Is Cisco a Follower Waiting for a Leader?

Cisco reported its numbers, and they were pretty much on target with expectations.  The company announced a large increase in its dividend, and the Street is saying that Cisco is continuing to progress toward becoming a “mature company”.  I think that’s a bit overstated, but there’s no question that Cisco is facing that sort of change.  It’s the “How?” that’s still an open question.

Issue one is margins and differentiation.  IBM was the creator of “sum-of-the-parts differentiation”, an ecosystemic drive to sell products not as parts but as the whole.  To be such a seller you need astonishingly high levels of buyer strategic influence, and IBM had that.  They had people there on scene, credible people, who could lead companies through tech planning with confidence.  Naturally these people were going to plan for IBM’s toys, and so naturally those products sold and their margins held up.

In networking, only Cisco has enough strategic credibility to be an IBM.  The problem is that even Cisco is still holding levels of influence well below IBM’s 1980 numbers.  Then, IBM had enough influence to drive deals even against competitive pressure (which shows today in IBM’s survival).  Cisco never had that level of influence and doesn’t have it now.

Cisco has always wanted to be a broad-market player but they want to get there on the safe trail.  Don’t take major risks, they say, be a “fast follower”.  Let somebody set the trends and test the waters and then step in with your favored account influence and eat those leaders for lunch.  That works if there are leaders, and I think that Cisco’s maturity dilemma today is really hinging on how they respond to that issue.  Network vendors have been universally unwilling to face the future.  There’s nobody to “fast follow”.  Cisco must now decide whether to continue to wait for a patsy to take point, or to risk leadership.

If Cisco is really signaling a desire to become networking’s IBM, then they’re settling into maturity before they’ve grown any facial hair.  The commoditization issue, the value submergence in networking, isn’t a done deal yet.  The easiest way to counter the account control and influence of a competitor is to demonstrate they’re dinosaurs controlling the swamps at Ground Zero of the asteroid event.  Revolution is what sweeps aside evolution, and what Cisco has really said this quarter is that they aren’t going to be revolutionary.  Will someone else?  Of the remaining players, HP probably has the best chance, but I’m afraid that HP is still too mired in trying to be what it was a decade ago.  The PC won’t lead anyone into the future.  Today, it’s the cloud, mobility, and the ubiquitous broadband that connects these concepts.  Cisco has nearly all the pieces.  So does HP.  It’s doubtful that any other vendor will be able to pick them up but it’s certain that the unifying message that would benefit both Cisco and HP can be countered by disunion—pick apart the ecosystem and the ecosystemic seller has no story.  A network vendor can still spoil Cisco’s party.

There are undercurrents of illogic in the picture of global tech that Cisco and others are painting too.  Service providers have not traditionally changed capex much in response to macroeconomic trends; why would they be doing it now?  Enterprises are being offered a network-mediated resource consolidation process we call “cloud computing” to reduce costs.  Why would they not embrace it in difficult economic times?  We are not suffering an economic suppression of tech as much as we are suffering an inspirational suppression of tech.  Slouch, let you hair fall into disorder, shuffle along, and you’re a bum.  Wait too long for a leader to fast-follow and you’re a slacker.  And if the best candidate won’t run, the best candidate who does run will win.

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