ENTERPRISE NETWORKING: The Cisco Challengers

Call it David-vs-Goliath or Anand-vs-Kasparov–it’s happening in the networking world these days. With the economy looking up, definite signs of a strong growth are showing up on the enterprise-networking horizon. But as and when the opportunity arrives, all networking players will have to contend with the big fish of the sea–Cisco. 

The erstwhile wide gulf between the leader and the rest has only become wider over the last three difficult years. Also, much water has flowed under the bridge during this timeframe, and the challengers will need to first absorb the new trends that are driving the networking market today. So almost every major challenger is at the drawing board, to work out a strategy. 

The Changing Landscape



Five years ago, Cisco was just another networking company competing for a fragmented market. There were no clear leaders and the threat of cheaper Taiwanese imports was looming large. 

Even in India, it was not Cisco that led the market initially. Bay Networks was the number one networking vendors in India in 1996 while 3Com was in the top position in 1997. It was thereafter that Cisco pulled away from the rest of the pack. Cisco’s India revenue today stand above the Rs 1000 crore mark, while the nearest competitor, including leading enterprise voice solution vendors like Avaya, is still distant from the Rs 500 crore mark.

The networking map today is pretty simple to draw–all other enterprise networking companies huddled in a corner trying to take small pickings of the networking pie and the giant called Cisco lording over the networking world with its gears amounting to about 70 percent of all global LAN equipment.

The Windows of Opportunity



The challengers are formulating their marketing strategies based on the opportunities available in the market. Apart from looking at the overall attractiveness of the market, they are also looking at the various segments to decide where to put their bet on.

Routers, Ethernet switches and PBX/KTS/IP voice solutions are the three major segments that contribute the lion’s share of the Rs 4,037 crore Indian enterprise networking market. 

Out of the three segments, router is the segment with the least intensive competition. A cakewalk for Cisco for many years, the success of Juniper in the service provider router space has encouraged some companies to eye the enterprise space.

Companies like Enterasys and 3Com, which are introducing a range of routers this year, hope to eat into this large pie. Even a small slice of the 87 percent Cisco share amounts to quite a bit of revenue. There are two players that need to be watched out. One, Huawei, which ran into IPR problems with its original line of routers, and which is expected to come back with a different line of routers, post its technology joint-venture with 3Com. Two, Juniper, which can easily get into this market, but is still not sure about focusing on this space due to its niche service provider positioning.

The enterprise switch market is already a very crowded market. And things are likely to heat up here even more, with all kinds of players in the fray. Ethernet (10 Base T) and Fast Ethernet (100 Base T) are almost a commodity. It is the Gigabit Ethernet and Layer 3 switch segment where players will likely test out their prospects. Cisco and Enterasys have a clear lead over others in this sub-segment. Though globally Extreme Networks and Foundry Systems are major vendors, in India these companies are only in the early stages of making their presence felt. One company that has the ability to be a major force is 3Com. A name to reckon with in the past, it unexpectedly exited out of the high-end switch segment a few years ago. This year, it promises to make a good comeback.

The enterprise voice market was easily the fastest growing enterprise networking market during fiscal 2002—03. The bludgeoning call center market was the perfect opportunity for this segment. Convergence was very much the growing theme here, with traditional PBX and KTS segments stagnating. By the end of the year, IP-PBX, wireless-PBX and call center solutions together contributed almost 39 percent of the Rs 820 crore market. Here, unlike other enterprise networking segments, in which it has a presence, Cisco was still not quite there. However, the picture is fast changing in this market. This fiscal, it is expected that Cisco would be at least among the top five market players here. However, it will encounter tough resistance from the existing leading vendors. The existing top five players–Avaya, Siemens, Nortel, NEC, Ericsson, Alcatel–have all come out with IP products to counter the Cisco threat. 

The Challengers’ Strategies



Enterasys

Key Strategic Goals

• Aggressively engage Cisco in the switching space. Position itself as a clear alternative in the high-end switching space–as a company that has not only switching foundations that are superior to Cisco but also have a strong solutions portfolio in terms of network security to differentiate itself from the other switch contenders. Improve its presence in the mid-range and SME category products to widen its switch portfolio.
• Take away small to medium marketshare in the enterprise router category, by focusing on new trends like security, VPN and MPLS. Encourage customers to make the technological shift from routing to Layer 3 switching.
• Focus on establishing and strengthening its position as a clear number 2 to Cisco in the overall enterprise networking space. 

The Action



Enterasys has been able to announce a number of products in a short span. The Matrix N Series switches and regional routers with security in-built have been launched. Another series of switches called the C series is on the anvil while work is on to bring out a terabit switch next year.

Enterasys has two major tasks in hand. Putting its channel strategy in place. In Tata Elxsi, Siemens and L&T, it has some good SIs but not the best and biggest SIs who contribute in hundreds of crores to Cisco’s kitty. However, it has been seeking out new partners eagerly. It has recently tied up with Apara, a key ex-partner of Nortel. It is also talking to unhappy Cisco partners as well as those who partnered with 3Com. Some big-time initiatives have been made on the training front, particularly in web-based systems whereby partners can access live or recorded training sessions. The other big challenge that it has taken up is to improve its brand. Some major advertising plans are on the anvil as well as marketing programs to engage its loyal customer base.

