Opening his keynote to Cisco Systems’ Worldwide Analysts Conference in Santa Clara, California, December 6-8, CEO John Chambers proclaimed that his company was "built to last and built to lead." The slogan’s somewhat defensive tone is a response to skepticism as to whether the 20-year-old equipment maker can maintain the spectacular growth rate that has won it absolute dominance in the supply of IP networking equipment. Chambers said the key to ongoing growth is "catching market transitions," and he identified two: "customer added value" and what Cisco calls the Intelligent Information Network (IIN). An understanding of this strategy will enable user organizations to better size up Cisco’s strengths and weaknesses as they plan their transition to IP telephony. Market TransitionsThe transition to "customer added value," in Cisco parlance, refers to its growth beyond the core IP switch/router business, as it becomes a major supplier of "advanced technologies": IP telephony systems, wireless equipment, security systems, and storage networks. Sales in these sectors "drive revenue into core products" through sales of switch and router upgrades, Cisco CFO Dennis Powell said. The term Intelligent Information Network refers to the incorporation of such advanced features into the IP network itself. For example, Cisco now sells routers that contain a suite of PBX and security software options.It all makes for a unique combination of "push" and "pull" marketing: Router sales drive IP telephony adoption, which in turn generates new demand for Cisco’s core networking products. Strength in CanadaBuoyed by this circular market dynamic, Cisco’s sales increased 17% in fiscal 2004, and the company predicts an annual rise of 10%-15% during the next five years. Indeed, Chambers scoffed at the "law of large numbers," according to which exponential growth cannot continue indefinitely. Given market expansion and customer decisions on architecture, he said, "the law of large numbers plays in our favour." These heady forecasts rest in large measure on Cisco’s rapid expansion as a telephony supplier. Cisco is now shipping 8,000 IP phones a day, with total sales of four million phones to date. Cisco may now have lost its initial rank as the largest supplier of IP telephony worldwide. In place of such a claim, Transforming a Business Process: A Retailing Scenario  Can advanced communications remake the business model of big-box retailing? Cisco has been working intensively with a major home-renovation chain, and reports on its progress through a striking demonstration. Here is my summary: Sylvia wants to build a fence. She goes to her PC, calls up the "Home Station" website, and keys in her loyalty card number. She clicks on a tool that assembles components for her fence, on her specs. She then clicks a "go to store" button. Her BlackBerry gets a message with directions to the store. The store gets an alert so it can adjust inventories. Sylvia’s loyalty card has an RFID chip, so when she arrives, the store knows automatically. A display lights up at a clerk’s station welcoming her, while her order details come up on the clerk’s monitor. A kiosk provides video access to a remote expert who reviews her order, provides helpful hints, and pushes relevant Web pages to her. Sylvia finalizes the order and pauses for a coffee. All products have RFID codes, so when the order is wheeled out to her through a scanner, the bill is drawn up automatically. Sylvia reviews it on screen and steps in front of a camera, which authenticates her identity through iris scanning. Payment goes through. After returning home, Sylvia clicks on recent purchases uploads the receipt to her financial software. Some in the audience were startled by the implications of personal RFID cards and iris scanning. But what was most striking in this demonstration was how data, wireless, and voice/video applications could work together smoothly to transform a business process. the company pointed to a study of enterprise voice sales as a whole (IP plus circuit-switched), which shows that Cisco has risen rapidly into fourth place, close behind Nortel, Siemens, and Avaya. Such comparisons can be misleading (Cisco’s sales to small organizations are less developed, for example), but this is nonetheless a remarkable achievement for a vendor that entered the previously stodgy PBX market less than a decade ago. Cisco telephony sales are particularly strong in Canada. The 375,000 IP phones shipped here make up 9% of Cisco’s worldwide total; by comparison Canada supplies only 5% of Nortel’s world revenue. The Canadian communications environment is a perfect fit for Cisco technology, Rick Moran, VP Product and Technology Marketing, told Telemanagement, "because of the wide availability of broadband, ubiquitous service, and robust carrier competition." No other country offers this combination of assets, he says. It is often said that every dollar spent on Cisco telephony systems generates on average three dollars in sales of data