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Cisco Systems Stumbles in the Cloud

By Jeffrey M. Kaplan
Jul 13, 2012 5:00 AM PT

In the stampede of established players and relative startups seeking to capture a piece of the rapidly expanding cloud market, it is inevitable there will be a few casualties. However, it is surprising which companies have failed to gain an edge in this "Cloud Rush" environment.

Cisco Systems Stumbles in the Cloud

A case in point is Cisco Systems, which can't seem to find its way in this brave new world of the cloud -- ironic, given the cloud wouldn't exist without robust networks.

The cloud is being driven to a large degree by "prosumers" seeking more powerful mobile devices to connect to more user-friendly applications and collaboration tools. Since the "consumerization of IT" and cloud services depend on connectivity, you would think Cisco would be raking in the cash as everyone scampers to become more connected and we all are more dependent on networked devices.

Mea Culpa

Cisco recognized how networks were becoming more essential in the home well before the consumerization trend became clear to others, and it bought Linksys in anticipation of this trend. It also bought WebEx to encourage greater collaboration among remote workers. Cisco even acquired the maker of the Flip videocam to fuel greater demand for bigger "pipes" to accommodate a surge in video via the Web.

While Cisco can't be blamed for not anticipating that smartphones would completely outpace dedicated videocams and undercut its Flip acquisition, the company also failed to fully leverage its WebEx acquisition.

Rather than build a potent ecosystem of complementary Software as a Service solutions to enhance the value of WebEx, it concentrated on using WebEx to sell businesses on Cisco's more powerful and expensive telepresence technology instead.

Cisco also recently made a serious PR blunder by trying to force some of its Linksys customers to opt in to its Cisco Connect Cloud service -- and then claimed the right to track the users' Internet history via the service. That convoluted scheme generated a sea of negative press and forced the VP/GM of Cisco Home Networking to publish a blog post apologizing for the gaffe and clarifying the company's intentions.

Lost Its Way

The most incredible aspect of the Cisco cloud saga is how the company failed to capitalize on the escalating demand for greater connectivity at the corporate and service provider levels with its core networking technologies.

Despite explosive demand, the company has only grown revenues 7 percent, and profits are only growing as a result of austerity efforts rather than innovative new service delivery methods. Cisco has warned its investors that they should expect the company to generate only modest revenue growth for the foreseeable future.

It is a sad story, especially because few CEOs are as good at evangelizing about the future of business as Cisco's John Chambers. Yet, Chambers hasn't been able to convert his vision into effective execution within his organization.

While it has many of the piece-parts to provide a powerful portfolio of cloud solutions to its customers and channel partners, Cisco has lost the corporate focus to pull these pieces together successfully in a fundamentally changing marketplace.

Jeff Kaplan is the managing director of THINKstrategies and founder of the Cloud Computing Showplace. He can be reached at jkaplan@thinkstrategies.com.

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