At long last, March 9 is here.  Cisco had a running timer on its Web site counting down to 11 a.m. eastern this morning when they would make an announcement that, they claim, would change the Internet forever.

Based on the hype that Cisco and much of the media created, I’m not sure what I was expecting but my expectations were high.  So what was it?  Today Cisco launched its new carrier core router, CRS-3.  The CRS-3 is the evolution of a product Cisco launched a few years back, CRS-1, which, at the time, set the high water mark for carrier routers.  Upon its release, many people chuckled at the concept of a 92 Tbps router, thinking we’ll never need that kind of bandwidth, but what we found was that indeed we do!  Cisco has shipped almost 5000 CRS-1’s–clearly, there’s demand.

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When researching my new book, ANYWHERE: How Global Connectivity is Revolutionizing the Way We Do Business, I was fortunate to interview more than 50 thought leaders in connectivity. Their input was invaluable and their ideas, advice and examples provide very rich context for the Anywhere vision. I’m sharing selected book interviews through the blog.

In this excerpt from my interview with Axel Haentjens, senior vice president Marketing, Brand and External Communications for Orange Business Services, Haentjens provides his take on how the upcoming ubiquitous connectivity revolution will change how enterprises do business, both internally and with their customers.

What do changes like pervasive connectivity and embedded IP in broader devices mean for enterprises?
I have been in the communications business for 15 years at France Telecom [FT]. In 1995, it was very clear that the desktop had to be connected. Now we’re at the point where we have laptops, BlackBerrys, PDAs, and more. So in the last two to three years, you could access documents and e-mail through a PDA from everywhere — from a train, on holiday, etc. For Orange [FT’s key brand], that translated into a huge success for our Business Everywhere tool. We have more than 1.3 million users.

But this year, we see something else. We’re now at the point of pervasive reachability, where you need to talk to people using various means that are all integrated. We ought to be able to start one way, and then move to another.

And it’s not only human connectivity.

Right. There will be five times more objects to connect than people, at the very least. There are mature applications today in tele-monitoring, fleet management and tracking goods. Orange operates mobile networks in 28 countries, including 15 countries in Europe today: 15 percent of our mobile B2B revenue is already M2M. It comes from SIM cards embedded into devices either for fleet management or remote monitoring, and it’s growing at a rate of about 20 percent per year.

Clearly tele-metering is ready. You’ll find security companies doing it, utilities also, and energy companies doing tele-measuring for gas and electricity. We see a lot of apps in vehicles, helping to manage thousands of trucks via geo-location and route optimization.

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Farewell to the Noughties, a decade sandwiched between two crises: The dotcom bust and the current – but sputtering – downturn.  In that time, Europe accomplished much: The Euro was adopted, DSL went mainstream and telcos went NGN.

Not least, consumers woke up to the pleasures of mobile content, although it’s questionable whether MNOs will ever see a fair return for their expensive 3G licenses. Roaming charge crackdowns and market saturation haven’t helped financials either.

Time again to put a nebudchadnezzar on ice? There’s plenty under the tree for 2010:

1. Ethernet will be everywhere. Ethernet is in the LAN, it’s in the WAN, it’s transforming mobile backhaul economics, and it’s converging the datacenter. Fiber remains best, but clever vendors (see Hatteras, Actelis) are delivering copper-bonded Ethernet in the first mile. And new Ethernet exchanges (see CENX and Equinix) aim to speed order to cash with their interconnect services. Want a unifying communications fabric? Well duh!

2. The CDN bubble will burst. Telco CDNs can offer compelling features, but how many service providers can the market sustain, even if video traffic is exploding? Many partnerships are already in place: Tata Communications with BitGravity, Verizon with Velocix, Deutsche Telekom with EdgeCast and Global Crossing with Limelight Networks and EdgeCast. If you’re not in the game now, you’ll need deep pockets to buy in.

3. The cloud’s hot air will expand. Resilient, liquid (and probably Ethernet-based) connectivity is going to save the outage-prone cloud. To invest in cloud services enterprises require robust network as well as applications-specific SLAs, as well as network redundancy, say Yankee Group enterprise surveys. Offering on-demand VPN connectivity to cloud services (on a wholesale or retail basis) could help defuse concerns about their security and resilience.

