Around the network world with John Chambers

Cisco's CEO says the high-growth enterprise network market will rise again; applauds the government's Internet savvy.

By Jim Duffy
Network World, 12/06/99

It seems as though people have always listened when Cisco CEO John Chambers spoke, and now they have even more reason to listen, given that Cisco has become just the third company ever to reach $300 billion in market valuation. In an exclusive interview last week, Chambers shared his views on a host of issues with Network World Senior Editor Jim Duffy.

Additional comments by Chambers
Not published in Network World

What do you think of the sky-high market valuations of some of these Internet start-ups?

When I was with 100 of my peers [at a recent event], one of the industry's real icons asked how many of us would invest in Internet stocks at this point in time. Only myself and one other person raised their hands. What the market has right is that the next generation of Fortune 500 companies will come out of [these 'Net start-ups]. Some of these Internet companies - and I include ourselves in that, Sun and AOL, as well as the start-ups - are going to become the next GMs, Wal-Marts and GEs. So when I said I would invest, I did, and as we all know, in that last five months the Internet stocks have done very well. There is a huge opportunity in front of us, but there are going to be some real disappointments in there.

What impact will Judge Thomas Penfield Jackson's recent findings of fact in the Microsoft vs. the Department of Justice case have on the Internet economy?

There's very rarely [an occasion] when I'll dodge a question. Microsoft is a business partner; I have a lot of admiration for Bill Gates. But I deliberately have not spent time on the findings of fact, because to express an intelligent opinion you've got to go through it and understand all of the background. So I deliberately have stayed away from commenting about the Microsoft ruling.

Irrespective of the company involved, any thoughts on the impact of such findings about a company in this industry?

If a company misuses its position in the market in a way that is inappropriate and unethical, then it ought to be held accountable. I do believe that government has a role here. There's a danger, however, that if government gets involved too often, instead of being a constructive value to the economy, it can be very destructive. So far, I've seen our government be selective in terms of when it applies Old World regulations to the New World.

What about issues such as Internet privacy and wiretapping?

There are examples where philosophies of the past can apply to the New World, but you just have to adopt them to the New World. I don't believe that government should be allowed to listen in on any conversation, whether you're on a phone or whether you're over the Internet. But with appropriate court authorization, you ought to be able to do a wiretap just like you do a voice tap. Business must work with government. Where before I didn't believe that, I now strongly do. If we behave in a way that is reasonable, we should regulate ourselves. If we don't, then you'll find that government will.

How much of your Christmas shopping are you going to do online?

My wife does the majority of the Christmas shopping. But to answer your question, we are buying online heavily. I bought my first car online over seven months ago. I'll never buy a car again from a dealership. So we're very, very comfortable with purchasing online.

With the advent of the Internet, are private networks dead?

You're going to see a combination of networks - private networks, virtual private networks, [business-to-business extranets], the capital 'I' Internet. And you'll see those combinations not only occur in how companies do their business, but within a company. In typical Cisco fashion, we have no religion. We'll let the market determine which way it goes, and we'll adjust.

How's Cisco's internal voice-over-IP effort coming along? Have you decommissioned any traditional PBXs yet?

We are putting our own digital PBXs into our new offices and putting IP phones into new employee locations [as part of an 18-month internal rollout based on Cisco's Architecture for Voice, Video and Integrated Data (AVVID)]. We're going to do it first, and only after we've done it will we ask our customers to [roll out AVVID-based production networks]. We're up to 800 to 1,000 customers in AVVID trials. I'm real pleased with the AVVID acceptance. Customers will put in place the plan and then can decide if they want to do it in two years or five years. But at the end, it's inevitable. There's going to be one concentration point for data/voice/video that cannot, by definition, be a traditional PBX, the same way it cannot be a circuit switch. It's a data world.

Are the high-growth days behind the large enterprise network market?

No. But the definition of whether that growth is by enterprises purchasing internally or through service providers or other options is also something people have to be aware of. The major issue on the enterprise side is that CEOs have finally got it. In the last year, it's like a light switch went off - they understand networking isn't just about productivity, but their competitive survival. So I'm very satisfied with our momentum in the enterprise, and that's before AVVID starts to kick in. And while I think you will see a little bit of a slowdown in segments of the enterprise market this quarter, 2000 and 2001 should be very good.

