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Assignment – Recognizing Cisco’s competition “Recognizing Cisco’s competition over the next 15 years – 2006 – 2012” Table of Contents Problem Statement:3 Solution3 Analysis3 Process of identifying competitors of Cisco3 Cisco3 Routers – Product Category4 Common sense and Market share approach4 Competitor Analysis using Analytical Tools5 Table 1: Rivalry among competitors5 Table 2: Barriers to Exit6 Table 3: Barriers to Entry6 Table 4: Threat from substitutes7 Table 5: Bargaining power of buyers7 Table 6: Bargaining power of suppliers7 Table 7: Government actions8 Table 8: Overall assessment9
Competitor Analysis using Creative Tools10 Appendix13 Problem Statement: Who are the segment, product (Lucent and Nortel migrating from voice) and category level competitors for Cisco Systems, Inc.? (Consider existing as well as future businesses Cisco wants to own and competitors there – Google? Microsoft? ) Solution Analysis Firstly we note that for competitive analysis to be effective, it has to be done with a context sensitive view point. Process of identifying competitors of Cisco So, we would first try and apply a broad set of analytic tools to identify the competitors of Cisco.
We would later proceed to use the tools for identifying Cisco’s competitors using common sense and creative techniques. We believe that the above exercise will result in a comprehensive list of the competitors of Cisco and would answer the problem statement. Cisco Cisco Systems, Inc. caters to diverse consumer segments (Enterprise, Commercial and End consumers) with a diverse range of products. It has classifies its operations into 19 different product categories and each category has a comprehensive product suit. For the purpose of this analysis, we have selected the Routers product category as our unit of analysis.
The methodology developed here could be further applied to other strategic divisions of Cisco Systems, Inc. and we plan to apply it to more product categories during the course of this project. We would like to perform competitor analysis using the five dimensions given below. •Decisional Altitude – The unit of analysis would be the Router division of Cisco. •Decisional Scope – We would look at the Cisco’s competition from a strategic analysis point of view (and not the tactical or the operational point of view) •Customer/Market Scope – We would be looking at the Router market.
Cisco has been traditionally known for routers and it a bridge (a class of routers) was Cisco’s first product. Cisco is the leader in the router business and we would be looking at that. •Produce and Technology Scope – Here again, we would concrete on the Router line of products and would focus on manufacturing the Router, building the software required for it and finally deploying it and maintaining it. •Temporal Dimension – We would look at the previous 5 years and the next 15 years to come up with the possible competitors for Cisco. Routers – Product Category
A router is a device used to facilitate transfer of data packets between two or more networks. A router acting as a junction between two networks maintains a routing table using which it determines where to forward an incoming data packet. These packets are usually IP (Internet Protocol) packets or ATM (Asynchronous Transfer Mode) packets. Worldwide market for routers is expected to grow from $9. 7 billion to $ 10. 8 billion in 2008, compared to $ 8. 3 billion in 2005. In the second quarter of 2006, worldwide market for routers grew from $ 2. 36 billion to $ 2. 7 billion helped by growth in high bandwidth consuming web services like video and music downloads. The market growth is expected to be fueled by upgrading initiatives taken by many phone and cable television companies in response to high demand from end consumers. It is expected that as time progresses the cost for high bandwidth networks will continue to fall and more and more applications will be developed to use high bandwidth networks. Common sense and Market share approach Cisco is the market leader in routers market and its market share grew from 68. 3 to 69. percent in the second quarter of 2006. The distant runner up Juniper Networks has a market share of 14. 2 percent. Alcatel, a French equipment manufacturer has a market share of 5. 1 percent. These three vendors accounted for 90 % of market share; besides these vendors, other manufacturers list is below: Major Router Manufacturers 3Com Eurotronic Products GmbH Kentrox Pivotal Networking Actiontec Cisco Systems Lightning MultiCom PacketFront Alcatel D-Link Systems Linksys Redback Networks Apple Computer Draytek Lucent Technologies Siemens AG Asus Enterasys Networks Mikrotik Tellabs
Belkin Extreme Networks Motorola U. S. Robotics Billion Foundry Networks MRV Communications ZyXEL Bountiful Wifi Hewlett-Packard Netgear Juniper Networks Buffalo Technology Huawei Technologies Netopia Nortel Competitor Analysis using Analytical Tools We would now proceed to get the sense of the competition and attractiveness of the industry by considering several factors related to each of the five forces in Porter’s model. Porters Five Forces Table 1: Rivalry among competitors FactorAttractiveness Remark LowHigh 12345 No. of competitors4Top three competitors have 90% of market share. Cisco – 70, Juniper 15, Alcatel – 5) Industry growth4Industry growth is expected to be 11% for next year. Future looks bright as demand for music / video downloads rises. Fixed costs4Fixed costs are very high and act as a barrier to entry. Routers include lot of software implementation. Differentiation4Number of differentiation parameters – packet loss, recover time, latency delay – is very high. See a comparison between edge routers from Cisco and Juniper. Switching Costs4Switching cost is very high as routers are costly devices; Skilled labor is not available. Openness of terms of sale3Price negotiation is the norm in the industry.