4. Equipment vendors will want to be your new best friend. The ratio of CAPEX to revenue currently stands at 12.6 percent among European operators, according to Yankee Group analysis. It’s not going to recover much. That’s why European equipment vendors like Alcatel Lucent, Ericsson and Nokia Siemens Networks are on a charm offensive with managed services propositions and aims to transform telco business models. Listen to their pitch. And talk to Huawei:  With a new SDP partner program and growing software division, it’s got more in its arsenal than cheap kit.

5. Smart wholesale will become sexier than dumb wholesale. Get big, get niche or get out. Embrace revenue-sharing models with non-traditional partners. And work mobile angles: International remittances, GRX to IPX interconnect, content transcoding, white-label mobile UC and M2M are among many rich avenues of investigation.

Best wishes for the New Year – and decade – look forward to continuing the conversation!

Late yesterday, HP announced its intention to acquire 3Com for $2.7 billion.  While this may come as a bit of a surprise to some, I actually think this is a great move for HP.  Followers of this industry know that HP and Cisco have been bitter rivals over the past few years creating a Red Sox/Yankees-like rivalry (I won’t say who is who since I’m a Sox fan).  The acquisition of 3Com by HP is just the latest chapter in the on going feud and helps HP fill in some significant product holes by adding high end switching products, a broad routing portfolio, security products and VoIP capabilities.

3Com is one of the industries most misunderstood companies.  Over the past few years almost the entire networking product line has been refreshed.  It has a huge base of business in China as well as low cost engineering that turns out high quality products quickly.  Its biggest problem though is brand.  When you mention 3Com to anyone in the networking industry, one of two comments usually come up: (1) “those are the guys that bailed on the enterprise market a decade ago;” or (2) “those are the guys that make NICs (network interface cards), palm or low end networking gear.”

Bringing 3Com products into HP not only solves HPs product holes, but also solves 3Com’s brand and distribution problems.  Two problems, one solution.  The move also creates a de facto #2 vendor in the networking industry.  Currently, in the switching market, which is the biggest of the enterprise networking submarkets, HP and 3Com flip flop for #2 depending on how the numbers are cut.  Our research has HP at 11% and 3Com at 9% creating a company with a combined 20% of the overall ports.  This will be the first time the industry has had a clear alternative to Cisco since the mid ‘90s when Nortel was a dominant vendor.

This is the third big acquisition announcement in the past few months following Cisco-Tandberg and Avaya-Nortel.  There is a clear trend to companies rationalizing down the number of vendors they use so we see this trend continue as companies like Brocade, F5, Riverbed, Polycom and Aruba all become legitimate acquisition targets for larger companies.  So, while this may be the most recent announcement, it won’t be the last.

For a more detailed look at my analysis, look for the Yankee Group focus report on this acquisition.

Video, video and more video—that’s been one of the big themes in the communications and collaboration market for the back half of 2009 and will continue to be hot moving into 2010.  Over past month, we’ve seen Cisco make a bid to acquire Tandberg to bolster its video strategy, videoconference as a major theme at the Fall09 VoiceCon, Cisco describe video as “stream that runs through all of Cisco” at its annual collaboration summit and now the Logitech news.  For those who have not heard of Lifesize, the company came to market as a competitor in the flourishing telepresence market but lately has focused on HD videoconferencing and teleworker solutions.  For the most part, Lifesize offers solutions that are much lower cost than the “name brand” vendors like Cisco, Tandberg and Polycom.

On the surface, plunking down $405 million in cash for a company that’s expected to do $90 million in 2009 might seem kind of steep but Lifesize is expected to grow in the neighborhood of 50 percent this year, so the potential to make the investment back fairly quickly is there.  Additionally, the corporate videoconferencing market has been hot lately because of companies cutting travel costs, increased focus on collaboration, green compliance and overall easier to use systems.  Yankee Group estimates the videoconferencing market to be approximately $2 billion in 2009 and grow 15 to 18 percent in 2010, so a high growth market for Logitech to leverage Lifesize.

Most people know Logitech as the company that makes PC peripherals such as the computer mouse, keyboards or desktop webcams—all necessary things but not exactly synergistic with high end corporate videoconferencing.  Its decision to move into the corporate videoconferencing market does seem out of place but shouldn’t be a total surprise.  One of the big trends that Yankee Group has been following is the rapid consumerization of the enterprise, and as this happens and more workers work remotely, video will begin to cut deeper across our personal and professional lives.  Long term this trend will allow Logitech to bring much of the focus it has on consumer design and ease of use to the videoconferencing market and create an effective go to market strategy but, in the short term, it will likely run these as separate businesses.

