The networking giant is evaluating ways to extend beyond its core switching and routing businesses and slice off corporate spending typically devoted to software purchases, according to people familiar with Cisco's plans. As part of the strategy, the company is ramping up its internal development in software "plumbing" and evaluating whether to acquire a smaller company, sources said.
Cisco's bread-and-butter business is gear that transports packets of network traffic across companies or over the public Internet. Now the company is looking to enhance its routers and switches with the ability to handle network messages that carry XML documents, said people familiar with Cisco's plans. Rather than push IP packets around a network, the new products would transport XML documents and provide basic routing capabilities based on the contents of XML messages.
A Cisco representative said the company had no comment.
As part of an effort to spur revenue growth, Cisco is looking to add intelligence to its networking gear that will allow the equipment to process XML messages, according to sources.
The networking giant's move into application-level switching could help it garner more dollars typically earmarked for software. But Cisco would need to steer clear of its middleware partners, notably IBM, said analysts.
The push to so-called "application-layer" switching is driven by Cisco's need to boost its top-line revenue, said analysts. The company is facing increasingly strident competition in its core networking hardware lines and wants to provide a broad line of higher-value products.
"It's a win for Cisco because they'll become an even more entrenched vendor that can do pretty much everything," said Robert Whiteley, an analyst at Forrester Research. "It helps drive upgrade cycles for their routers and switches, and there is actual performance gains and cost efficiencies by taking things, such as security, out of silo-ed applications and putting them into a central network."
The use of XML and XML-based protocols called Web services is catching on for electronic communications and application development. Business documents, such as purchase orders, are increasingly being formatted in XML, which can be interchanged relatively easily between disparate systems.
XML and related technologies create a standardized mechanism to share information, but that mechanism does come at the cost of data format translation., particularly for tasks such as security and
A handful of start-ups specializing in XML networking, such asand , have formed since the emergence of XML about five years ago. They provide specialized devices to speed up XML-related traffic by offloading jobs from a server onto a network device. Such jobs might include processing the flow of messages, security, or document conversions.
Cisco has indicated that this line of business is ripe for growth and investment, according to vendors and industry analysts.
One person briefed by Cisco said the company intends to create several application-aware networking products to complement its existing routers and switches. The idea is to create a line of hardware devices that can replace some back-end software products, which generally require consulting services for installation.
"They are going to be offering hardware boxes that are almost as smart as the software but are much faster, more secure, and cheaper to operate," one executive said. "It will be easier (for Cisco salespeople) to sell and can be sold through a traditional hardware channel."
One industry executive said Cisco has already begun recruiting people to work on the initiative. The target is to release an "auxiliary processing" device this year for speeding up XML traffic, the person said.
But as Cisco tries to haul in a larger piece of the technology spending pie by boosting its software smarts, it needs to tread carefully, said Frank Dzubeck, CEO of networking consulting company Communication Network Architects. Because the scope of Cisco's application networking push is still unclear, there is a question of how many traditional integration middleware capabilities Cisco will embed in its products.
"Once you start getting into layer seven (application-aware networking), you start to get into the world of applications. And when you get into the world of applications, you start to step on the toes of your partners," Dzubeck said.
Cisco has a very close partnership with IBM, which already dominates portions of the middleware market with its WebSphere branded line of software. Other entrenched companies in the market for middleware, which covers tasks such as XML transformations and message handling, include BEA Systems, Microsoft and Tibco Software.
Some analysts said it would make more sense for Cisco to create complementary products rather than go head-to-head with existing middleware companies. However, any push by Cisco into XML-related networking would likely encroach on the area already occupied by XML networking specialists.
Word of Cisco's middleware plans was first reported by the Web site
Eugene Kuznetsov, CEO of DataPower, said all traditional networking companies will be forced into building application-level networking capabilities as they seek to expand their markets. XML-based Web services protocols make it possible, because they provide standards for integration tasks that once required extensive custom coding.
"For a long time, Cisco tried to stay away (from middleware) because it was hard to sell," Kuznetsov said. "Now it's practical to make a box that can be sold that basically replaces that middleware."
A networking industry pioneer, Cisco is on the prowl for top-line revenue. The company's torrid growth rate during the 1990s has cooled, and Cisco isby adding "intelligence" to its hardware.
The vision is to have a networking infrastructure that provides centralized functions for all applications, such as voice over IP and security. It has also relaunched its assault on the telecommunications market with high-end gear.
As part of its expansion strategy, the company has singled out consulting services as important to its future. At a recent analyst briefing, company executives said Cisco intends to beef up its consulting business to provide a more strategic supplier to corporations.
"They understand that in the long term they aren't going to be an equipment company. Look how IBM morphed over the years," said William Becklean, a financial analyst with Oppenheimer and Co. "They have to act as a trusted advisor."
The push into application-level switching offers both a potentially high-growth business and a natural extension to the company's existing business, analysts say.
"Cisco has talked about the ability to help companies with network-based business processes," said Jon Oltsik, an analyst at researcher Enterprise Strategy Group. "XML or Web services are going to be core to new kinds of network business processes, so this area is right down Broadway."