From start-up to tech titan: A brief history of Cisco
This feature first appeared in the Fall 2016 issue of Certification Magazine. Click here to get your own print or digital copy.
On Jan. 2, 2002, the day after the Euro officially became legal tender in a dozen European Union countries, Cisco Systems surpassed Microsoft as the most valuable company in the world. At the end of the trading day, Cisco Systems was valued at a mind-boggling $555.4 billion. This was big news at the time, as Microsoft had long been the traditional King Kong of IT, swatting away puny biplanes from atop the highest pinnacle of the technology industry.
To be fair, Microsoft was battling the U.S. Department of Justice and its antitrust suit when the top-spot switcheroo took place. Cisco Systems’s claiming of the Most Valuable Company title, however, was no fluky default. Rather, it was the high point of a run of success dating back to 1984, when a handful of people created a new networking technology company with a name borrowed from their beloved hometown of San Francisco.
Cisco (the company dropped “Systems” from its name in 2006) has a current market capitalization of $153.51 billion as of this writing, and the company’s 2015 revenues earned it 54th place on the Forbes 500 list of most valuable companies. That more modest standing is nothing to sneeze at, but it is indicative of the new networking technology battleground on which Cisco finds itself competing.
Rise to the top
The blueprint that underlies Cisco’s rise to the top of the industry is far from revolutionary. Start a company, grow it, get funding from an industry player, go public, make strategic acquisitions, and become a huge success. It’s a plan that works every time — except when it doesn’t.
Cisco went from private to public ownership in 1990. In 1993, the company made its first big acquisition when it bought Crescendo Communications. It was an auspicious purchase. Part and parcel of Crescendo was the company’s Catalyst line of switches, which would become Cisco’s most profitable product line for two decades.
A quartet of talented executives also came into the Cisco fold with the purchase of Crescendo Communications. These savvy business leaders would go on to have a large impact on Cisco’s future successes.
Cisco hit another home run with its second acquisition when it purchased Kalpana in 1994. Kalpana, an industry leader in affordable Ethernet switches, had been courted for a merger by IBM before Cisco swooped in to buy it outright. The purchase gave Cisco an instant chunk of the Ethernet switching market.
Like before, Cisco also caught a flash of executive lightning in its corporate bottle with the purchase of Kalpana. Formerly Kalpana’s Vice President of Products and Corporate Development, Charlie Giancarlo ended up pioneering a similar role at Cisco and stayed with his new employer for almost 15 years, leading different product groups and further developing the company’s acquisition strategy.
In 1995, Cisco named John Chambers as its new CEO. Chambers would hold this post for the next 20 years, a remarkable tenure that includes not only surviving, but far outliving the vicissitudes of the dot-com bubble.
Competitor on the radar
To pause briefly, in 1996 a new networking technology company named Juniper Networks started its run as one of Cisco’s most significant business rivals. Over the next several years, Cisco would continue to aggressively grow through acquisitions, expanding its product lines and opening doors into new markets.
Juniper, on the other hand, stayed comparatively smaller, and maintained a more modest product portfolio up until the early 2000s, when the company became more active in its acquisition activities.
In 1999, Cisco launched its Architecture for Voice, Video, and Integrated Data (AVVID) platform. The move brought Cisco’s voice over IP (VoIP) phone and PBX technology to market, creating a highly successful IP telephony business unit. In the same year, Cisco debuted the Catalyst 6500 series of Ethernet switches. The Catalyst 6500 product line went on to become a huge seller for Cisco, bringing in billions of dollars in revenue.
Other smash hit products would follow. The Integrated Services Router (ISR) and the CRS-1 core router both debuted in 2004 — Cisco would sell millions of units of these products. In 2008, the company launched its popular Nexus 7000 datacenter switch. One year later, Cisco got into the server market with its Unified Computing System (UCS) systems, which combined processing, networking, storage, and virtualization into a single integrated hardware platform.
These and other product successes made Cisco remarkably big and remarkably profitable. Like many other firms, however, Cisco would not prove immune to competition and shrinking global technology spending, two factors that are still affecting Cisco’s market dominance.
What goes up …
The Great Recession of the late 2000s impacted every business in some form or another. The growing economic crisis forced corporate executives to revisit every aspect of operations under their purview and look for ways to reduce expenditures in the face of falling revenues.
In 2011, Cisco failed to attain the profit that Wall Street analysts had predicted for the year, a significant black eye for any publically-owned company. In response to the backlash from investors and industry critics, Cisco’s executives decided to put the entire company through a massive restructuring. These restructuring activities would lead to the enforced departure of more than 12,000 Cisco employees between 2011 and 2013.