I think this is a leading indicator of what’s to come for what was a niche market.  Today, there are still a lot of problems but many of the barriers are starting to fall.  The systems are easier to use, the vendors are focusing on interoperability between one another (took them long enough) and we’re starting to see some focus on intercompany videoconferencing (see my blog from earlier this week).  All of these will contribute to videoconferencing being a “rising tide” that will lift all the boats in the market.  Cisco has made its play, HP has moved its Halo product into its TSG (technology solutions group) and we’re expecting even more activity in this market.  Tandberg’s chief’s rival, Polycom, is a definite acquisition target with Avaya and HP being possible acquirers.  Radvision is another company that could be an acquisition target for any vendor in the network, communications or collaboration space.

In summary, look for the activity that’s started in this space to continue as we move into 2010 as video becomes a bigger part of our every day work life.

Today, Cisco is having its annual collaboration summit and, in conjunction with that, announced 61 new products to support the summit and new vision.  Obviously with 61 new products there were some that were more interesting than others, but much of the value that Cisco is bringing is enabling business to business communications, a weak spot in most corporate collaboration solutions.

One of the new products, called Intercompany Media Engine, allows organizations to communicate with other organizations over any IP network expanding the value of the tools.  The “network effect” is derived from Metcalf’s Law which states that the value of a network is proportional to the square of the number of nodes on it.  The more nodes there are, the higher the value.  This has certainly been the driving force behind the growth in popularity of many of the consumer collaboration tools such as chat, Facebook and Twitter.  However, our corporate collaboration tools are generally limited to the reach of our own company which limits the value.  I know there are ways to make the tools work but that just underscores the problem, B2B communications shouldn’t be something that we have to “make work.”  As long as that’s true, corporate UC will never enjoy the hockey stick growth the industry has been waiting for.

As part of this release Cisco is extending the B2B capabilities to Telepresence.  Finally we can Telepresence with people in other organizations.  I was chatting with a business leader just last week that has a Telepresence system and he confessed to me that while the system is great for executive meetings, it just doesn’t get that much use because most people have no idea how to Telepresence with others.  This is a huge hurdle for Telepresence to overcome and is a great step in increasing the value of corporate video.  Ultimately what you would like is for people to just try and communicate with one another, if video communications is possible, then invoke it without having to worry about what kind of system it is, if they interoperate, etc.  Obviously the intercompany Telepresence doesn’t get us there but it’s a small step towards that.

This is the first announcement out of Cisco where they truly leverage the investment they made in WebEx.  Software as a service (SaaS) has been growing by leaps and bounds over the past several years and Yankee Group research predicts that by 2012, more software will be bought as SaaS than as traditional premise based software; WebEx gives Cisco a leg up in that regard.  Of particular interest is Cisco’s cloud based instant messenger and WebEx Mail that leverages the acquisitions of Jabber and PostPath respectively.   It may seem strange that Cisco would choose to move into two markets, IM and e-mail that are heavily dominated by Microsoft and, to a lesser extent, IBM but I do think the shift to SaaS creates an opportunity for Cisco.

The shift to SaaS based e-mail will create a change in buying habits, just like the shift to SaaS based software has in other markets and Cisco’s hoping to grab a chunk of that market.  This won’t be a quick transition or something that gives Cisco 25 percent share overnight but with all the regulatory mandates around e-mail retention and the overall increase in the size of e-mail, it gets much harder for organizations to manage their own e-mail server, so it makes sense to push it into the cloud and be done with it.  One of Cisco’s advantages in this over the other web based services is that it allows the users to continue to use Outlook for the client.  This means IT can change out the back end but have the workers go on and use the client that they are familiar with.

The announcements today also bring Cisco into the social media markets, one of the key building blocks of an Anywhere Enterprise and a missing component of corporate UC solutions.  Cisco’s “Show and Share” is a social video solution which allows workers to upload videos, tag them, rank them, search, etc making it easy for workers to share videos with one another.  Social media was one of the hot topics at the recent VoiceCon event and I expect to see Cisco continue to grow this area as a point of differentiation.

