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Geoffrey Moore

Managing Director, TCG Advisors Venture Partner, Mohr Davidow Ventures

Geoffrey Moore is a best-selling author, a Managing Director at TCG Advisors and a venture partner at MDV.  More...

November 2008

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Cisco, Linksys One, and Scientific Atlanta: Gorilla At Work

In Dealing with Darwin, the discussion of platform innovation focuses on how it is a natural strategy for any gorilla company that has achieved ubiquity with a proprietary technology—with particular attention to Intel, Microsoft, Oracle, IBM, EMC, and SAP.  Cisco’s recent announcements are a great illustration of how such strategies play out.

Cisco is pretty much the undisputed leader in enterprise networking (although Huawei hopes to have something to say about that in the future), but it has been more than a little challenged in both the telecommunications service provider market and the small business marketplace.  The former requires a highly specialized in-house services-led workforce, something that is not really compatible with Cisco’s business model, and the latter just the opposite, a services-free offer for the person who has no in-house IT help.  Cisco, by contrast, grew up in a general-purpose networking world selling into an IT-rich enterprise environment.  Not a good fit.

But now we can see where its next moves are heading.  Linksys One is an appliance-like offer that will be resold through telecommunication service providers (SPs), both traditional and non-traditional, as a hosted service.  This does not require Cisco to develop deep SP expertise, and it gives it a leveraged entrée into the small business market through a channel that is already a trusted source of services.  Moreover it brings to market a next-generation platform from which one can readily envision launching a broad array of services. 

Meanwhile, its acquisition of Scientific Atlantic gives it’s a second SP play—by resurrecting the CLEC vs. ILEC play.  Only this time the C in CLEC stands for Cable-enabled.  The ILECs are still deeply engaged with the traditional telecom switch providers—Lucent, Nortel, Alcatel, Seimens, Ericsson—and while the company will no doubt continue to knock on those doors, the exercise is a bit like pushing a rope uphill.  The cable folks, on the other hand, are absolutely delighted to get help with their own version of the voice/data/video triple play.  What Scientific Atlantic brings to the table is the possibility of an end-to-end platform play with Cisco controlling both ends

In the Enterprise Microsoft has always controlled the edge end of things, as it hopes to in the home via XBox or the media PC.  Sony has the same idea with its Playstation.  Linksys, on the other hand, is the leader in home routers, and Scientific Atlanta has north of 40% market share in set-top boxes.  So pull up your armchair and let the games begin.  This is going to be reality TV at its finest. 


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Alexander Muylle

I personally believe that CSCO's gorilla status is in danger. The existing value chains are not providing any new economic value to customers, hence new ones are gradually being formed with new tech companies at the core of it.

The Internet boom/bust of 1999-2001 was analogous to the PC IPO boom/bust of 1982-83. After the PC IPO window closed, investors prematurely said the PC wave was over. In fact, Microsoft didn’t go public until 1986. Similarly, the next tech wave has only just begun. It is, once again, disruptive as it will reshape the way we work, live, communicate and entertain ourselves. New forms of commerce and society will emerge.

History teaches us that new tech leaders will surface from this seismic shift in the organisation of economic activity and that existing tech leaders will experience a gradual erosion of their competitive position. This creative destruction is a good thing, but can suppress tech indices for a while. The market cap lost in last wave’s leaders can more than offset the gains in the emerging tech companies until the new wave gains more momentum.

Until now we have only seen mass-adoption of the Internet by the consumer. As a result, new business models were born with leaders such as ebay, Yahoo, Google and Amazon. Yet we are only in the early stages of an even more fundamental change: now businesses are redesigning their business models to better take advantage of the web to become more agile, customer-centric and productive. We have yet to reach the inflection point on the S-curve to see mass adoption of this trend, which most likely will be enabled by a host of tech companies “unfamiliar” to most investors.

Mass-adoption is inevitable as enterprises have no choice: If they fail, they will see a gradual erosion of their competitive market position, as other more aggressive companies embrace successfully the new paradigm. Darwin, as usual, will do his dirty work.

IMO, the coming technology boom will surpass the expectations of most pundits, both in value creation and longevity.

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