Empire on potholes

Three days ago, Cisco announced another downsizing, this time by 6,500 employees and the intention to sell the factory in Juarez in Mexico to giant Foxconn, which would deprive another 5,000 people of their jobs in an American company. All these events follow the company's decision to stop the production of the Flip camera and minimize the development of the Eos social / video platform.

It has only been a few years since Cisco expanded its business to new markets, burning billions of dollars in mergers and acquisitions, eating companies such as WebEx, Tandberg and Flip. Now the movement abruptly changed direction - what happened?

Too much success

The current position of Cisco is a classic story when someone becomes a victim of their own success. At the time of the apex of the dot-com bubble, Cisco bypassed Microsoft by capitalization and became the most expensive company in the world. In the end, this is not surprising, because Cisco was selling equipment, through which there was a worldwide network. Some success was achieved in the field of corporate VOIP products, where the company expanded its influence, but we will return to this subject again a little lower.
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The explosion of the bubble affected Cisco business. Just one year after the company's capitalization surpassed Microsoft, Cisco fired 11% of its own workforce. The problem was two-way: first, the company owned almost a whole market, so if the market started to fall, the same thing happened with Cisco; secondly, investors wanted growth, and the corporate network iron market seemed already huge, in fact - it grew to its maximum size. On the occasion, in March 2007, Cisco bought WebEx and at the same time the first message appeared that the giant already owns a share from 70% to 90% in the market of switches and routers, but investors, as often happens, were few and demanded more greater growth.

A new way to diversify the company began in 2003, when it bought Linksys for half a billion dollars, opening its way to the market of consumer network devices. According to one of ZDnet's reporters, Margarita Reardon, it was not only a new market for Cisco, but also a new approach to acquisitions as a whole. Prior to this, the company bought out mostly small firms, often the latter did not even have any product or technology on the market - only groundwork. In the case of Linksys, Cisco bought the industry leader, discovering tremendous opportunities.

But that was not enough and shortly after, Cisco spent $ 6.9 billion on the acquisition of Scientific Atlanta, a company that produced and sold broadband networking technologies and products, such as modems and set-top boxes.

In 2007, Cisco announced that half of all households in the US use products from either Linksys or Scientific Atlanta. Now, having a huge share of not only private, but also corporate, markets, the company continued its deepening in new areas for it. In order to avoid antitrust charges, which began to appear in the 90s, Cisco began to work in the field of telephony - then management seemed logical to move a little exclusively from network products and technologies, trying something new.

Social leap

In early 2007, Cisco moved to a completely unknown direction for it, acquiring the developer of social networks - the company Five Across. Shortly before that, there was another offense - the main assets of Utah Street Networks, responsible for the emergence of the social network Tribe.net.

But all this is unlikely to seem a serious event, compared with the exclusion of $ 3.2 billion for WebEx in March 2007. This event marked the arrival of a new era in the company - another leader of his field was bought out, doing business in a new, for Cisco, space - the company wanted to try its hand in the field of software.

2007 ended with the announcement of Eos, a platform for multimedia and social websites, built around the developments of Five Across and Utah Street.

However, perhaps the most famous step in the direction of still unexplored areas was the takeover of Pure Digital Technologies, responsible for developing the Flip Video camera. Now this event may seem like a bad step from the point of view of the company's overall development strategy, but it should be considered in the context that at the end of Zero, Cisco was very passionate about various video technologies and products.

Video Passion

As Cisco expanded into the social realm, it also pushed through various video products. And if all ambitions in the field of social networks seemed to appear out of nowhere, video technology was a natural advance.

In the 90s, Cisco started a telephony business by developing several VOIP products, as well as purchasing several companies that worked in this area. The video was perfectly combined with various products in the field of corporate networks and infrastructures and, as already mentioned, it made it possible to avoid complaints from the US antimonopoly committee. In general, video has always been part of the Cisco equation.

In 2006, the so-called. Telepresence - a video line that allows you to communicate in real time. Despite the fact that the product was valued at only $ 300,000 at the height of the recession that broke out a bit later, this product was one of the fastest growing in 2008 according to FastCompany. In addition, Cisco maintained its own, internal, YouTube-like video site made specifically for employees. The video direction was so important for the company in 2008 that they even began to hear rumors about a possible purchase of Adobe.

In January 2009, shortly before the purchase of Pure Digital, Chris Arkenberg wrote: “Everything that generates more traffic in Cisco video arteries makes the company and its management very happy. The video is huge, and the hosting of the video is even bigger and soon many companies in this area will have to spend more money on better networking technologies in order to cope with the workload. ”

The acquisition of Pure Digital looked like a natural desire to draw a line between successful Cisco technologies in consumer technology and the growing field of corporate video.

The concert is over

The first cracks in the ship Cisco began to appear in 2008, when the company began to lose market share in network equipment. Therefore, in 2009, 2,000 company employees were quietly laid off.

But for the most part the social and video directions continued their development. Cisco announced the Quad corporate social platform in June 2010, followed by two social CRMs in November.

However, the party finally ended in April of this year, when Cisco announced its intention to stop producing Flip Video cameras, even though it managed to sell them in the amount of 2 million. Eos ended its existence in May.

Now what?

The general consensus about stopping the release of Flip is as follows - this line of business did not bring the expected income, most likely due to the growing popularity of smartphones and their ability to shoot video and share it with friends, although in 2009 Cisco could well predict this. Today, the company says a lot about restructuring and changing the focus, but it is not yet completely clear what this means.

In an internal note published publicly, CEO John Chambers writes: “As I said, our strategy is tangible. But its current implementation is not quite. " However, this does not indicate where exactly the company will move in the future or what it is going to change.

At the moment, Cisco still promises not to stop in the development of consumer technology, video and social projects. What else will be cut off, if so, to be learned in the future. Rumor has it that the next restructuring step may be an attempt to sell WebEx and Linksys.

In the meantime, Cisco is losing market share in the most important areas for it and, as Stacy Higgibotem of GigaOM writes: “This allowed the largest competitors to start developing in the most promising network area today - on the idea of ​​a unified network. This is a slight nod to OpenFlow - an organization consisting of companies such as Facebook, Google and Yahoo.

A huge amount of data and cloud computing are changing the requirements of companies to the network area: Dell, HP and Oracle have taken advantage in this direction. However, Cisco did not lose everything she had - she still has a Unified Computing System. But it seems that while Cisco was spinning around video-related ideas, it missed several important steps in the development of the cloud. In an effort to satisfy the desires of investors, Cisco has entered new markets and areas of technology that are no longer needed - and this can cause damage to the company's main business.

But it’s hardly so bad inside the company. It still has a huge market share, and what competitors do is unlikely to satisfy all consumers, while Cisco always aims big.