On the pricing front, where Enterasys’ limited volumes have a significant impact on cost structures, renegotiations are on with manufacturers to address its competitiveness in the market. 

Nortel



Key Strategic Goals

• Position itself as the alternative vendor that can offer as complete a solution as Cisco does or even beyond that. Globally it follows a strategy called ‘One Network Vision’ that draws its foundations on the converged vision where the service provider network merges with the enterprise network to enable advanced multimedia services and applications.
• Focus on the voice and data convergence space first and take a significant market share in the burgeoning IP/packet telephony space. Thereafter, expand its focus to other areas of the enterprise networking space.

The Action:



Nortel Networks is emerging as the technology opinion leader in contact center space by applying a dual strategy. One, it has built a very strong network of niche SIs like 3D Networks, GTL and Network Solutions which have both the expertise in voice as well as data to address this new customer segment. Two, it is creating a pull by direct promotion through events and targeted advertisements.

On the general enterprise front, Nortel is also in the process of market creation through educative marketing strategies. 



3Com

Key Strategic Goals:

• Position itself as tier-1 global networking product vendor with a respectable range of products for the enterprise market
• Earn back its position as either a serious rival to Cisco in the enterprise space or at least a strong second to the market leader
• Make a strong comeback in the high-end enterprise arena with different innovative feature-rich products and solutions, with a low cost of acquisition and ownership that would fill a major gap in what is being provided and the enterprise needs that have developed post the global recession and Cisco’s monopoly

The Action



In Ethernet’s 30th anniversary year, it is only appropriate that the company founded by Bob Metcalfe, the inventor of Ethernet, took a re-look at its cherished past and re-engineer itself to take on the competition in the Enterprise market where it had made a name for itself. 

3Com has entered into a strategic joint venture with Chinese equipment manufacturer Huawei, to manufacture a series of enterprise products including switches and routers. This JV is expected to help 3Com achieve a significantly superior price/performance proposition compared to competitors. Helping 3Com in this initiative would be its impressive war chest of 948 issued patents and 845 pending ones. Apart from this, 3Com is to strategically improve its VoIP offerings, which will leverage the company’s internal expertise in softswitch and SIP protocol.

3Com India too is undergoing a major re-shuffle of workforce and strategies. The immediate agenda is to strengthen its installed base, for which a number of relationship-building activities are in the pipeline. 3Com is about to reach out to its loyal distributors, resellers and engage its key accounts. Another important goal is to win back the confidence of major SIs, especially for staging a comeback in the all-important enterprise space. 

Avaya

Key Strategic Goals:

• Consolidate its strong market leader position in the enterprise communications solutions space, where it is clearly the preferred partner of both Fortune 500 customers as well as SMEs across the world. 
• Nullify the effect of the early mindshare generated by Cisco as the pioneer of IP telephony, by going all out on the IP front and projecting a ripple effect of its telephony expertise onto the new segment.
• Generate a lot of interest for its convergence solutions in the new markets being created by outsourcing and new technology adoption. 

The Action:



The biggest challenge before Avaya today is converting its huge customer base for its traditional voice solutions into transited unified voice/solution customers. This is obviously more challenging at a time when Cisco the IP telephony dominant company is breathing down the neck of its own installed LAN switch/router customer base to go for its own telephone systems. 

Another challenge before Avaya is to integrate its vast range of products–Definity voice servers/PBX, ECLIPS IP solutions, MultiVantage call center solutions, Systimax structured cabling solutions, Cajun network switches, etc.–so that it will have a well-tied end-to-end story for the new networking needs of enterprises. 

Avaya’s exlusive Indian partner Tata Telecom has also become of late quite aggressive on its IP focus, especially in the call center/BPO segment. And here, some successes have been had. However, it will take a lot from Tata Telecom to convince enterprises in other key verticals like manufacturing and financial services to go for its broad basket of unified LAN solutions. 

Extreme Networks



Key Strategic Goal:



Pitch itself as a clear alternative to Cisco in the high-end Layer 3 Gigabit/Terabit Switch segment. Believes customers are looking for dual-vendor situations as a monopoly situation affects not only prices but also the support one gets. Also believes there is a clear segment of buyers who will always go for the best products. Their’s they believe is far better than Cisco.

The Action:



Has made its presence felt to a limited extent in India through MRO-Tek, which has an impressive installed base of leased line modems and other carrier equipment in the Indian service provider market. The tie-up with MRO-Tek was clearly meant for clinching contracts with service providers like Tata Power, Sify, and Bharti. 

MRO-Tek has a strategy of focusing on high touch accounts for the Extreme range of products. The enterprise segments identified are software development centers and call centers. However, Extreme’s India story is yet to touch upon the enterprise segment that significantly to pose a serious threat to players like Cisco and

Enterasys.

