In-Depth

Cisco: The Unlikely Contender

Networking giant Cisco goes after Microsoft's supremacy in the collaboration-software market.

Microsoft has long been viewed as the industry bully -- IT's toughest, baddest, meanest thug. Critics have charged the company with using tactics ranging from the unethical to the outright illegal in order to grow its business. But Redmond has remained unfazed by these charges and continues boldly beating up on competitors.

Now, though, despite its status as a $60 billion blue-chip company, the company needs to be on guard. A new fighter has entered the ring, one that has fought off all contenders in its market while also earning the scorn of its competitors. That fighter is Cisco Systems Inc.

Fresh from a long streak of conquests in the networking world, Cisco has developed a new interest: collaboration software. Through a series of both large and small acquisitions, some industry observers believe the company has put itself in a position to seriously challenge market-leader Microsoft in this increasingly important market. First, in August, Cisco paid $215 million to acquire e-mail supplier PostPath. The company quickly followed that by snapping up presence supplier Jabber Inc.

Market changes have placed Microsoft and Cisco on a collision course. The boundaries between Cisco and Microsoft's respective kingdoms have always been clear and, to boot, the two have had a harmonious relationship. But now Cisco has launched a concerted movement for the network and has pushed into that part of the application arena, while Microsoft's products have been moving down into the networking space. Both titans have been training for the anticipated slugfest, so the only question remaining is: Which one will emerge more bloodied?

New Opportunities in a New World
"Paradigm shift" is an overused term in IT, but in this case it actually seems to be taking place in the software arena. The flattening out of corporate hierarchies; the integration of data, voice and video features; and the growing popularity of mobility are changing how companies operate. Rather than wade through piles of pink paper messages and games of endless telephone tag, executives now expect to connect with one another and exchange information instantly no matter where they're located. Collaboration suites are becoming the enabler of this new, rapid-fire method of information exchanges, and they're becoming quite popular.

"We're interested in collaboration services because the market is so big," notes David Knight, senior director of Cisco WebEx. Cisco officials say they expect vendors to sell $34 billion worth of collaboration products in 2008.

E-mail and instant messaging products are becoming core foundations in such solutions. Aware of this transformation, Cisco bought PostPath, a Linux e-mail and calendaring supplier. While Cisco paid more for other acquisitions-the company has made more than 125 purchases throughout its history -- this one may be its most significant. PostPath's products are designed to enable enterprises to replace Outlook, Exchange and Office Communications Server, the foundation of Microsoft's collaboration initiative.

PostPath has a Linux-based system that enables corporations to either augment or replace their Exchange systems. The startup's solution interoperates with other e-mail solutions, provides a browser-independent AJAX Web client and works with mobile clients. The product does not require middleware to interoperate with Outlook, Exchange, Active Directory, ActiveSynch or Research in Motion's BlackBerry Enterprise Server. Consequently, companies can drop the PostPath system directly into their Exchange environments to improve the performance of their backup tasks, or they can dump the Microsoft e-mail system altogether.

"Because PostPath was a small company, potential customers may have had cold feet using its products to replace Exchange," says Matthew Cain, research vice president at analyst firm Gartner Inc.

Replacing Exchange appeals to many enterprises because of the product's high cost and complexity. The Microsoft solution often requires a small army of skilled technicians to operate it, while PostPath is known for its simplicity. Rather than have customers install and manage the software themselves, PostPath is delivered in a Software as a Service (SaaS) model that allows the vendor to maintain the product; customers can access it through the Internet. PostPath also claims that its products cost about one-fourth the expense of deploying Exchange.

Globe Manufacturing Co. LLC, a Pittsfield, N.H.-based company with about 400 employees, found the prospect of such potential savings appealing. The firm makes protective clothing and footwear used by emergency-services professionals, including firefighters. Globe has standardized on Microsoft desktop software, including Office, and has outfitted its sales force with Windows Mobile devices. But the manufacturing company has little interest in Exchange.

"Exchange has been too complicated for us to consider deploying," says Nick Bonnett, IT specialist at Globe.

In the fall of 2007, the protective-clothing supplier decided to move away from its outsourced e-mail solution. "Employees were having trouble accessing their messages via Web mail when they were on the road," Bonnett says. So, Microsoft was given another chance to change Globe's feelings about Exchange. At the same time, Globe was using an outdated version of ACT! as its contact manager, and a number of employees had already ditched that software for the integrated e-mail, calendar, contact and desktop functions found in Office.

However, the company's decision about which e-mail server to choose boiled down to products from PostPath and Zimbra Inc. Globe chose the Linux-based PostPath server CentOS because it functions as a drop-in replacement for Exchange at a far lower cost. The cost of deploying PostPath, including a high-end server, was equivalent to the cost of just an Exchange server license without the necessary hardware. Bonnett also notes that he feels a little safer because his e-mail server relies on a Linux operating system, which is not as high-profile a target for malware as Windows.

Putting the Pieces Together
Presence has become an important feature recently, and the Jabber purchase was designed to fill that void in Cisco's portfolio. The start-up's software works with presence systems, including Microsoft's Office Communications Server, IBM's Sametime, AOL's AIM, and a number of offerings from Google Inc. and Yahoo! Inc. The Internet Engineering Task Force (IETF) has ratified Jabber's underlying protocol -- the Extensible Messaging and Presence Protocol (XMPP) -- as a standard for presence and messaging technologies.

Cisco is focusing on more than just displacing Exchange.

