Cisco Company Development History: 1984-2000

An American is a person who does something because they have not done this before.
Mark Twain

Greetings My name is Minaev Sergey, I represent the company VISTLAN , which is engaged in system integration, including solutions based on Cisco products. I am sure that in order to do your job well, you need to know as much as possible about the subject with which you work. And in the list of this knowledge, the history of the subject, the history of the products with which you work, is not the last. After all, an understanding of history is an opportunity to more deeply understand the features of products, as well as to imagine possible development prospects.

And now I present to you a translation of an article that reveals in some detail the history of the creation and development of Cisco. I think this story will be interesting for those professionals who have been working with Cisco products for a long time, and for those who are just discovering the capabilities of Cisco products.

We planned to write our own article about the history of Cisco, but when our specialists began to collect information, we found an excellent article in the English-speaking segment of the Internet, which tells in great detail about the history of the company from its inception to 2000 inclusive. And now I present to you a translation of this article .
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How Cisco developed in the following years, what products appeared, how technologies developed and much more, we will definitely tell you separately in another article that we are preparing.

Cisco history and prospects

Today, Cisco occupies a decent position in the Internet economy and helps many people to completely change their approach to work, education, entertainment, and even life!

Key dates:

1984: Cisco Systems, Inc. founded by Leonard Bozak and Sandra Lerner.
1986: The company sold the first product - a router for a TCP / IP protocol packet.
1988: Donald T. Valentine, a venture capitalist, gained control of the company; John Mordridge became president and CEO.
1990: The company became a joint stock company; Lerner was fired, and Bozak left of his own accord.
1993: Cisco made the first deal with Crescendo Communications.
1994: For the first time, the company's revenue exceeded $ 1 billion.
1995: John T. Chambers became CEO.
1996: Company acquires StrataCom, Inc. (manufacturer of switching equipment) for 4.67 billion dollars.
1998: Cisco’s cumulative market value passes $ 100 billion.
1999: The company acquires 17 enterprises, including:

• GeoTel Communications Corp., producing call routing software, for $ 1.9 billion;
• Cerent Corporation, a manufacturer of fiber-optic networking equipment, for $ 7.2 billion;
• Aironet Wireless Communications Inc., a wireless equipment maker, for $ 800 million;
• Fiber-optic communications equipment manufacturer Italy Pirelli SpA for more than $ 2.2 billion.

2000: The total market value of the company reaches 450 billion dollars.

history of the company

Cisco Systems, Inc. - one of the world leaders in the supply of goods, including software, as well as services in the field of creation and maintenance of computer networks. The company's production line includes routers, switches, remote access devices, protocol converters, Internet services and networking devices, network management software that integrates geographically distributed local area networks (LANs), wide area networks (WANs), and the Internet itself.

Cisco serves three main market segments:

• large organizations, including corporations, government enterprises, engineering networks, and educational institutions that need complex network solutions that typically connect different locations;
• service providers, including Internet service providers, telephone and cable companies, and wireless service providers;
• small and medium-sized enterprises whose needs include operating networks, an Internet connection, and / or communication with business partners.

The company is increasingly developing expertise in the organization of fiber-optic networks, as well as related expert knowledge of multifunctional networks, which offer network audio and video capabilities in addition to traditional information capabilities.

The origin of multiprotocol routers

Cisco Systems was founded in December 1984 in Menlo Park, California by Stanford University staff and married couple Leonard Bozek and Sandra Lerner. Bozek was the manager of the laboratory of the department of computer science, and Lerner supervised the operation of computers in the business high school. At Stanford, Boseck created a way to connect two local area networks in the departments where he and his wife worked, stretching 500 yards of cable across the campus.

Initially, Lerner and Bozak attempted to sell the internetwork technology that Bozac developed to existing computer companies, but they did not manage to interest anyone with new features. Then they decided to start their own business, Cisco Systems, based on this technology. By the way, they came up with the name, looking at the abbreviated form of the name San Francisco, when they drove through the Golden Gate Bridge.

Bozak and Lerner joined as co-founders colleagues Greg Setc, Bill Westfield and Kirk Loid. Stanford University later tried to get $ 11 million in licensing fees from the new company because Bozak developed the technology while working at the university, but ultimately the university agreed to a $ 150,000 compensation, free routers, and customer support.

