Cisco Competition Increasing

November 12, 2010 at 12:15 pm 1 comment

“The question is, given the very weak guidance, whether this is very company-specific or whether this is macro, environmental.  We’re just not seeing this kind of weakness at any other company.”
– William Choi, analyst, Jefferies & Co.

Cisco this week shocked financial analysts by forecasting a drop in quarterly and yearly sales.  News like this began to break: “Cisco’s dismal outlook stuns Street.” The Wall Street Journal ran a piece in which analysts pointed out that many of the problems seem specific to Cisco, including stiffening competition.  Oppenheimer & Co. said they expect to see share losses for Cisco in its core markets in the current quarter, stating that Cisco competitors have made good traction in routing, switching and security, and that challengers are grabbing market share by pricing more aggressively.

Routing was a central focus of discussion by analysts, because it’s always been assumed that it was a guaranteed cash cow for Cisco.  That’s no longer the case; the routing market is changing fast.  Here’s a key fact:  Tech vendors have been rebounding from the crash of 2009, but analysts note that Cisco’s router business hasn’t t come back the way their switching business has.

Routers are the bulk of the Layer 3 networking market.  Layer 3 plays the most crucial role for Internet plumbing. This complex set of protocols enables the connectivity between devices over a distance, and between virtual machines in an integrated or cloud solution. That explains why the market for Layer 3 products is more than 2X the size of the entire market for Layer 4-7.

But the Layer 3 Overhaul is upon us now. To be clear, there is an explosion of Layer 3 infrastructure being deployed… it has to just to keep up with the global upgrade to IPv6.  But the new wave of L3 Infrastructure clearly isn’t coming from Cisco.

Vyatta makes Layer 3 available as software on a global scale.  L3 as software has quickly ushered in a new breed of infrastructure.  Layer 3 is being productized differently now; practically any vendor can add edge routing and security functionality to their service or product. Here’s a short list of how that is happening today:
– ISP/MSP/Hosting/Colo/Cloud (IaaS, SaaS, PaaS) using L3 virtual machines
– L4-7 vendors integrating L3 into their offerings
– Switch vendors integrating broader L3 operations into their devices
– Server vendors offering complete L3 services on top of their hardware
– Mobile infrastructure including SW-based L3 capabilities

Vendors and partners adjacent to Cisco’s router business used to recommend or resell Cisco.  They no longer have to.  Vyatta has removed that barrier and enabled them to add complete L3 functionality as software.

Just last week I spoke with two F500 companies who have deployed Vyatta as an integrated part of new solutions. One is running Vyatta on top of Red Hat KVM, within a blade server and have deployed that solution around the world already. Another is using Vyatta on VMWare within a cloud… ironically enough, running on Cisco servers.

What’s going on here?  It’s simple:  An open, software-based solution has the power to radically alter an existing industry structure. Just look at Android for a highly public example of how that can happen.   Until now handheld device architectures have been proprietary hardware/software combinations.  By contrast, Android is open and hardware-independent.  It works beautifully, radically improving innovation and time-to-market.  Over the past couple of weeks the reports have come out that Android has beaten iPhone deployments in a very short period of time.

Here are the key facts to remember:

  • Layer 3 is performed by software.
  • Standard hardware performance now exceeds the vast majority of Layer 3 workloads at a fraction of Cisco’s price.
  • And Layer 3 is now being deployed as virtual machines on that hardware.

One of the very top-top analysts in networking told me recently, “Routing is a sham.” He pointed out that there is absolutely no reason why midrange routing needs to be performed in proprietary, expensive boxes.

Vyatta is in violent agreement with him… and so are a rapidly emerging group of customers and partners.


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