network upgrades. "We don’t use that figure, but it’s not far off," a Cisco executive told Telemanagement. "I can say that when a company goes to IP telephony, they must replace on average 20%-30% of their data infrastructure." ‘Intelligent Networks’This three-to-one leverage suggests that Cisco’s expansion into telephony will not alter the role of datacom equipment as its core business. Such a focus is evident in Cisco’s concept of the Intelligent Information Network, introduced a year ago to describe its "technology vision." Cisco explains the IIN as a three-stage evolution of IP networking:Integrated Transport (1995-2000): All communications run over IP, using integrated wiring plans. Focus: Transport. Major benefit: Cost reduction. Integrated Services (2000-2005): Security functions are integrated into the network. Centralized call control serves a distributed organization. All services are available to a mobile user. Focus: Virtualization. Major benefit: Network simplification. Integrated Communications (2005-2010): Provision of personalized services, including indication of "presence" and "context," plus "rich communications" (video, collaborative conferencing). Focus: Applications. Major benefit: New capabilities.At present, the emphasis is on "integrated services," which was described at the December Analysts Conference as "embedding applications in the network, rather than on the network." Functionality now available on Cisco’s switches and routers includes: firewall, SSL, caching, VPNs, intrusion protection; storage and backup; load balancing; wireless management; call control; Quality of Service. SimplificationThis integration, in Cisco’s view, enables services to be delivered to any endpoint anywhere across the network ("virtualization"), permits the network to scale much more economically, frees up many servers that can then be used for other tasks, and, above all, simplifies the network."The last decade has been about integrating networks," Cisco Chief Technology Officer Charles Giancarlo told the conference. "Everything is on IP now, but it’s all very complex. We must simplify the networks for users and network managers." Cisco’s launch of its Integrated Services Router portfolio in September 2004 aimed to make this integration available to smaller offices. The ISRs include security, voice, and video applications and serve locations with 30 to 250 users. The routers can run in either standalone or branch-office mode. Their software includes both Survivable Remote Site Telephony (SRST), which works together with a remote Cisco CallManager, and CallManager Express, which offers a full suite of features for standalone service. Organizations choosing an IP telephony vendor may find it persuasive that, at least in many of their smaller locations, they already have Cisco call control, right there in their routers. No additional equipment is needed; simply pay a fee and enter a keycode to activate the telephony features. Other vendors have similarly integrated products, but Cisco’s huge installed base of routers gives its integrated offering unique market clout. Microsoft Redux?Such an expansion of software products to include an increasingly diverse range of functions is a general trend of current Information Technology. It’s familiar to us above all through the evolution of Microsoft, which marginalized many independent software products by expanding the functionality of its Windows and Office suites. We all know how Microsoft’s upstart Internet Explorer triumphed over the initially dominant Netscape browser. Is Cisco destined to sweep independent telephony and security suppliers from the field, extending its near-monopolistic grip on the IP switch/router market to the applications industries? Such a conclusion is premature, to say the least. Cisco does not offer its add-on functionality for free, and in the enterprise telephony market the installed base of the Nortels, Avayas, and Mitels counts for a great deal. But there is no question that Cisco’s emphasis on "integration" and "simplification" carries a clear message: "You can get all you need from us; a single vendor is enough." Its competitors have responded vigorously on this point: for Nortel’s view, see the Vendor Viewpoint in this issue. This alternative presents user organizations with a strategic choice that must be weighed carefully. It’s a truism of telecom management that there are advantages in reducing the number of suppliers. But with the advantages come dangers. In particular, the single-supplier approach deprives an organization of full flexibility and leaves it vulnerable to the chosen supplier’s weaknesses. Wireless IntegrationOne of Cisco’s most persuasive examples of network integration is that of wired and wireless services. Technological convergence is at work here. Notebook computers now have both embedded Ethernet and 802.11 wireless capabilities. New security measures like intrusion detection can serve both forms of networking. And Voice over IP has a wireless equivalent: Voice over Wireless LAN. But Will the Integrators Do the Job Right?  