"Cisco understands a shift may be taking place in how companies purchase and use software, and Microsoft's desktop dominance may be threatened," says Brad Shimmin, an analyst with Current Analysis Inc.

Cisco could use its new messaging products to gain a more advantageous position in the emerging collaboration space and so penetrate further into Microsoft's turf, analysts agree. The company plans to integrate PostPath's 67 employees into its Collaboration Software Group (CSG). CSG is a key component in Cisco's recently established Software Group, which oversees the IOS network OS, unified communications (UC), network- and service-management, policy management and SaaS offerings. In other words, it's the group managing Cisco's growing software portfolio.

Eventually, Cisco plans to integrate PostPath and Jabber into WebEx, a collaboration tool purchased for $3.2 billion in April 2007. WebEx supports instant messaging, team spaces for collaboration, wikis and document sharing, along with voice, video and data applications. While WebEx serves as a cornerstone in Cisco's battle, it did offer support for transporting the documents users generate while they collaborate. PostPath has now filled that void. Once PostPath and Jabber are integrated into Cisco's WebEx Connect collaboration platform, the vendor could have the tools needed to throw some nails in the path of the Exchange, Outlook and Office juggernaut.

Shifting Landscape
Slowly but successfully, Microsoft has become the dominant supplier in the messaging space. Gartner predicts that the vendor's market share will soon near the 70 percent mark, putting Microsoft in an enviable position.

"Microsoft has aggressively used its strong position in e-mail to move into adjacent markets," Gartner's Cain says.

Cisco needed PostPath and Jabber to not only slow Microsoft's momentum in the e-mail space, but also to keep the vendor from gaining similar momentum in the adjacent markets -- mainly the collaboration space, Cain adds.

The increasing competition illustrates the changing IT landscape. The dividing lines between networking equipment and desktop applications are no longer clear. Microsoft is pushing down the protocol stack and trying to dabble in traditional networking areas. The Microsoft Office Communications Server (OCS) has been positioned as a PBX replacement, and the company has been coupling Office with Live Meeting to woo WebEx customers. Software has obviously become a bigger part of Cisco's arsenal as evidenced by its aggressive moves with CSG.

Traditionally, Redmond and Cisco have worked together to serve customer needs. In fact, the duo relied on Session Initiation Protocol (SIP) to integrate Microsoft Office Live Communications Server with Cisco's Unified Communications System. But their relationship has turned more combative as the market has evolved. In June 2006, Microsoft turned to Nortel Networks, Cisco's traditional rival, for help in building UC apps. Now, the fight is clearly on -- so who will win?

Heavyweight Contender
Cisco clearly has the size and marketing might to trade punches with Microsoft in close quarters. The networking company generated $39.5 billion in its last fiscal year and dominates most networking sectors, garnering 70 percent market share or more in those markets. As a result, many networking suppliers are now in the process of revamping their business models in desperate attempts to survive in the coming years. An ability to integrate collaboration functions into the network is one reason why Cisco feels confident about its chances in the emerging collaboration market space.

Conversely, Microsoft does not seem to understand the networking market. Its agreement with Nortel was designed to forge a partnership with one of the networking industry's market leaders. But since the announcement, Nortel has stumbled about in search of a viable business strategy, changing direction and shuffling top executives on a regular basis.

Another plus for Cisco is that it does not have a large existing base of customers that would have to migrate from older collaboration platforms to more modern solutions. The company can simply start from scratch and put more modern systems in place right from the start. In fact, Microsoft has seemed to struggle with that balancing act. The industry seems to be embracing the movement to the SaaS model and away from desktop software.

Redmond has made some moves with products, such as its LiveOffice system, but many observers view its actions as superficial and lackluster. One reason may be that adopting a SaaS model loosens customers' connections to their systems' underlying operating system, which has served as a cornerstone of Microsoft's market dominance.

Cisco, however, must overcome some challenges in order to be successful. For one, it has little experience in the desktop-application arena.

"Education will be needed in order for the company to transform itself from a networking to a software supplier," says Current Analysis' Shimmin.

The software giant will need to educate not only its own employees, but also the channel partners it has relied on to deliver its wares. But that brings up another question: How much of a need will there be for resellers when collaboration tools can be sold and maintained via the Internet?

The idea of growing through acquisitions has proven viable in the networking space, but it may not work as well in the software market. In the networking space, devices operate largely in an autonomous fashion, so stringing together a number of systems with antithetical architectures is possible. With software, the underlying components are more tightly integrated, so mixing and matching may not produce viable solutions.

Let the Battle Commence
Microsoft clearly understands software, which is the foundation for collaboration tools. While competitors often castigate the company's product features as well as the timeliness of its product deliveries -- "leading edge" is not a phrase often associated with the company -- the vendor has done a good job of delivering functional, cost-effective products to customers.

Another consideration: Is all the hype about SaaS overblown? Vendors have been touting the model since the pre-dot-com-boom days, when it used to be labeled as the Application Service Provider, or ASP, model. However, many companies have thus far shunned the SaaS approach.

"Organizations feel more comfortable housing important data within their own walls, rather than having it sit on someone else's server," Shimmin says.

Throughout its history, Microsoft has been able to push other vendors around and dictate to them how the industry was going to evolve. Consequently, the company sits in an enviable market position. But Cisco represents a legitimate threat to Microsoft's top-dog status. The networking vendor has plenty of muscle and won't be easily intimidated. This figures to be one after-school brawl that will attract a lot of very interested spectators.

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