There were a number of other announcements Cisco made included some new phones and end points but the above ones were the ones that I saw as the key announcements.  Later this year Microsoft will announced its next wave of OCS making it a full PBX replacement so now we’ll be able to buy phones from Microsoft and e-mail from Cisco.  Who would have thought it?

The fall version of VoiceCon wrapped up this week in San Francisco and, despite financial woes, the attendance was around 3,000 people, about the same as last year.  This is an encouraging sign that even in a down economy, unified communications and collaboration is an important enough theme for enterprises to invest time in.  While the overall theme is communications, there were a few underlying themes that permeated throughout the show:

The intersection of UC and Social Media.

Social media has been a growing theme at VoiceCon but this was the first time a vendor demonstrated true integration between a corporate communications tool and a consumer social media tool.  In the Siemens keynote, VP Mark Straton demonstrated having Twitter integrated into OpenScape.  The integration wasn’t just embedding the tool into OpenScape but much deeper, it was using the context from Twitter to manipulate OpenScape.  For example, if a user ‘Tweeted’ from a mobile phone, “Having Lunch with Fred Knight to discuss next years VoiceCon agenda,” the system would recognize it, automatically change the user’s presence status to ‘busy’ and then route calls to voicemail.  Many CIOs I’ve spoken with have wondered how to leverage tools like Twitter.  Using Twitter to manipulate calendars, presence engines, etc could make the use of it move from just a niche, experimental thing to a core part of enterprise collaboration.

The thing I really liked about this is that Siemens didn’t try and re-create a consumer tool in an enterprise way, they just used the tool that people are familiar with and are already using.  The chances of a successful deployment and high enterprise usage are much greater this way than trying to force a similar tool on workers just for the office environment.

Interoperability between vendors

This has always been a big issue at past VoiceCons but seems like the issue has been raised to another level.  Note to all vendors, users DO NOT WANT a single vendor solution; they want ones that work with one another seamlessly.  Currently the level of interoperability varies from vendor to vendor, some of it easy, some of it needing gateways or special software and some just doesn’t work.  Failing to deliver interoperability really stifles growth of UC.  Deployments would skyrocket if buyers didn’t have to worry about the long term implications of single vendor lock in.

I would like to see VoiceCon evolve to where it’s a hybrid of the current show and the old Interop networking conference where interoperability is an actual theme and the conference is used for vendors to showcase their ability to work with others.  My guess is the vendor community wouldn’t be supportive of this yet, but it’s in their best interests.

Nortel and the fate of its customers

The pending acquisition of Nortel by Avaya has left a huge customer base scratching its head.  I was on a two hour panel on the topic of what Nortel customers should currently do and, even though it started at 8am, the session was packed.  The net result of the panel is that Nortel customers aren’t in that bad a spot.  It may seem like a bad thing right now but over the next few months, every vendor that sells VoIP and UC is going to be hitting the Nortel customer base up with competitive offerings on migrating them to a different solution.  In a sense Avaya will be pitching this too, although they have an edge since they own they will own the Nortel technology.

Our advice to Nortel customers is pretty simple.  Make sure that you’re at the most current version of Nortel software since that’s likely to make migrations easier and unless you’re in dire need of an upgrade, be patient and let the market come to you.

Our advice to Avaya is that within 30 days of closing, there absolutely has to be a definitive statement of direction as to what stays and goes in the product line.

Mobility and device evolution

All of the sessions on Blackberrys, iPhones and mobile devices were packed with interested parties as companies try and figure out how to manage the explosion of devices.  This concept was represented well in Dr. Alan Baratz’s opening keynote where he talked about the conundrum companies find themselves in where, despite the fact that CIOs would like to get rid of desk phones, many users want them still as an augmentation to the mobile phone.  He went as far as to state that corporate phones need to be reinvented to be multipurpose devices that could support video, conference calling, etc.

This juxtaposes the Microsoft vision where the PC will eventually be the primary communications device where everything will be driven off the desktop and the “phone” may just be a handset for people that still prefer them.

So, we now have PCs, deskphones, video phones, mobile phones and probably lots of other things that could be a workers primary communications tool.  My bet is on the mobile phone but it’s an interesting thing to follow the evolution of.