With the success of the Catalyst 6000 campus switches, is the end near for the Catalyst 5000?

No. The neat thing about the way we've designed our products, with the capability to add new features and functionality, is that it allows you to protect your investment. To the indirect part of your question, are the 6000 and 4000 having some impact on 5000 sales? Yeah. But no, the 5000 should continue to sell well for us next year.

On the service provider side, how much of a setback was the cancellation of the TGX 8750 ATM switch?

For me, almost none. The press made some issues out of it. The issue that is most important for me is prioritization and to eliminate product overlap or internal product competition. Or if an area doesn't hit the price/performance I want and I've got another product coming out pretty soon, it just is not good business to bring out both. So I actually was very proud of the team that we eliminated some of the overlap.

Is Cisco behind in ATM switching for the Internet core?

Not anymore. It might have been a fair statement six to nine months ago. But you will see us start to announce some major wins publicly over the next month or two. I'd be very disappointed if, in that segment of the market, we don't become the No. 1 player - comfortably - over the next year in terms of revenue and shipments.

Additional comments by Chambers

While you say the government has generally handled the 'Net Economy well, are there examples of government over-regulation?

There's a natural tendency by government to regulate. And I want to applaud Congress and most of the agencies where I think they are truly trying to keep a hands-off approach. The administration's view on the Internet and the five phases of that that Ira Magaziner helped put together was excellent. And it basically said business should lead, government should support. At the same time, business needs to know that doesn't mean that we ignore government - if government has legitimate issues, then we ought to work with government to say how do we address those legitimate issues, encryption being an example. My experience has been if you educate people ahead of time and educate them on how Old World regulations do not apply, and how fast this is moving, unless you really understand it you're liable to be trying to solve one problem and creating four or five more. I've been really pleased with how government as a whole has responded, both in this country and in other countries.

Has Cisco's StrataCom acquisition delivered everything you had hoped for?

Nothing ever produces everything I would hope for. Was StrataCom an important part of our end-to-end strategy and without it would we have been able to achieve that strategy? The answer is yes, it was extremely important, and we would not be where we are today without StrataCom. It was a great learning curve as well. At the current run rate with the MGX [ATM switch] and the quality of the team you've got and the products, it has been a real winner for Cisco. Having said that, were there areas where we should have done better on StrataCom just like on every acquisition, every product area? Absolutely. If I had to do it over, I would have pushed [Cisco and StrataCom] together even quicker than I did.

Is Cisco still agnostic when it comes to ATM cells or IP packets for the core of the Internet?

I couldn't care less. I learned that the hard way. Agnostic comes from me in terms of technology because at IBM and Wang we fell in love with technologies and we paid a terrible price. So we'll build, partner or buy whatever our customers tell us to do. While most of the time we're headed the way they want, occasionally we get surprised and we very quickly adjust. Or occasionally we get surprised by how quickly a market develops and we adjust. So, yeah, absolutely agnostic. And I'll keep us there as long as I'm leading this company.

Is Cisco in the running to buy Newbridge?

We don't comment on our acquisition strategy because the minute we say no to one, then if we don't answer the next one, you get the answer. But you can safely say that when there's an area where we've got very competitive products and pretty large market share already, that would not be an area that we'd be interested in making an acquisition. Newbridge is a good company - good engineers, good products. I like [Newbridge CEO] Terry Matthews, he's a good leader.

Is Cisco going to enter the Internet home appliance market - for instance, set-top boxes or handheld devices?

We will play in the consumer marketplace. We aren't doing an effective job yet. Having said that, we absolutely want the gateways into the home - so you'll see us play with wireless, cable and xDSL capabilities. In the device areas, we prefer to put a segment of our technology in those devices and go after the business with our partners. However, when we see an industry not moving fast enough, we often [come out with the technology] ourselves first.

Does Cisco plan to come out with a competitor to the 3Com Palm?

Actually, I like the 3Com Palm. So, no, I'd be surprised if we go after that market. In fact, you actually might find us working with 3Com if they spin this out as an independent organization with the Palm group. Because we want anything that promotes the network. So the more load that gets put on the network, the better, and I don't mind helping my competitors when they help do that in a way that I benefit from.