At the time of its foundation, the company had a very limited budget. In fact, Bozak and Lerner had to mortgage their house, increase credit card debt, and delay the payment of salaries to friends who worked for them in order to successfully run the enterprise. And even after two years of business, Lerner continued to work on the side in order to get an adequate level of income for herself and her family.

The main Cisco product from the very beginning was the gateway router, as well as hardware merging with software that automatically chooses the most efficient route for transferring data between networks.

Cisco routers supported multiple protocols (data transfer standards) and therefore could combine different types of networks with different architectures based on different hardware, such as personal computers compatible with IBM, Apple Macintosh computers, UNIX workstations and IBM universal computers.

So, in 1986, after Cisco introduced its first product, a router for a TCP / IP protocol packet (TCP / Internet Protocol), it became the first supplier of multi-protocol routers on a commercial basis.

A year later, Cisco sold routers for a total of $ 250,000 per month. Sales at the end of the budget year - July 1987 amounted to $ 1.5 million, while the company employed only 8 employees.

Cisco initially sold its routers to universities, research centers, the aerospace industry and government organizations, contacting programmers and engineers through ARPANET, the precursor of what later became known as the Internet.

In 1988, the company set out to sell its gateway routers to leading corporations with geographically dispersed units that used different networks. To this end, Cisco has developed routers that support an even greater number of communication protocols, with the result that it has become a leader in its segment, since Cisco routers were able to support more protocols than their counterparts from other manufacturers.

By the end of the 1980s, when the commercial internetworking market began to develop, high-performance Cisco routers at a reasonable price gave it a significant advantage over emerging competitors.

Although Cisco had a high rate of sales growth, the young company still needed investors; in 1988, Bozak and Lerner were forced to seek support from venture capitalists Donald T. Valentine of Sequoia Capital. Valentine, however, demanded that the owners give him a controlling stake in the company. Thus, Valentine became chairman, and then hired John Morgridge as the company's new president and CEO.

Morgridge, who had an MBA from Stanford University, was the executive director of notebook manufacturer GRiD Systems Corp., and had worked for six years as vice president of sales and marketing at Stratus Computer. Morgridge replaced several Cisco managers who were friends of Bozek and Lerner with more competent and experienced managers.

In February 1990, Cisco became a joint stock company, after which Bozek and Lerner began selling their shares. Sales at the end of the fiscal year - in July 1990 were 69.8 million dollars, net income was 13.9 million dollars, and the company had 254 employees.

Under Morgridge, Bozek was given the position of head of research, and Lerner was made head of customer service. However, Lerner, as we know, was not on good terms with Morgridge and, in August 1990, she was dismissed, after which Bozac also left.

When Bozek and Lerner left the company, they sold the rest of their shares for $ 100 million. The couple subsequently gave most of their profits to their favorite charities.

In the early 1990s: rapid growth with the spread of the network

Meanwhile, Morgridge created a sales department that was supposed to sell products to corporate clients. At first, Cisco's corporate clients were departments of research companies that already had large internal networks. Later, Cisco was able to sell its products to all major corporations in order to help them connect the computer systems of the main and regional offices, as well as branch offices.

As the Cisco client base has grown, the company's biggest problem has become customer support service. The large size of the network systems to which Cisco delivered products made the task of customer support particularly challenging.

The company grew at a tremendous pace as the market expanded rapidly. In the early 1990s, companies of all sizes installed local area networks (LANs) of personal computers. The potential market for combining these networks, both with each other and with existing minicomputers and personal computers, has also grown. Cisco sales rose sharply from $ 183.2 million in fiscal 1991 to $ 339.6 million in 1992, and net income rose from $ 43.2 million to $ 84.4 million over the same period.

In 1992, Fortune magazine announced Cisco the second fastest-growing company in the United States. Cisco could redefine and expand the market as it grew, being the leading provider of gateway routers.

While new communications technologies have become widespread, Cisco has adapted and added new protocol processing capabilities to its list of products. In the fall of 1992, Cisco introduced the fiber ring technology (FDDI) line and improved high-performance Marker Ring router. At the same time, the company also introduced the first ISDN router (ISDN) in the Japanese market.

