Cisco turns back to service providers

OvumCisco has been making changes recently to refocus its organization, increase revenues, and improve margins. One of these changes was shutting down the Flip camera business unit, which was one of its less successful consumer investments. But these changes and Cisco’s refocus signal more than just a reduction in its efforts to target the consumer market. 
 
Ovum believes that Cisco will seriously consider selling off the Linksys division, which has put pressure on its margins but also its traditional channels. Linksys products also cannibalize its enterprise wireless portfolio because Linksys consumer products offer many advanced features at commodity price levels. However, the consumer products which many industry pundits blame for Cisco’s recent poor performance are just one of the areas for improvement. Consumer products and WebEx create challenges for Cisco with its traditional channels, as well as putting pressure on its margins.
 
Despite recent setbacks for the vendor, we mustn’t forget that Cisco is still the leader in many markets and was able to create a new market for immersive room-based video systems (Telepresence). Ovum believes that by improving its decision-making processes and management structure, increasing focus on supporting service providers, and removing any conflict with its strategic service provider partners, Cisco will achieve better margins and growth.
 
Changes to its senior management structure and councils are also key. One of the recent changes that Cisco announced was the restructuring of its management and a reduction in the number of councils. This structure had created an overlay of bureaucracy that slowed down its decision-making and led to many executive departures.
 
These management changes will allow for faster decision-making and quicker response to market changes. That may appear to be a subtle change, and it seems to have been ignored in other reviewer’s analyses of the major refocus and changes at Cisco, but the ability to make decisions faster and hopefully increase Cisco’s responsiveness to the market and its customers will make a significant positive difference.
 
 
Service provider partnerships become key
With many of its new services and infrastructure investments focused on managed services and emerging cloud services, it will become increasingly important for Cisco to support its service provider partnerships. Service providers are already key customers and will become more critical channels for Cisco products for existing and new enterprise service offerings. Strong relationships with service providers are not something new for Cisco, but some of its consumer offers have distracted its efforts. Now is the ideal time to refine and improve its support for service providers.
 
Over the past few years, there have been some developments and service introductions that had many in the industry concerned Cisco was on the brink of transforming itself into a service provider. Some services (for example WebEx) have put Cisco in a position to provide hosted services, which placed it in the role of a service provider – a role which made many of its strategic service provider partners nervous.
 
WebEx services competed with many of the service provider’s existing and deployed conferencing services, and were a particular threat because it requires global network infrastructure and data centers, which are typical service provider investments and assets.
 
That is why we feel Cisco’s journey away from direct provision of services is not quite complete. It is likely that Cisco may divest WebEx to remove any concerns about becoming a service provider and competing with many of its partners for conferencing, UC, and collaboration services.

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