Foundry Networks



Key Strategic Goal:



Position itself as a premium switch vendor, whose ASIC-based Layer 3 switches with non-blocking architecture is clearly above competitors like Cisco who do Layer 3 switching by adding a hardware module to their Layer 2 switch. 

The Action:



In India, Foundry has a very limited presence. Its tie-up with MicroVillage in 2000 was a result of its earlier service provider focus. MicroVillage has been a leading SI for USRobotics, which is a leading modem brand in India and Commworks, which has a monopoly in the Indian RAS market. So, Foundry’s Indian enterprise market strategy is still not clear. In the US, Foundry has followed a direct model. That may not work out in the enterprise market. 

Companies to Watch Out for

Alcatel



Alcatel has gone through a major reshuffle during the last two years. From a direct strategy, it has shifted gears to target the enterprise market through distributors. In India, Alcatel Business Systems is its exclusive partner. 

ABS’ strategy is to take Alcatel to a strong No. 2 position behind Avaya in the overall PBX/voice solutions market, and go all out for leadership in the converged IP telephony space, which is still wide open in India. This, it prepares to do through its Omni series of products which includes PBXs catering to traditional voice needs of enterprises and SMEs, Layer 2 and Layer 3 switches. On the LAN side, though ABS is assembling a small team to focus purely on data, Alcatel is still not going beyond being a niche player which selectively targets large enterprises. 

Huawei 



On the service provider side, it has a great RAS product, which has beaten Ascend, 3Com and Cisco to capture 80 percent (2002) of the Chinese market in a short period of two years. 

It has a wide range of routers from low- to mid- and high-end. Its USP is the Chinese model of mass production, which gives it a highly competitive edge. Competition has many hidden costs in its offerings, like incremental costs for software upgrades, VPN. Huawei bundles all these in its routers. The tie-up with 3Com should bolster its credibility in terms of technological. 

D-Link



D-Link, with its cost-effective all-purpose switches, hubs and NICs, has always been a significant name globally in mass-consumed Ethernet products. In India, it has been consistently figuring in the Top 5 networking product vendors for the last five years. 

However, the market for hubs and NICs, in which it has been the leading vendor, has been on the wane. And in the low-end switch segment, in which it is strong, prices are at the rock bottom. These have affected D-Link’s toplines, as a result of which the company has ventured into areas dominated by Cisco and Enterasys–high-end switches and routers. One of its marketing strategy is to leverage its existing large channel base. D-Link is also betting on the widely hyped WLAN segment, where it is aiming at consolidating its No. 2 position behind Cisco.

Nareshchandra Singh Laishram

Chinks in Cisco’s Armour

What are the weaknesses that the competitors observe in Cisco? Different companies have different versions on this. Some of the key weaknesses commonly pointed out are:

“Cisco’s technology is average/not the best”.



Internally, Cisco knows that IOS is the biggest threat to Cisco routers. It is like a bomb that can explode any day. As more and more features are getting added, the IOS is getting severely bloated. It has brought Cisco to where it is today, but it can kill it too. 

In LAN switching, Cisco’s biggest weakness is its centralized architecture. Today mission critical networks require a distributed architecture. 

Cisco has made acquisitions to build its technology. Hence, its product line is a confluence of many technologies. A higher-end Catalyst switch does not talk properly to a low-end Catalyst switch. Investment protection is another major weakness. Their product lifecycles are only 3-4 years. So users have to also change to achieve the new performance/features. 

“Too many channel partners quoting the same Cisco equipment has made it difficult for partners to differentiate among themselves and brought down their margins.”



Cisco channel partners do not make money these days. Expanding the channel partners is a vicious cycle that Cisco has got into. The Indian market is not so big to support so many channel partners. 

Channels are unhappy over profitability and also the probability to win the deal, due to lack of focus on any one of them. 



Customers get short-term gains because they get very good prices because of the intense competition among the suppliers. But in the long-run they tend to lose, because since the margins are very low the services that the companies provides suffer. 

Cisco is signing up service providers as SIs to address the enterprise equipment market. The consequences of this are not missed out by SIs. The fear is that Cisco is moving more and more towards a direct model. They already have several salesmen breathing down the customers neck directly, and are only using channel partners for contract fulfillment. 

“Customers are going in for best of breed products and are increasingly considering alternative products.”



There is a strong pull for Cisco products due to a hype about its strong financials and media presence. But today the customer has got smarter. They want quality of service and value addition. 

Everybody claims they have an end-to-end solution. Does Cisco have the billing software, which Lucent has? Do they have the call center applications, which Nortel has? Nobody can claim to have everything. 

Nobody was ever fired for buying Cisco equipment. Nevertheless, there are those who take the risk to acquire the best of products, which is not necessarily a Cisco product. The other type of customers are those who already have Cisco products and are now discovering hidden costs or are not getting the level of support originally committed. These buyers are forced to go for a dual strategy. They are looking at building another vendor who is as good as or better than Cisco who can deliver the goods and the support.