Do You Know Cisco?

By Karl Taro Greenfeld/San Jose

At this Westin Hotel Convention Center, just east of San Jose, Calif., a revival meeting is in progress. Cisco Systems CEO John Chambers, 50, struts across the stage wearing a gray tweed suit and preaching the gospel of the network to a packed, 8,000-strong congregation of the converted. We have made great strides, Chambers drawls in his West Virginian birch-beer-sweet voice, but we need to be ever vigilant, for around the corner, right outside this hall, lurks the enemy--Nortel, Lucent and start-up companies we've never heard of, jesters who would steal our cybercrown.

The audience, consisting of the truest of true believers--Cisco employees--is an easy sell. Chambers and Cisco have made at least 2,500 of Cisco's 23,000 employees stock-option millionaires, which in turn has convinced the rest that they too will be millionaires. Investors have also got Cisco's brand of router religion, as the stock has split eight times and risen about 8,000% in the 10 years since it went public at $18 a share. One share of Cisco bought in 1990 is worth $14,000 today. The company, founded by John Morgridge as a technology-solutions company with a simple idea--hook up networks--has ended up being the baby in the creche of the Internet revolution.

Cisco's principal products are routers--souped-up computers that sort the streams of information packets that whiz throughout the Internet. As it happened, routers turned out to be the indispensable heavy artillery of the digital revolution. As the Internet has grown, so too have the demands for bigger, faster, better routers. Today, Cisco manufactures gigabit routers that can handle a billion bits of information a second. Coming soon, as bandwidth requirements increase and Internet traffic doubles every 100 days--and as we consumers increasingly upload and download video, voice, music and data--Cisco will be ready with terabit (trillion bit) routers and more.

This confluence of technical expertise, market opportunity and ruthless efficiency has made Cisco the fastest company in history to reach $100 billion, $200 billion and, last month, $300 billion in market capitalization, leaving it the third largest company in the world behind General Electric and Microsoft. Cisco has built dominant market share in a crucial high-technology industry--controlling 50% of the $21 billion business-network market, where it has obliterated once formidable rivals like 3Com, Cabletron and Bay Networks. "We definitely are in the sweet spot," says Chambers of Cisco's prospects. "The whole network business has become a home game for Cisco." Think of it this way: in a wired world where we are just learning to walk, Cisco has become the biggest, best shoemaker on the planet.

In order to maintain Cisco's unprecedented growth rate, Chambers believes he has to remake the company into a great consumer brand. "Three years ago, we didn't care if anyone knew who we were," he admits. "The decisions that mattered were made deep inside companies." Today, making its brand as well known as Intel's or Hewlett Packard's is vital to Cisco's mission of building the New World Network.

Why the change? When it comes to information, homes are becoming much like offices--networks of linked devices connected to a server. In your home, PCs and TVs are linked via broadband Internet hookups such as cable modems or Digital Subscriber Lines (DSL) to the big server that is the Web. As everything from refrigerators (Cisco has just partnered with Whirlpool) to your furnace (Cisco and Samsung) gets Web-capable, each homeowner will become his own chief information officer, making on a household level the decisions corporate executives have been making for a decade: Who will wire the house? Who will power my network? Who will enable the myriad envisioned wireless household appliances?

Cisco anticipates the consumer-network market will be worth $9 billion and plans to take a dominant share, as it has done in 14 of the 15 markets in which it operates. That's why Cisco spent $60 million airing its "Are You Ready?" television commercials and is emulating Intel's successful "Intel Inside" campaign, which made megahertz a measure of computational power. "In order to get to the next level, we need the consumer," says Don Listwin, Cisco's executive vice president.