I spent the day at Juniper’s analyst and media event at the New York Stock Exchange. The event was filled with pomp and circumstance as Juniper launched its largest marketing campaign in recent history, and maybe the company’s history. Juniper updated the analyst and press community on its vision, announced some new products but left many questions unanswered some of which are new and some are holdovers from the “old” Juniper.

The first and most obvious change was the corporate logo change. Gone is juniper plant and dark blue font and enter a much simpler logo that highlights the “IP” in the logo.

Only time will tell whether the new logo has any impact on they way the company is perceived, but I do remember when Cisco changed its logo, Juniper issued a fake press release stating it saw no need to change its logo. In fact, I still have the t-shirt they sent along with it. So, what’s changed? What’s changed is the approach Juniper is taking to networking as the company is finally thinking along the lines of being a “platform” vendor. The concept of “network as a platform” is a vision that Yankee Group has been articulating for years so it’s nice to see one of the major networking vendors moving in this direction.

As for the actual announcements at the event themselves, here were the highlights:

• Re-articulation of the “single OS” message and push of “Junos” as the brand. This has been Juniper’s key marketing message for the past few years. I actually think it has some merit, and I think Juniper’s done a good job of quantifying the benefits, but it does have some holes. First, Juniper isn’t a single OS company. While it has Junos, ScreenOS (from Netscreen) lives on. In fact, the new high density top of rack switch is an OEM from Blade Network Technologies so Juniper has some way to go to get to a single OS. Also, I think most organizations do not really consider the OS as part of the network equipment purchase, so Juniper has a lot of work ahead to make the OS matter. I think it can matter, but it’s going to require a shift in thinking.

• Launch of the long awaited Trio chipset—formerly known as the code name “trinity” —and service provider routers MX 960 and MX 80. This was, by far, the beefiest part of the day. The Trio chipsets (for which there are 4—does anyone else find that confusing?) are a leap ahead in silicon technology. CTO Pradeep Sindhu went through all the technical aspects of the product – 65nm technology, 1.2 billion transistors, 604GB IO performance, etc, which most people won’t understand but he did give some stats that people could get, like being able to download the whole library of congress in 12 seconds. The performance specs of MX 960 and MX 80 are through the roof compared to competitive products. Service providers are the bread and butter for Juniper and these products will keep Juniper ahead of the curve.

• Launch of Junos Space and Junos Pulse. Space is an open platform for ISVs to develop network enhanced applications on. It includes an APIs, SDKs and applications that will act as a “platform” for application development. It follows a trend that Extreme started a number of years ago (although Extreme never managed to monetize it). More recently, Cisco launched its AXP developer program and announced a number of ISV partners with it. The concept of Space is fine but I would have liked to have seen some third party examples of Junos based applications. The three Juniper showed off were created by Juniper and, while this is interesting, it’s not fulfilling on the vision of a third party ISV program. It alluded to partnered applications but didn’t show any. Pulse is a unified end point application. The concept is that all clients that IT departments need to put on the various end points are collapsed into one client. Initial uses are for WAN acceleration, dynamic security and location aware services. Overall a good start but the proof will come in Junipers ability to attract third party ISV partners.

• David Yen went over the Juniper data center to cloud vision. I was highly disappointed here. The majority of David’s presentation was great but was a repeat of the vision that the company outlined when it launched Stratus, its joint project with IBM. There was a “3 steps to cloud” network roadmap given that was “simplify, secure and shared” which isn’t really anything new. What was missing was much of the detail on what exactly Stratus is. This includes how Juniper plans to address the storage connectivity challenges in a data center which is currently dominated by Cisco and Brocade, when a product will be available, etc. It’s great vision, but it’s still just a vision and needs more detail to be tangible.

However, despite all of the fanfare, the conference did leave many open questions regarding its long term strategy including:

• How it leverages the opportunity in mobile environments. As we said after the acquisition of Starent by Cisco, the single largest opportunity for layer 2/3 equipment is in the mobile markets. In fact, Juniper had a rolling counter that showed the number of clients attached to a network—a visual just to show you how massive this opportunity is going to be. However, the majority of vendors in this space go to market with a single, mobile and fixed solutions approach. When Juniper’s partner-to-be, Starent, was snatched up by Cisco, Juniper was left wanting. However, Juniper did outline a project “Falcon” that appears to be a reference architecture to deliver on the core transport part of the mobile environment, but it’s not clear who the partners might be.