Excess Capacity Strategic stakes4Routers is core business for Cisco; Market is expected to grow with high demand for video and music downloads 3. 85 Table 2: Barriers to Exit FactorAttractiveness Remark LowHigh 12345 Asset specification1Routers are very specific to this industry and other uses may be difficult to explore Cost of exit1Cost of exit is high as established players may not want to maintain two different lines – duplicate assets Govt. restrictions4There are no government regulations preventing setting up new router manufacturing units. 2 Table 3: Barriers to Entry
FactorAttractiveness Remark LowHigh 12345 Economies of scale4 Product differentiation4 Brand identity5 Switching costs4 Access to distribution channels3Online selling is possible Capital Requirements4 Access to Technology5 Access to Raw material2 Overall4 Table 4: Threat from substitutes FactorAttractiveness Remark LowHigh 12345 Availability of close substitutes4 Switching costs4 Substitutes price-value Profitability of producers of substitutes Overall4 Table 5: Bargaining power of buyers FactorAttractiveness Remark LowHigh 12345 Number of buyers2 Availability of substitutes4 Switching costs4
Buyers threat of backward integration4 Industry’s threat of forward integration2 Contribution to quality4 Contribution to cost2 Buyer’s profitability2 Overall3 Table 6: Bargaining power of suppliers FactorAttractiveness Remark LowHigh 12345 Number of suppliers4 Availability of substitutes3 Switching costs3 Suppliers threat of forward integration5 Industry’s threat of backward integration3 Contribution to quality2 Contribution to cost3 Overall3. 3 Table 7: Government actions FactorAttractiveness Remark LowHigh 12345 Industry protection2 Industry regulation3Software should allow 3 party inter-working.
Government restrictions on content as in the case of China Custom / Tariff restrictions abroad3 Overall2. 7 Table 8: Overall assessment FactorAttractiveness Remark – Relative Weights LowHigh 12345 Rivalry among competitors3. 85 Barriers to Entry4 Barriers to Exit2 Power of buyers3 Power of suppliers3. 3 Threat of substitutes4 Govt action2. 7 Overall Attractiveness3. 24 From the above analysis we conclude the following: 1. The barrier to entry is high and hence it will not be easy for competition to come in. With respect to this point only huge companies with huge pockets can dent Cisco. . We also note that the threat of substitutes is very low. However, technology is evolving at a faster pace and an innovation in this space can be threatening for Cisco. 3. With respect to existing competitors, there are a number of low end players in this market and hence there would be a lot of inertia with Cisco and it would not be easy to replace this market with new innovations unless the innovations are radical. Competitor Analysis using Creative Tools ConceptImplicationCompetitor Identification Lateral thinkingThink beyond old patterns and provoke new onesa.
Cisco being at the core of network technology can use the application programming network technology to develop products that run at the network level. It may even let the users download operating system from a router or have a VOIP application running on a network. This analysis leads us to identify Microsoft, Skype or even telecom operators as competitors. As technology develops, we are seeing a trend toward the network being the computer to achieve better efficiencies and resource utilization. This may lead to the computer kings (Microsoft, Apple) to become fierce competitors of Cisco. . As network becomes the core, the whole online content can be stored at network level – such as at routers. The routers may also have strong servers, storage media for users allowing centralized data storage and may make the PC vendors as competitors. As hardware costs become lower the whole of the web could be stored locally – by storage companies – and they could also turn out to be competition for Cisco. c. Track virus attacks at network level using advanced software and compete with anti-virus vendors – Norton etc. d. Cisco lives on content distribution.
But the point to note is that the content is not owned by Cisco. When the cost of Content becomes very high, the content owners may start charging for content to flow through the network. Content owners in the future seem to be companies like Google, Yahoo, AOL e. GSM/CDMA networks could become more and more powerful and the mobile network could over grow the IP network and hence the companies may start competing with Cisco. Metaphors/ AnalogiesAir Deccan to Cable Manufacturersa. Cisco’s wireless network product can be enhanced to transmit the video and music at a higher speed in a local wireless network in future.