Until 1992, Cisco products were not distributed in the IBM System Network Architecture (SNA), its own network structure used by IBM computers. But in September 1992, after IBM announced plans to license the Advanced Peer-to-Peer Networking Protocol (APPN) used for SNA, Cisco responded by announcing plans for the competing Advanced Peer-to-Peer Internetworking Protocol (APPI) to support SNA.

But these plans were not implemented. By August 1993, Cisco abandoned the decision to develop a competing protocol because IBM had made it clear that APPN would be a more open protocol for working with products from different manufacturers than originally stated. As a result, Cisco continued to work with IBM to further define the APPN standard and bought a license to use APPN technology.

The emergence of asynchronous transfer mode technology (ATM) as a new standard multi-protocol data transfer method has become a challenge for Cisco and the router industry. ATM is a cell switching technology that can provide high-speed communication of data, voice, video and images without the use of routers.

In early 1993, Cisco entered into a joint development project with AT & T and StrataCom to develop standards that ensure that ATMs work within existing Frame Relay networks. Cisco also became one of the four founding members of the ATM Forum, who also worked to endorse the new standard.

In February 1993, Cisco announced a strategy for incorporating ATM into protocols that support its products. And in fiscal year 1994, Cisco introduced its first ATM switch.

In January 1993, Cisco introduced a new leading product, the Cisco 7000 router, which showed a 50 percent improvement in AGS + performance, the existing high-quality Cisco router.

In June of the same year, Cisco introduced a new, lower-priced, minimum production line: the Cisco 2000 family of routers. Cisco 2000 was aimed at companies that want to connect their smaller, remote divisions or even individual employees, but do not want to pay for the premium version. Also at this time, the first network was created with more than 1,000 Cisco routers.

International sales increased steadily, accounting for 35.6% of sales in the 1991 fiscal year, 36% in the 1992 fiscal year, 39% in the 1993 fiscal year and 41.9% in the 1994 fiscal year. Most of Cisco’s international sales were conducted by distributors, while in the United States, most sales (65% at the beginning of 1994) were conducted directly by end users.

Cisco also began actively selling its technologies, in particular software, to phone companies, because deregulation of American telephone providers allowed them to transmit more different types of data and more services. For example, Cisco entered into a joint marketing agreement with MCI International to integrate Cisco routers into continuous data networks over telephone lines.

In 1992, Cisco entered into new distribution agreements with Bell Atlantic Corp. and US West Information Systems Inc. Cisco also signed marketing agreements in 1993 fiscal year with Pacific Bell, whereby Cisco became the preferred supplier of routers for the company's network systems.

At about the same time, Cisco also began to enter into contracts with major European telecommunications companies. British Telecom has become a customer of the original equipment manufacturer (OEM) of all Cisco products. We also started cooperation with OEM Cisco and other European telecommunications companies, including Alcatel in France and Siemens AG in Germany. And at the end of 1992, Olivetti in Italy agreed to sell Cisco products in accordance with the reseller’s value-added agreement.

Cisco has made other strategic alliances for better positioning in the emerging internetwork market. To reach less technically advanced customers, Cisco entered into a joint agreement with Microsoft Corporation to sell the first Cisco PC-based routers on the market together with the Windows NT Advanced Server through Microsoft marketing channels.

Similarly, Cisco has established business connections with Novell to integrate Cisco routers with Novell networking software to provide connectivity between Netware and UNIX-based networks. In addition, Cisco began working with LanOptics Ltd. to develop remote access products.

1993-94: The first wave of acquisitions

In September 1993, Cisco acquired Crescendo Communications for $ 95 million, resulting in fundamentally new products called Copper Distributed Data Interface (CDDI).

The development of ATM technologies Crescendo was the main reason that Cisco acquired this company. Subsequently, Crescendo Communications was renamed the Workgroup Business Unit, and the switching technologies it developed were later incorporated into Cisco routers.

Cisco made the second major acquisition in August 1994. It was Newport Systems Solutions, which was bought for $ 93 million in stock equivalent. Newport Systems Solutions sold the LAN2LAN production line, as well as the software used in the LAN connection. This software product became the first new product name of the Workgroup Businesses Unit, starting with the acquisition of Crescendo.