Almost all of Cisco’s business—93% of its enterprise sales—passes through resellers. Much of this is simply fulfillment: filling orders for switches and routers to be installed by the customer. But Cisco’s voice business is different: every IP telephony installation requires expert help, and success is by no means assured. So any organization buying a Cisco IP-PBX must be certain that their integrator can do the job right. Cisco products are sold by an army of 200,000 distributor representatives worldwide, but many of these have little knowledge of telephony. Cisco therefore permits its voice products to be sold only by integrators that have achieved certification for IP telephony: there are three levels, Premier, Silver, and Gold. Even so, for the buyer, evaluating integrator competency is a crucial part of system acquisition. Cisco organizes customer education on its products’ capabilities, but this benefits mainly the largest organizations. Integrators are educated, too, but as one marketing executive put it, "We do well teaching the technology to the partner, but less well in helping them teach it to the customer." Cisco also maintains a Customer Advocacy department, with a staff of 300, which carries out educational work. But "Customer Advocacy" is actually Cisco’s innovative way of describing its consulting services, normally offered on a fee-paying basis. Ultimately, it is up to the user organization to insist on competent education in IP telephony’s advanced capabilities as part of the acquisition process. In the future, says Ann Sun, Cisco’s Senior Manager of Wireless Mobility Marketing, "wireless and wired will be one local network, utilizing the same security, with a common management interface, and offering equivalent voice and video quality. Everything that runs over the wired network should run equally over wireless, and vice versa."Some suppliers separate wireless, Sun says, viewing it as new and wireline as legacy. "We see them together and as equally fundamental. Nothing should be sold without some degree of wireless capability." The notorious security flaws of early wireless LANs have sparked a lot of development activity. As a result, says Security Vice-President Richard Palmer, a wireless LAN, properly installed, "is now more secure than a wired LAN, where authentication is not fully established." Palmer was challenged at the Analysts Conference regarding Cisco’s practice of shipping wireless access points with their security features deactivated. Cisco’s answer to this problem is to "apply authentication to the wired network," Palmer said, and to equip Access Points with an ID, "so no access point can be added without permission." For users, the convergence of wired and wireless functionality is an undoubted advance. Nonetheless, users will still have to weigh carefully the business case for adding a wireless network, whose usefulness varies enormously depending on context. Integrated SecurityIt is widely recognized that network security today cannot rely only on perimeter defense. Hackers have better attack tools, and security challenges evolve not in weeks but minutes. Moreover, the expansion of enterprise networks increases the likelihood that a challenge will originate from within. In response, Cisco stresses that today’s networks must be self-defending. "Security will move from devices to a multi-layer system based on the network," said Chambers. Giancarlo describes integrated security in these terms. "An improper activity may be detected by the client, the switch, the router, or from an intrusion detection system that is testing data paths randomly. As a result, the client could be disconnected. Or the router could activate a filter. Or all data could be cleaned by the intrusion protection system. The fully self-defending network is only a few years down the road." Cisco is taking steps to improve the security of its AVVID IP telephony systems in another vital way, which is not publicized but which its spokespersons readily acknowledge. Cisco’s CallManager runs on the Windows Operating System that has been criticized for security vulnerability. (See Telemanagement #211) A Linux-based Operating System for CallManager is now in development; no target date has been set for availability. Turn to CarriersThe telecom carriers’ current migration to IP networking has opened a huge market opportunity for Cisco, and no less than half of its research and development is currently devoted to carrier products. In marketing to carriers, Cisco projects a vision of its future that is of considerable interest to the carriers’ business customers. "In 2009 the PSTN will barely exist," said Cisco’s Giancarlo. "Video on Demand will be a reality—for video conferencing too. ‘Universal service’ will mean broadband availability." And the carriers’ traditional revenue sources will have withered: "Service providers will get 90% of their revenue from advanced