Is Cisco in danger of losing its networking crown?
As Cisco Systems continues to diversify its product offerings and move from being just a routing and switching vendor to a full solution player, it’s opening the doors for others to stake a claim on some of Cisco’s turf.
By Andrew R Hickey
 While VARs typically see Cisco as the top dog of networking technologies, they are noticing other players creeping up, with Procurve Networking by HP and Juniper Networks being the two most notable threats.
A recent UBS Investment Research survey found that Cisco is losing some of its clout with solution providers, likely due to it focusing more on segments like VoIP, security, wireless, Web 2.0 and a host of others.
Cisco putting its hands in several cookie jars, coupled with fluctuations and uncertainty in network spending, has VARs keeping a keen eye on other, lower-cost networking vendors they say could prove to be true rivals for the incumbent champion’s network supremacy.
The UBS survey found that solution providers are seeing the competition heating up to control the enterprise LAN and that more VARs will turn to alternative vendors to fill their customers’ needs, mainly due to the lower costs and higher returns. According to the survey, VARs see Procurve and Juniper chipping away at Cisco’s visibility in the channel, mainly due to their lower cost and mostly similar functionality.
Cisco partners surveyed by UBS said that the current economic climate may be ripe for smaller, value-conscious brands to infiltrate networks while also creating opportunities for smaller VARs to engage larger customers that once ignored them.
Another recent survey, performed by Goldman Sachs, also showed that Cisco is slipping in routing and switching, despite seeing market-share increases in nearly every other category it serves. In enterprise routers, Goldman Sachs said, Cisco declined from 84 percent to 82 percent market share and in switching it dipped from 71.7 percent to 71.4 percent.
As VARs see other networking vendors clawing and scratching in their fight to be No. 2 to Cisco’s No. 1, UBS’s survey found that enterprise demand for Cisco gear is weakening, opening the door for the Procurves and Junipers of the world to swoop in and snag a piece of the action.
According to UBS, surveyed VARs expect just 4 percent growth from Cisco gear over the next 12 months. That’s down nearly a half-percentage point compared with a March 2008 survey and down 1.8 percent from a year ago. In Europe, VARs expect to see only 1.6 percent growth from Cisco sales. In addition, 58 percent of VARs expect to see weaker orders, compared with just 33 percent expecting weaker orders in March.
Procurve gaining ground
In its VAR survey, UBS cited Procurve as Cisco’s “main long-term threat” and Cisco’s biggest LAN switching competitor. Seventy percent of respondents said HP would be more successful in its Cisco coup if it expanded outside LAN switching into other networking product areas, such as Procurve’s recent acquisition of wireless networking vendor Colubris.
Sixty percent of VARs surveyed said they see Procurve and other low-cost alternatives stealing away Cisco partners.
“Procurve is the real threat at the low end for Cisco,” said Zeus Kerravala, Senior Vice President of research firm Yankee Group. “A lot of companies want an alternative to Cisco. With Procurve, you get a lot of the functionality of the Cisco switch, just not with all of the features.”
Respondents for the UBS survey said that in the rocky economic times, Procurve’s lifetime warranty on most of its gear can be perceived as an attractive alternative to Cisco’s SmartNet maintenance program. Add to that the generous margin typically offered by alternative vendors, and Cisco partners will start to take note. Procurve has also gotten more aggressive with partner programs, marketing campaigns and rebates, helping it connect with VARs and flex its muscle.
Despite Procurve’s increase, Kerravala noted, Cisco will still continue to perform. Kerravala said Cisco will always have an edge based on its high-quality gear and expansive feature set. Companies that buy Cisco and VARs that sell it know Cisco carries a premium price tag, but they also know what kind of bang they’ll get for their buck, he said.
“A Cisco switch will do more than Procurve’s,” Kerravala said. “The reason people continue to buy Cisco is you have a large installed base of Cisco-certified engineers out there. The cost of running an alternate vendor from an operations standpoint is more expensive. But there will always be VARs that want an alternative to Cisco, especially in the data center.”
And while Cisco refuses to directly discuss the competition, it is no stranger to competitors. Cisco is quick to point out that for VARs selling point products and solutions, a quick and high margin may be attainable, but VARs can boost their overall value with Cisco’s solution-based approach.
“We do embrace good, healthy competition,” said Wendy Bahr, Cisco’s Vice President of channels in the United States/Canada theater. Regardless, Bahr said, Cisco does not let the competitive landscape influence its decision-making. Cisco has gotten to where it is, she said, by listening to partners and customers and launching a full solution play as opposed to a string of point products.
“The market condition is in a state of flux,” Bahr said. “Even if the macroeconomics are worrisome, at this point of time, what customers and partners want to achieve, is a solution to a critical business issue. What I listen to the most is what the partners and the customers are saying.”
And, according to Bahr, they’re saying a lot. She said partners are still seeing strong profitability and focus on the long-term outlook of Cisco investments over saving a few up-front dollars.
“We talk about all the elements that go into partner profitability and meeting their needs with robust solutions,” Bahr said. “A single, less expensive component can’t always solve that problem.”
Bahr also cautioned VARs that relying on lower prices as a business strategy often falls flat.
Along with Procurve making the grade, VARs are also starting to consider Juniper a viable alternative. In January, Juniper unveiled a new line of Ethernet switches, the EX Series, the vendor’s first-ever enterprise switching line.
VARs responding to the UBS survey took note of Juniper’s switching momentum. The UBS survey found that Juniper’s EX Series switches are gaining acceptance from VARs, which is a turnaround on UBS’ prior survey. VARs are now optimistic about Juniper’s potential against Cisco, although more US VARs are feeling that way than European VARs. Overall, UBS found, two-thirds of respondents felt that Juniper’s new LAN switch will improve its position as a viable No. 2 to Cisco, while 59 percent expected strong channel adoption of the EX line.
Mike Banic, Juniper’s Vice President of product marketing, Ethernet platforms business group, said Juniper’s growing strength in the channel comes from its recognition that fewer devices were needed and that the network needed to be easier to manage. That, coupled with the systematic rollout of the EX line, got it on VAR radar screens.
“Their top concern is selling more and lowering their costs per revenue dollar,” Banic said of solution providers. VARs are also facing bigger deals, but still need to execute on projects in less time and for less money, another factor that makes alternative vendors attractive.
So far, Banic said, the EX line has been deployed by 100 customers and in 2008’s second quarter brought in $10 million, a sign that the channel is taking notice.
Despite UBS’ assessment, Kerravala said Juniper is more of a perceived threat to Cisco’s channel dominance than an actual threat. “Juniper doesn’t have the products, not in the enterprise,” he said. “What matters is breadth of product. They’re missing a lot of components to compete for LAN business.”
It’s the completeness of Cisco solutions, Bahr said, that keep Cisco’s channel strong and focused. “We don’t look at a particular point or technology, we’re more about the solution.”
With that solution vision, Bahr said, Cisco will continue to stay one step ahead of competitors and maintain the channel relationships necessary for solution providers to succeed. |