres no reason to bring it to your customers before its ready. We think our next major moves are going to be in the data center. And theres a lot of implications with that, from application-aware networks to the virtualization of storage and processing power and applications. You arent going to know whats on that device in your hand or on your PC—whether the processing power is resident there or [in] the application or the security or the storage, or whether its at the edge or in the data center. That also shows why we need to be in the data center.
With the growth strategy focused on both business architecture and technology architecture, youre relying heavily on professional services. But youre also talking about an arms length approach to professional services through service providers and systems integrators. Can you really achieve 10 to 15 percent growth without the account control youd have if you were in the integrator position?
Yes. I never compete with partners I must have to win. We have to have IBM, EDS [Electronic Data Systems Corp.], Cap Gemini Ernst & Young Application Service LLC, BearingPoint [Inc.], and the VAR and our distribution partners. Secondly, our core differentiation is the products and how they tie together and whether we can have a leadership product in both stand-alone decisions and [those that involve] 10 to 12 products. That depends on a dramatically lower cost of ownership and higher investment protection. [It also depends on] design and implementation—network transformational services and how you help them apply this to really change the business process, which is the primary reason we do it: to change health care or change education or change productivity within the company.
Like most good ideas we have, its always customers telling us, “This is what we want you to do.” It was January of 1996 when two New York customers said the same thing the same day. They said, “Cisco, you have a number of devices throughout our network. We would like to go with a preferred vendor throughout.” And I said, “Dont you want best in class?” And they responded, “Youre reasonably close to that. You can fill it out with acquisitions—you seem to do that well. Were after cost of ownership and time to market.”
We heard the same thing almost two years ago. In this case, it was actually the Big Three automotive companies who were very direct. They said, “We want you to provide a thin layer of your expertise both on our technology and business processes. We have no problem working with integrators. If you do that, youll get a lot more business from us, and youll have a more strategic role. If you dont do that, we will buy less, and you wont be strategic.”
Do you have the alliances with the big players, such as PricewaterhouseCoopers, EDS and even Hewlett-Packard Co.s services unit?
Were very strategically aligned with IBM. We meet with the key leadership within EDS, as well. And were expanding our relationship with HP. I think that speaks well to the change in terms of the systems integrators attitude. When you see them standardize, it means theyre doing it for the exact same reason that customers did it: Its cost of ownership; its practicality on investment protection; its cost of your support because each vendor you support adds more complexity; its a realization the market will probably evolve into an architectural play—not a pinpoint product play. Weve been very surprised that our peers in the industry have not followed this strategy.
Weve got a pretty good lead. If were right, we will have a major three- to five-year advantage.
Your strategy also counts on customers initiation of new projects to go after new business opportunities or productivity improvements when the market is still in the cost-cutting mode. How do you reconcile your strategy with the current IT spending climate?
We believe in market transitions. As unusual as this sounds, market transitions can be economic; they can be a change in what the customers view as added value; they can be network evolution—moving from [best-in-class products] to a network of networks to added intelligence in the network. They could be industry consolidation. They could be the integration of data, voice and video on an IP infrastructure. I would argue all those are going on. The time to move is well before it becomes obvious what needs to be done because by the time most people see it, its too late. You get the most benefit from your moves during the tough transitions—not during the good. As painful as this downturn was, we came out of it dramatically stronger than we went into it, and we also came out of it with true product leadership and innovation across many products, which we never had before.
This is when we tend to build a culture that accepts change, and change means new people from acquisitions, as well as change in direction and one that is philosophically aligned with letting the customers set your direction. Thats a hard culture to get and really stay with. I would argue all my mistakes are when I move too slow. Well see if we can continue that culture for the next 20 years.