services," particularly those offered by the now-ubiquitous Voice over IP. The carriers’ IP network will have "absorbed the basic functionality and characteristics of the Class 5 switch," Giancarlo said. The present array of "vertical networks"—private line, ATM, Frame Relay, VPN, wireless data—will be replaced or will merge into the IP network (a process already well under way at Bell Canada). And the IP network "will divide into horizontal layers": the transport network itself, a call control layer and, at the top, an advanced services layer. The services layer "is independent of the underlying network, is wide open, and it’s where the profits are going to be made," Giancarlo said. Cisco’s vision of an array of service providers, old and new, providing advanced services over a shared IP network implies flexible and sophisticated offerings to business, greater nimbleness and faster service, and more attractive hosted services. Will this all come true—in five years? Stay tuned. Cisco marketers often tell us, "If you just switch one PBX for another, you’ve missed the point—the possibility of transforming your business." Customers must therefore plan three to five years out, in order to prepare a smooth evolution to advanced services, the company says. These services can be grouped, Cisco tells us, under six headings, and a slide portraying these themes is a common feature in Cisco presentations (see box). Advanced ApplicationsA Cisco demonstration to the Analysts Conference on retailing displayed most of these capabilities (see box). In addition, Cisco offers a lab showcase of applications and equipment, featuring different contexts: school, police car, lawyer’s office, hotel, bank, doctor’s office, real estate management. The school display, for example, features virtual student hall passes, use of photos for taking online attendance, and automatic notification to attendance officers of every absence. Most of these applications are from Cisco’s stable of third-party developers; all are currently available. But how will user organizations learn about applications that might benefit their business? Customers whose workforce does not reach into the tens of thousands are mainly dependent on their Cisco distributor for information, and this is not always an efficient channel for education (see box). For organizations in this range, IP telephony implementations are in fact often little more than the replacement of one PBX by another. Despite Cisco’s early start and its unrivalled financial resources, it has not built up any decisive lead in advanced telephony applications, and in fact has lagged in some key departments. At the Analysts Conference, a company spokesperson conceded that its lack of a unified multimedia platform "burns a lot of customers"—and that this will not be remedied soon. SIP-enablement of Cisco Defines Key Technologies for Next-Generation IP Communications  Virtualization: Giving users access to their communications environment, regardless of location. Rich Media: Enriching communication through integration of voice, video and data collaboration. Presence and Context: Leveraging dynamic information in the network, including presence, location, and authorization. Natural Language: Simple, natural language access to a portfolio of communications services. Modality: Support for many media types, devices, and bandwidth capabilities. Personalization: Preferences track with the user, not the device or directory number. — Adapted from a Cisco Systems presentationCisco’s CallManager will enter trials only in the first half of this year.  Cisco ratings ranked no better than third in a recent Miercom review of IP-PBX vendors’ advanced applications. (Business Communications Review, September 2004) The company may be hampered by its perceived need to reduce its costs as a proportion of sales, which affects research expenditures. In fiscal year 2004, for example, R&D growth of 7% was well below that of sales (17%). Cisco spends one in six research dollars on voice-related products—a significant amount for such a large company. Yet its business remains focused on switch and router sales, an area where it is beginning to feel pressure from low-cost producers such as China’s Huawei. It has yet to demonstrate clear superiority in voice product development. The PBX business is now going through an upheaval comparable only to the rise of independent PBX makers such as Rolm and Mitel 25 years ago. But this time, almost all the market inroads are being made by a single company. More and more—and especially in Canada—the customer’s shortlist for PBX acquisition comes down to Cisco plus the strongest of the traditional manufacturers. The choice has weighty long-range consequences. Cisco is not a PBX maker like the others. Its business, its culture, its focus, its marketing approach, its strengths and weaknesses—all are different and distinctive.For companies planning transition to IP telephony, assessing Cisco’s fit with their needs is a crucial and challenging task.