Popularity of wireless transmission of videos and music can make cable operators (operating cable service operators in India for example) irrelevant. On the other side of things, cable manufactures may expand and convert the TV into a computer and information could flow on cable networks and hence cable operators could develop to become Cisco’s competition. b. Technology could develop so that popular content like music and videos get stored at the router level, and applications could be delivered which can deliver the content on demand – Similar to iTunes. Apple can be a potential competitor in this case. . Use the local storage of media at routers for content delivery to Cinema houses. It can be compared with TV Channels / Hollywood distributing content to end users – b2b or b2c. They can even start an INTERNET studio and may compete with the kinds of Warner Brothers. Checklist proceduresMake innovative use of infrastructure (put to other uses)a. Behavioral targeting: As the network becomes the core, data is stored at the network, and search engines run at network level, it is possible to track users’ requests, profile users and advertise to them based on their preferences in real time.
Google may be their competitor in this context. Morphological AnalysisWorking on this Random wordsWorking on this BrainstormingGroup discussion to understand real competitorsa. The meeting manager suite of Cisco can actually reduce demand for travel and in a way will have a great impact on airlines, railways, road transportation, etc. FeasibilityNature of CompetitionCompetitor Most LikelyDrive in PC Industry is for reduced cost and increasing Functionality. New features like inbuilt modem , sleek design at lower prices is the norm of the industry.
With growing competition its very likely that PC and PC parts manufacturer will get into the “PC in built Routers Business” because today its impossible to separate network from the PC. There is a possibility that companies might give hardware as service along with PC , so if companies like “Jadoo. Net ” give hardware for free they might get into low end Router business just to penetrate market. Dell, Lenovo, Toshiba, HP Most LikelyThe increasing trend in Hightech Networking Industry is to merge Voice over telephone, merge Cable transmission and Broadband internet distribution i. “Triple Play”. We have a high possibility that internet services providers, cable service providers mobile manufacturers may design sleek routers. Vodafone, Reliance Communications, Hathaway, Nokia, Motorola, Tata-Direcway, Set top Box Manufacturers, Jadoo. Net Moderate-Likely The integrated network:- It might be possible that 20 years down the line we might see convergence of all kinds of transmission power, cable, internet and companies who have developed “Brand as philosophy” i. companies span across industry and countries may be come possible set of competitors. Companies which have huge R budget. GE, Tata Group Scenario Painting :Category Level Competitors Scenario Painting :Product Level Competitors FeasibilityNature of CompetitionCompetitor Most LikelyDrive towards reduction of TCO:- Cisco has close to 70% market share in the WAN network and High End Network but Cisco provides on 20% of world total Routers. They have at times arm twisted their customers i. Cisco Routers comes with expensive upgrades, hidden costs. Other Routers manufacturers are taking advantage of this situation by offering a full complement of memory and software pre-installed (IP/IPX, firewall, and VPN software standard) at cheaper prices thus reducing the TCO. We believe in the years to come these small companies will challenge Cisco in local markets especially in growing economies where aggressive pricing is important as “Det” did to Surf.
Sometime High end companies provides solution which might not be entirely usable same is happening with Cisco’s customers and analyst like Gartner have predicted that 90% customer pay much more for the essential features because of high end unwanted solution. 3com, Juniper and D-Link. Appendix Exhibit 1: Cisco’s Router Product Portfolio •Cisco 12000 Series Routers •Cisco 10700 Series Routers •Cisco 10000 Series Routers •Cisco 7600 Series Routers •Cisco 7500 Series Routers •Cisco 7300 Series Routers •Cisco 7200 Series Routers •Cisco 3800 Series Integrated Services Routers •Cisco 3700 Series Multiservice Access Routers Cisco 3600 Series Multiservice Platforms •Cisco 3200 Series Wireless and Mobile Routers •Cisco 2800 Series Integrated Services Routers •Cisco 2600 Series Multiservice Platforms •Cisco 1800 Series Integrated Services Routers •Cisco 1700 Series Modular Access Routers •Cisco 800 Series Routers •Cisco Carrier Routing System •Cisco IOS XR Software •Cisco MWR 1900 Mobile Wireless Routers •Cisco Power Supplies •Cisco Router and Security Device Manager •Cisco SB 100 Series Small-Business Routers •Cisco SOHO 90 Series Secure Broadband Routers •Cisco SOHO 70 Series Routers •Cisco XR 12000 Series Router •