In a changing of the economic guard, Cisco was added to the Dow Jones Industrial Average this morning at the expense of General Motors. But while the promotion may be a sign of the company's adaptability in the face of troubled economic times, Cisco's ascendancy may be as short-lived as the communications platform it's proposing.
CEO John Chambers boasted for the better part of the last two years that the advent of so-called Web 2.0, and the increasing reliance on the Web that comes with it, would provide almost limitless opportunities to sell more switches and routers. Today, Cisco is positioning itself in the event that this growth doesn't manifest itself in the foreseeable future, putting the focus on a portfolio of collaboration products using integrated data, voice and video over the IP network.
Richard McLeod, the senior director of Cisco's worldwide channel sales program, told me the company believes this market is worth $34 billion, or "as big as the market for switching and routers." Cisco is using its partner conference this week to promote the idea that customers can improve productivity and competitiveness while saving on travel expenses by combining video, instant messaging, telephony and document sharing capabilities on the Cisco network. This portfolio is "absolutely the silver lining of the bad economy," McLeod told me.
Cisco is hardly alone in hawking this paradigm, but each competitor comes at the problem from their respective strengths. Cisco, predictably, touts the power of the network that binds it all together; Microsoft likes to promote the ease with which its collaboration applications mesh with other Microsoft products. IBM makes the same points -- its Lotus Sametime-based collaboration suite tucks in nicely with products like Office, Exchange and SharePoint. Avaya, which touts its rich heritage in telephony (as a spin-off from Lucent and, before that, Bell Labs) and Shoretel, which claims to be the only vendor built expressly for the purpose of IP-based telephony, round out the principal players in the market.
But while they've hammered away at this supposed $34 billion market for several years, vendors seem at a loss to jump-start the segment. Yankee Group analyst Steve Hilton explained that customers are still in the process of migrating from traditional telephony systems to ones based on IP networks. "Once you start talking about VoIP [voice over IP] and the implications of IP, part of that discussion inevitably leads you to a discussion of unified communications [UC]," he told me this morning.
Given the plethora of applications that younger generations of employees are accustomed to juggling on their iPhones and other connected devices, companies will need to integrate some form of unified communications in order to retain their best workers and remain competitive with rivals. "We're going to have networks and systems that provide for this multiple sharing of inputs," Hilton said.
But it may be that current systems, which Hilton qualified as "UC version 1.0 or 1.5" may well be trumped by a Web-based communications platform like Wave, which Google introduced to developers last week. Google is unencumbered by sales channels, vendor alliances and legacy systems, and enjoys the luxury of thousands of developers creating applications for its platform, none of which it has to pay for.
And Wave is a natural extension of the Web with which people and companies are becoming increasingly familiar and at ease; as corporate IT departments become more comfortable with all things Cloud, this Wave may well drown out familiar names, just as former Dow components American Cotton Oil and U.S. Rubber were drowned by the likes of RCA and IBM. At least Cisco will still be able to sell routers and switches, as Chambers foresaw.