In early 1994, Cisco announced the creation of a new network architecture, CiscoFusion, which will help provide customers with a gradual transition from routers to new LAN switches and LAN and ATM switching technologies. CiscoFusion enabled users to use and direct switching methods with maximum convenience. Several new switching products were introduced in March 1994 as part of this architecture, including an ATM interface processor and a Catalyst FDDI-to-Ethernet LAN switch.

During this period, Cisco moved its headquarters from one end of Silicon Valley to the other, from Menlo Park to the newly built office building complex in San Jose, California. The growing size of the company required a larger office. The company's workforce grew from 1,451 in July 1993 to 2,262 in July 1994. This year, Cisco actively hired talented personnel from smaller, desperate companies that were forced to lay off staff.

In fiscal year 1994, Cisco received $ 1 billion in sales, ending the year July 31, 1994, with $ 1.24 billion in net sales, a 92 percent increase in sales for the previous year, and $ 314.9 million in net income, an increase of 83%. than in fiscal year 1993.

Later in October 1994, Cisco completed two more acquisitions of companies involved in the switching sector. She spent $ 240 million on Kalpana, Inc., a manufacturer of Ethernet switching products; and $ 120 million at LightStream Corp., which handled ATM and Ethernet switching, as well as routing.

Surprisingly rapid growth under the leadership of John Chambers in 1995

In January 1995, John T. Chambers became Cisco CEO, Morgridge became vice chairman, and Valentine became chairman.

Chambers, who had a certain lifespan at IBM and Van Laboratories, prior to joining Cisco in 1991, increased the pace of acquiring companies to overtake competitors and correct manufacturing line flaws, seeking to provide customers with a universal online shopping organization.

The company made 11 acquisitions in 1995 and 1996, including:

• Grand Junction, Inc., a manufacturer of Fast Ethernet and Ethernet switching products, for $ 400 million in September 1995;
• Granite Systems Inc., a manufacturer of high-speed Gigabit Ethernet switches, for $ 220 million in September 1996.

But the largest agreement of this period was the StrataCom, Inc. agreement, which brought $ 4.67 billion, concluded in April 1996.

StrataCom was a leading provider of ATM and Frame Relay wireless switches capable of handling voice, data and video. The addition of Frame Relay switching products to the Cisco portfolio was particularly important because this technology was well adapted to the needs of telecommunications companies and allowed them to increase the capabilities of their networks.

The agreement was also a key step in Cisco’s attempt to leave behind the main consumer category of customers — “enterprises” —e., Large corporations, government agencies, engineering networks, and educational institutions — and move toward telecommunications Internet providers, the area in which it encountered with strong and huge competition in the form of giants such as Alcatel, Lucent Technologies Inc. and Nortel Networks Corporation.

Cisco continued the rapid pace of acquisitions in 1997 and 1998, concluding another 15 agreements. The biggest was the purchase of NetSpeed, Inc. in April 1998, specializing in the production of digital subscriber line (DSL) equipment, a new technology at the time that provided homes and small offices with high-speed Internet access through existing telephone lines.

Another new network technology was IP telephony technology (Internet Protocol), which allowed for telephone calls to be sent over the Internet. Acquisition of LightSpeed ​​International, Inc. in April 1998 and Selsius Systems, Inc. in November 1998, helped Cisco gain a significant share in the Internet telephony sector. The areas of DSL and IP telephony have become prime examples of the acquisition strategy for new emerging technologies at Cisco.

By the late 1990s, Cisco Systems was the undisputed king of the networking world. In July 1998, the company's market value surpassed $ 100 billion, just 12 years after its first open offer — a period of time believed to be a record to reach that level. Revenues reached $ 12.15 billion by fiscal 1999, a more than sixfold increase compared to the 1995 financial result of $ 1.98 billion.

During 1999, Cisco became even more "greedy", capturing another 17 companies. As a result of these purchases, the company received shares in two more emerging areas: the fiber-optic network and the wireless network.
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A key “wireless” acquisition of Cisco took place at the end of 1999, when it announced the purchase of Aironet Wireless Communications, Inc. for 800 million dollars. It was a manufacturer of equipment that creates wireless networks in small and medium-sized companies.

It was expected that this technology would also be used in home networks, where Cisco tried to capture a segment that was rapidly growing at the beginning of the 21st century: the networking home. During 1999, Cisco also acquired GeoTel Communications Corp., a manufacturer of routing call software, for approximately $ 1.9 billion.

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