• What its wireless LAN strategy is. There’s no doubt that 802.11n is going to have a significant impact on the way companies design the corporate networks. Juniper, who has a great desire to be an end to end vendor, has a huge hole in its product line by not having a WLAN solution. Industry rumor is that Juniper is building its own but that’s likely to not be ready until next year and limited to just branch environments meaning Juniper might miss the initial wave of 11n deployments.

• How it will address future product innovation. Juniper had been a company that hadn’t been shy to acquire. Some were successful (Unisphere, Netscreen) and some not so much (Peribit, Redline) but it did use acquisition for innovation. Today it seems the single OS vision is driving Juniper to build more than buy and this could slow down their innovation. For example, it could have acquired any number of Ethernet switch vendors (Force10, Foundry, Extreme) instead of building its own. Sure it wouldn’t have been Junos based, but they would have a larger share of the pie by now.

Overall my biggest question for Juniper is how a mid sized company like Juniper competes long term in this ever evolving industry. The majority of Juniper’s competitive environment is huge multifaceted companies like Alcatel Lucent, Cisco, Huawei and others. These companies go to market with a unified wired, wireless and services solution and Juniper, at its size, can’t compete along those lines. The enterprise space has Cisco and HP as well as smaller organizations that are very deep in a certain area (like Brocade in the data center). Juniper again, falls somewhere in the middle. Juniper is too small and doesn’t have the right mindset to grow significantly through acquisition but it’s too big to be an acquisition candidate for all but a few companies, most of which have too much competitive overlap. So for now, the vision of what Juniper announced is fine, but all of us Juniper watchers will be looking to see how quickly they can get there.

Earlier today, Juniper and Dell announced an OEM agreement where Dell would private label and distribute Juniper’s MX service routers, EX Ethernet switches and SRX secure gateways.  This announcement is strategic in nature as virtualization is driving networking and computing together requiring vendors to align their product portfolios along this trend.  This partnership follows many other announcements made over the past two years including the following major industry events:

• Storage networking leader Brocade acquires best of breed IP networking vendor, Foundry Networks
• HP moves former ugly stepchild, Procurve to favored child status by bringing into the Technology Solutions Group (TSG) that includes other data center technologies such as storage and servers
• Cisco launches Unified Computing System (UCS) and declares war on server vendors
• Big Blue counters Cisco’s move and jumps back into networking and agrees to OEM Brocade IP networking equipment
• Juniper and IBM outline Stratus “vision” for cloud and the role of the network.  IBM also agrees to OEM Juniper Ethernet switches
• Dell expands networking product portfolio and agrees to OEM Brocade IP networking products
• Dell further expands portfolio agreement with today’s announcement with Juniper.

This move has only upside for both Juniper and Dell.  Juniper has strong enterprise network products but lacks a significant channel to move its products.  The Dell and IBM partnerships could become a significant channel for Juniper and Brocade.  Currently, OEM distribution makes up almost all of the market for storage networking but not for data networking.  As the compute and network industries are brought together, OEM will need to be more involved in network decisions.  Even if it’s only 10% of the overall market, that’s still $1.8 billion in revenue that will flow through this channel which is larger than the combined IP networking revenues for both Juniper and Brocade.  There’s product overlap with both Brocade and Juniper so neither will get all of the business from IBM and Dell but there’s enough business that both will be significant beneficiaries.

This trend of having compute and networking brought together is a bad one for the rest of the industry.  Historically, the enterprise networking industry was known as Cisco and the seven dwarves which pitted the 800 pound gorilla, Cisco, up against a number of companies with small share including Extreme, Enterasys, 3Com, Nortel, Avaya, Alcatel and Foundry.

Some of the dwarves are already gone through acquisition (Nortel, Foundry), and others, such as Extreme and Enterasys, are on their deathbeds.  In fact, the only one of the original dwarves that could pose a threat to Cisco in the future is 3Com.  3Com’s China out strategy creates a unique positioning in the market where they have a growing customer base in China and low cost R&D group to keep products current and near the front of the pack as far as technology goes.  Cisco’s current dominant share is reflective of that fact that executed well but also these smaller companies continued to mismanage their own business giving Cisco a bit of a free ride.  Cisco’s incredible run deserves a tip of the hat, but it could not have been accomplished without the competition making many mistakes.

