John Chambers Takes Cisco Beyond Routers, Switches

THE WALL STREET JOURNAL) By Bobby White John Chambers wants to be more than a plumber. The chief executive officer of Cisco Systems Inc., who has characterized the company's main business of making routers and switches for electronic networks as plumbing, wants to turn Cisco into a consumer-tech company that will be mentioned in the same breath as Apple Inc. and Sony Corp. Under the 58-year-old Mr. Chambers, Cisco's CEO since 1995, the San Jose, Calif., company has spent more than $9 billion in the past few years to acquire consumer tech companies such as Scientific Atlanta Inc., which makes set-top boxes, and Five Across Inc., a platform for social networking. Later this year, Cisco plans to release a box that will allow consumers to download content from the Internet and distribute that content to other computers or televisions within the home. The device will also allow consumers to watch cable television. Mr. Chambers recently discussed Cisco's consumer push with The Wall Street Journal. Excerpts follow. WSJ: How challenging will it be to make the transition from a purely corporate-technology company to one that also provides consumer tech? Mr. Chambers: Many companies have trouble moving beyond one product or one customer segment, so when a company of Cisco's size says it wants to move into totally new product areas I can see how some degree of skepticism could arise. But if you watch the major movements we made, while at times it may have taken us a little longer than we wanted, we always accomplished them. We were an enterprise company that moved into selling equipment to phone and cable companies. We went from there into selling equipment to small and medium businesses, and now we're moving into consumer. Our issue is which markets do we go into? Do we truly have a sustainable differentiation? Does it fit into the network strategy that we have? Can we execute and can we prioritize? So it's a good problem to have and we're going to try to do it on a very rapid scale. WSJ: What do you see as Cisco's biggest obstacles in becoming more of a consumer company? Mr. Chambers: The most important challenge any company faces in moving into new markets is catching market transitions. We clearly caught a market transition in terms of wireless into the home with our Linksys acquisition [a wireless home-networking company that Cisco purchased in 1995]; and we also understood the important role video and entertainment would play within the home with our acquisitions of Scientific Atlanta, Arroyo Video Solutions [a video-on-demand software company bought in 2006] and KiSS Technology [a wireless DVD manufacturer purchased in 2005]. Next we're focused on our vision for the connected life, which is about connecting life experiences in the home with experiences at work, especially as those boundaries continue to blur. We've been preparing for several years to capture this market transition and to extend our presence into the home. WSJ: How have you prepared for that? Mr. Chambers: We see how the network will enable telephone and cable companies to deliver services to consumers in the workplace, at home or on the go, so we are working to evolve our partnerships with these companies. There are significant opportunities to create new services within this environment. To take advantage of this new transition, we also have to change how products work together, and you've got to change how easy they are to use. So through internal innovation and our acquisitions, I think we're making significant steps at achieving our vision. WSJ: How much will this consumer strategy actually help Cisco grow? The company is already huge, with 56,000 employees and $28 billion in annual sales, and it's up against maturing demand in the main product lines and more competition in new growth areas. Mr. Chambers: If you look at the numbers, most people are projecting the routing-and-switching market will grow much faster than what people said three or four years ago. So our traditional business is growing in the mid-teens [percentagewise] and nobody thought that was sustainable and now they're saying maybe it's conservative. We've shown the ability like no other company to move in not just one product area but a dozen and become the No. 1 player. We have always faced mature players that are big in the market, or start-ups, and if you don't have good competition, you probably aren't in an exciting market. WSJ: Why has Cisco kept the Linksys and Scientific Atlanta brands in place, rather than putting the Cisco brand on the products? Mr. Chambers: Over this next year, you'll see them evolve into a single Cisco brand. We kept the Linksys brand for a period of time because, very candidly, Linksys had a better recognition in the consumer and retail-distribution market than Cisco did. So the last thing you want to do is to acquire an asset with significant value and change what you bought. But you will see us evolve this over the next year. Scientific Atlanta does business through our service-provider partners, so as a consumer brand it is somewhat less important. You will see this brand change over the next year as well. WSJ: How do you intend to roll out new devices and services that allow consumers to interact online and purchase online media without running into companies like Microsoft and creating problems with telephone and cable customers? Mr. Chambers: I think the market has already decided it's going to be an Internet-based world. The network is becoming a platform; we deliver all forms of communication over the network. So by definition two things happened: Cisco, by a little bit of good fortune and by execution, is positioned in the sweet spot again for the market. WSJ: What is your relationship like with Microsoft these days? Mr. Chambers: Our customers want us to work together, whether it's in the home, in the office, or working with cable and phone companies. They are leaning on us both very heavily, saying it's fine to compete, but you must interoperate and there are many areas you both would get more revenue and more profits by working together. In the area of unified communication [a system that integrates communication including voice, data, video and mobility], we'll compete, and we're going to do our best to win, and we probably will. There will be many other areas we will partner. It's in [Microsoft CEO] Steve Ballmer's best interest, as well as John Chambers's, to accomplish what our customers want. WSJ: Will Cisco work with Apple on services and products? Mr. Chambers: Apple is a company we greatly respect. I like their leadership. The creativity they brought to the market has been tremendous, especially over the last three to five years. We never had much of a relationship with Apple. We had a small bump along the way over the iPhone, but it was just a small bump, that's all it was. [Earlier this year, Cisco sued Apple for trademark infringement after Apple unveiled its iPhone, a name used by Cisco for its consumer phones; the two companies quickly agreed to resolve the dispute.] I like [Apple CEO] Steve Jobs. I think his implementation has been excellent in terms of his products and architecture. Our customers want us to interoperate. I think it's in both companies' interest. Traditionally, Apple hasn't been a company that partners, and I'm a believer in partnering. I'm cautiously optimistic. WSJ: How have you managed to remain one of Silicon Valley's longest-serving CEOs at a time when many CEOs increasingly have shorter tenures? Mr. Chambers: First, there's no substitute for being in the right market at the right time, even though there were some bumps along the way. Second, the Internet has kept my attention. It truly has changed our lives. Third, we've evolved and learned how to really do innovation. Not just one product but many products.Fourth, I love it. I really do. I just committed to the board another three to five years because we're about to make some major moves into new markets. Most of what I do will have real impact three to five years from now and beyond.