The first product aimed at the household was launched last week at the Consumer Electronics Show in Las Vegas, where the company unveiled the Cisco Home Gateway. That's a DSL home-network hub that converts your phone jacks into broadband Ethernet ports. The company has even introduced a network version of Intel's megahertz gimmick to persuade consumers to upgrade and rewire their homes: PIQ, or Packet Intelligence Quotient. The higher the PIQ, the faster data will zip around your house. Cisco is counting on consumers' rushing out to buy a new networking device upgrading them from, say, PIQ 2 to PIQ 3. Did we mention that Cisco doesn't quite have the hang of this consumer business just yet?

It probably will, though. The culture of success is particularly virulent at Cisco. When you walk around the corporate campus in San Jose today, you get the feeling you are in a tiny, high-technology version of Switzerland, a neutral power--Cisco will partner with virtually any company and employ any promising technology--where the trains not only run on time, they arrive a few hours early. It's a campus of dozens of aqua and brown bunker-like buildings that seem to extend to the horizon, differentiated only by banners proclaiming, for example, that this particular building birthed THE FIRST QUALIFIED DOCSIS-COMPLIANT HEAD-END ROUTER IN THE INDUSTRY. "It's a great place to work if you're an engineer," says one. "I can't think of why anyone else would work here."

Actually, Cisco is run by a nonengineer. John Chambers sits amid the expanse of cubicles in an office as austere and tiny as an entry-level programmer's. His motto is, "Never ask your employees to do something you wouldn't be willing to do yourself." This culture of self-sacrifice and frugality means that Chambers and all top execs fly coach and have no reserved parking spaces. The same quest for efficiency has driven Cisco to make cutting-edge use internally of the networks it sells to other companies. Everything at Cisco--from health-insurance issues to softball schedules--is available on the Web. Already, Cisco makes 84% of its sales over the Web, accounting in 1999 for about $9.5 billion in business-to-business e-commerce. To put that in perspective, mighty Amazon sold about $1.5 billion worth of products online.

Chambers is customer obsessed, a characteristic that will serve the company well as it moves into consumer markets. He discovered the dogma of customer service as a salesman at IBM and and then saw firsthand the cost of losing customer focus when he joined mini-computer maker Wang in the late '80s. As Wang's business eroded--in part because Wang didn't listen to customers--Chambers, the top sales executive, was forced to lay off 4,000 workers. He vows never to do that again, even if it means keeping his company leaner and meaner than seems necessary. "Laying off workers in a tough job market was the worst feeling in the world," he says as he sips his fourth Diet Coke of the day. "It made me physically ill."

Even as the company has grown to become the king of the data network, it has remained, in many consumers' minds, a question mark. Ask most people what Microsoft or Intel do, and they'll tell you. But Cisco? "I don't know," says Harriet Sumner, 30, a customer-service manager for a computer-game company, "but I own the stock."

Chambers thinks it's important that people such as Sumner do know, especially now that Cisco wants to be successful in its other bold strategy: a march into the telecom business, where it will face a whole new level of well-entrenched competition. The $250 billion-a-year telephone-equipment business is where giants like AT&T's equipment-making spin-off, Lucent, and Canadian counterpart Nortel have built powerful, decades-long relationships with telephone companies and service providers. As voice and data networks converge--and data come to account for more than 90% of network traffic--Cisco has boasted that its networks, which are predominantly data or IP (Internet protocol) networks, will also become the leading voice networks.

Consumers, however, are still uneasy about IP telephone service. Do you really want your voice to be as unreliable as your Web connection? Cisco swears it has closed the gap and made its IP networks as reliable as voice networks. What would help, Cisco believes, is for consumers to come to believe in the Cisco brand to the point where they are exerting upward pressure on telephone companies and service providers to run Cisco networks. In other words, for Cisco to be able to apply a two-way squeeze from the corporate side and the consumer side so that your phone company will have no choice but to go with Cisco. "Name recognition and branding are crucial to us," says Chambers. "We want the small business, the medium-sized business and even the consumer to want Cisco-powered networks."

Cisco, in its history, has never gone after a major market and failed. Lucent and Nortel, are you ready?