What Cisco will find moving forward is a much more difficult competitive environment.  Instead of competing with tiny companies that couldn’t sell cheese to a mouse, they’ll be competing with the likes of HP, Dell and IBM.  Even the “pure plays” of Brocade and Juniper are much larger than the pure plays of years past bringing Cisco’s “free ride” to an end.  Additionally, Cisco won’t be able to use many of the strong arm tactics it has with partners and channel any longer as the competitive options are as big, or bigger, than Cisco.

Overall, I see the OEM and compute vendor influence being a significant factor in the growth of networking and will help shape the new vendor landscape.  While the death of the seven dwarves could be viewed as a negative for the industry, I’m excited about the new life that’s been brought into a once stagnant industry.

On October 1, Cisco dipped into its sizeable piggy bank and dropped $3B on video specialist Tandberg.  Just under two weeks later on October 13, Cisco spent almost the same about, $2.9B, to acquire mobile infrastructure provider Starent Networks.  That’s a grand total of just under $6B but that still leaves Cisco just shy of $30B to play around with if they choose to move in other areas.

Both moves are significant for different reasons and both accomplish the same goal.  Put more traffic on the network allowing Cisco to stimulate sales of routers and switches, the cash cow and engine that makes Cisco go.

Tandberg fills an interesting void for Cisco.  Cisco has almost single handedly evangelized the Telepresence and video markets taking them it from relative obscurity to a market that almost everyone knows about and is interested in.  However, with price points in the six figure range and the need for nailed up bandwidth, Telepresence isn’t for everyone.  I’ve talked to many customers and resellers that have told me that while many buyers like Telepresence, the steep price point has acted as deterrent and caused many of them to look at solutions that are a step down, such as the HD solutions available from Polycom or Tandberg.  So Cisco evangelizes the market and then others reap the rewards, not exactly the Cisco style.  The fact is, Cisco had nothing to offer customers at the level below Telepresence, but Tandberg gives the company a broad line of video products that includes desktop, room based, HD and fully immersive video.  The best thing about Tandberg is that all the solutions run on a common data network creating network traffic like no other application in the enterprise.

Tandberg also fits nicely into Cisco’s overall UC strategy and makes them the only UC vendor to offer a broad based video solution.  Microsoft has Roundtable, a conference room system (that’s actually very cool), Mitel has their own Telepresence system but most of the other vendors choose to go to market through partnership. Cisco has chosen to do it themselves, which again is consistent with their historical go-to-market approaches.  We’re expecting video to continue its double digit growth in enterprise over the next several years giving Cisco an early lead here but leaving Polycom out there as another acquisition candidate for the likes of HP.

While Tandberg was a strategic acquisition that will help with growing their enterprise penetration, Starent solved a different problem for Cisco.  There’s no question that the biggest opportunity in layer 2/3 networking today lies in the opportunity to sell into wireless ecosystems.  Many of Cisco’s competitors, Ericsson, Huawei, Alcatel-Lucent and Nokia Siemens have been going to market with combined wired-wireless offerings.  While Cisco could talk the talk, they really couldn’t back it up with product.  It’s not surprising that Cisco would pay such a hefty premium given Starent’s strength in the mobile data market, which we are expecting to demand 29 times capacity expansion over the next six years.

So this purchase has the obvious impact that it allows Cisco to compete better with the larger equipment vendors that can offer wired and wireless solutions.  However, this has a secondary impact in that it puts router rival, Juniper, in a very tough position.  Industry rumors had indicated that one of the global operators had pushed Juniper into partnering with Starent to deliver a combined wired (Juniper) and wireless (Starent) offering.  In fact, many other industry people I’ve talked with had expected that Juniper would be the company pulling the string and buying Starent, so the news that Cisco had acquired Starent came as somewhat of a surprise.

Juniper finds itself in somewhat of an awkward spot in that it’s too small to be a significant acquirer to grow its portfolio rapidly and it’s a little too big to be an acquisition company for most companies that might need them.  This raises the question of how a router pure play can continue to compete for business in the carrier market when so much of the growth and demand is coming from the wireless ecosystem.

Cisco’s made their play in these two areas now it’s up to the competitive market to respond.

*** Phil Marshall, YG Senior Research Fellow, contributed to this blog.