Following the breakups of IBM and HP as they divest the low profit divisions and EMC under a some pressure to disband the Federation, the same question is often raised about Cisco but what could go ?
Cisco has generally pursued a good strategy of purchasing companies that are complimentary and growth positive to its core business. While several acquisitions have failed (as is the norm) the survivors do integrate, support core revenue and leverage Cisco resellers. There are two product strategies that I see could be split from Cisco with minimal impact because of two fundamental shifts in technology.
Today, telephony and personal communications markets are dominated by smart phones and the dominant product, Apple iPhones, does not offer methods for integrating with Cisco IP Telephony platforms. Some employees no longer have desk phones or desks and rely on the mobile phone exclusively. This trend is progressively breaking down widespread use of legacy phone system. The cloud version, HCS, is well suited for ownership by a dedicated company that is free of the requirement to use Cisco hardware and bring the purchase pricing in line with competitors.
The rise of Internet-based services like WhatsApp, Skype and Facetime for personal use on smart phone is changing user behaviour. Its easier and safer to make personal call on Facetime than to use corporate resources. Over time, that this will reduce the perceived value of the dedicated endpoint or closed system represented by IP PBX systems.
For messaging, tools like Slack and Hipchat are forbears of new communication methods that use the network effect of the Internet to achieve deeper market penetration.
The same logic applies to IP Video. It is unquestionable that Google Hangouts, GoToMeeting and WebEx are viable alternatives to traditional videoconferencing and this limiting the growth of the IP Video market. Sales will continue but growth seems unlikely.
The Cisco NDS business unit that provides in-network video services for carriers has limited opportunities for growth. Wider trends suggest that over-the-top Internet video from Youtube, NetFlix and other is more desirable than closed carrier video services such as offered by cable companies and limits the growth potential of the business.
Over The Top
A few years back these technologies were valuable for generating sales of network products (routing & switching) as part of the network architecture because bandwidth was limited and quality could only be assured in fully integrated private networks. What has changed is:
- Cheap and accessible bandwidth on the Internet has combined with updated video codecs to deliver ‘good enough’ video conferencing for low pricing or free. There is no longer a mandatory need to have deep network integration to deliver an acceptable experience.
- The consumer market is adopting smartphones that have voice and video solutions that are more convenient and reliable than Enterprise solution even though they operate at lower quality.
Divest Voice & Video
Because the growth of voice & video products seems limited because of fundamental trends in technology, I can envisage Cisco divesting with limited impact to core businesses. There is value in integration with other strategies, such as Cisco ACI or UCS although some sales would occur if the businesses remain integrated, the overall value is limited as the underlying growth of the respective markets is limited as consumer technologies take the growth.