In the years that Cisco has struggled through its high-level growing pains, competitors both old and new have been working hard to whittle away at its dominant industry position. (Cisco’s position remains in flux: A mid-August layoff trimmed 5,500 employees from the company payroll, a 7 percent workforce shrinkage.)
Juniper Networks continues to be a strong industry player, as does Arista Networks, another California-based networking tech company. Hewlett Packard Enterprise, a new independent company created from HP’s restructuring in 2015, recently bought Aruba Networks in order to expand its Ethernet switching revenue. China-based Huawei has eaten into Cisco’s router market share in recent years, and is also beginning to expand its Ethernet switch business.
Meet the new boss?
The latest shot across Cisco’s bow is coming from a number of small, aggressive start-up companies, some of them being led by former Cisco employees. These new start-ups, companies like Pluribus Networks and CloudGenix, plan to dethrone Cisco by offering products that use a relatively new technology called Software Defined Networking (SDN).
A simple description of SDN is that instead of using dedicated networking hardware like routers and switches, these devices can be emulated by using networking software loaded onto conventional server hardware.
SDN offers a number of advantages over traditional networking gear. It is comparatively much cheaper to implement, as commodity servers are less expensive than routers and switches. SDN also creates less complex networks, which can be centrally managed through a single console. Network security can be provided through software instead of physical devices — this approach has been aptly dubbed Software Defined Security.
Cisco has not been sitting on its hands when it comes to SDN solutions; the company has produced its own line of SDN products. The well-established Cisco brand may actually act against the company, however, as it is primarily viewed as a hardware vendor. SDN could also lead Cisco to cannibalize itself, as SDN sales potentially eat into more substantial router and switch revenue.
That said, the Cisco brand is still one of the most well-established and valuable in the IT industry. That’s one important reason why the company’s training and certification program remains popular and relevant today.
Cisco certification success
Just as Cisco underwent a major company restructuring starting in 2011, its professional certification program was also heavily revamped. Numerous Cisco credentials have been retired over the last five years, and the company’s certification blueprint has been expanded in order to encompass all of the numerous technologies Cisco has a hand in.
In the early days, the Cisco Certified Network Associate (CCNA) certification was essentially only concerned with routing and switching. Today, routing and switching is just one of nine different CCNA specialties which include the likes of Cloud, Cyber Ops, and Data Center.
The Cisco Certified Internetwork Expert (CCIE) certification has also been diversified into a number of specialties in recent years. One thing that hasn’t changed over time — CCIE is still one of the most highly-regarded certifications in the industry, due to its difficult dual-stage exam process. Candidates must pass a written exam, and then take a live eight-hour lab exam configuring and troubleshooting actual networking equipment.
The value of Cisco certifications in the industry has been well documented in numerous studies and salary surveys. In Certification Magazine’s 2015 salary survey, Cisco had six credentials listed among the top 75 certifications with the highest employee salaries.
A well-defined and highly respected certification program is something that Cisco’s new competitors can’t offer up-and-coming IT networking talent. This gives Cisco an important advantage over the new start-up upstarts.
There is a reciprocal relationship between building large numbers of certified professionals, and achieving greater vendor market share. Certified professionals commonly act as product evangelists in the organizations they work for. Historically, this relationship has worked to great benefit for IT vendors like Cisco, Microsoft and IBM.
The road ahead
What does the future hold for Cisco? The company that grew into an industry-dominating giant has been hearing the beanstalk creak in recent years. Massive layoffs and lower-than-usual profits have removed some of the shine off from Cisco’s once rising star. And, as noted above, catching up to the emerging SDN market could prove almost as damaging as it is beneficial (and necessary).
There are still massive amounts of Cisco hardware installations around the world, and not everyone will be interested in switching to SDN solutions. This gives Cisco time to manage the expectations of its shareholders, while adapting its workforce and product lines to maintain its relevance into the future.
Cisco’s immediate and long-term existence may end up ranking as a far cry from its historic day as the world’s most valuable company. Yet like other monolithic survivors of the IT battleground — Microsoft, IBM, HP — Cisco has a distinguished brand and a large following of certified professionals acting as its boosters around the world.
Cisco’s continued existence isn’t really what’s at stake. What remains to be seen is how much of its territory the company can retain, even as competitors leverage new technologies to take away business for themselves. Just remember that Rome wasn’t built in a day, nor did it fall overnight. Modern tech empires aren’t likely to last as long, but don’t burn off that Cisco stock quite yet.