Cisco's ups and downs: a veteran giant in the communications industry, launched a "century lawsuit"

In 1973, a young man named Leonard Bosack graduated from the University of Pennsylvania. Subsequently, he joined the then-famous computer manufacturing company - DEC (Digital Equipment Corporation) as a researcher.


Six years later, in 1979, Posack planned to upgrade his education. So he came to Stanford University to pursue a master's degree in computer science.


During this period, because of his outstanding ability and good character, Bosak was hired by Stanford University as the director of computer facilities in the computer science department of the school. He is also involved in a major project promoted by the US Department of Defense, ARPAnet .


Yes, that's right, the "Arpanet" is known as the source of the modern Internet.


In addition to a small success in his career, Bosac's love also ushered in a harvest. He met Sandy Lerner, the lab director at the Stanford Graduate School of Business. The two fell in love and were soon married in 1980.


In the 1980s, the lives of the Bosacs ushered in a major change.


At that time, computer network technology had achieved good development, and many manufacturers had developed their own local area network working protocols. However, these protocols do not communicate with each other.


Take Stanford University for example. Different departments within the school use different network protocols. Leonard Posack's computer department uses the Ethernet protocol from Xerox's PARC laboratory, while Santi Lerner's business school uses DEC's proprietary protocol.


The isolated network protocols inspired Leonard Possack and Santi Lerner - why can't we invent a device to connect different networks together?


So they brought in Andy Bechtolsheim, a doctoral student at Stanford, and William Yeager, who worked at Stanford University School of Medicine, to work on the idea together.


Soon after, Andy Bertolsheim designed a UNIX-based network workstation. This network workstation is called " Blue Box ", the main board was developed by Posack and others, and the software was written by William Iger, which can recognize different transmission protocols and complete the interconnection of different networks.


The Posacs quickly installed the "blue box" device on Stanford's campus network, creating a sprawling network of connected computers.


The success of the Stanford campus network has attracted the attention of many universities and research institutions. They put forward a purchase demand, hoping to use the "blue box" to open up their own internal network.


After realizing the huge commercial value of the "blue box", the Posacs began to consider commercializing it.


It is worth mentioning that, in addition to the "blue box", Andy Bertolsheim also designed a small graphics workstation at that time. In 1982, together with several classmates, he left school and founded the later famous SUN company.


Many people do not know that the company name SUN is actually an acronym for Stanford University Network.


The Posacs also hope to sell the "blue box" as a company. However, when they applied to Stanford University, they were rejected by the school, saying that "the time was not ripe."


In desperation, the Posacs decided to secretly set up a company to carry out the R&D and sales business of the "blue box".


Company start-up


In 1984, Cisco Systems, Inc. was formally established in San Jose, California, in the San Francisco Bay Area. As we all know, the company name "cisco" comes from the last five letters of the English name of San Francisco, San Francisco.


The Bosacs liked the city of San Francisco very much, and originally planned to use the city name as the company name. However, US law prohibits this. So, they can only use the last five letters of the city name. In order to express their "dissatisfaction", they also insisted on lowercase the first letter c.


In addition to the company name, they also used the famous Golden Gate Bridge in San Francisco as the company logo, representing connection and communication.


After the company was founded, the Bosaks did not leave Stanford but started their own business part-time.


They brought in Kirk Lougheed from the Department of Electrical Engineering to collaborate on a replica of the "blue box". The software of the blue box gradually became the prototype of the Cisco IOS operating system.


In 1985, Cisco sold its first product, a network interface card for DEC computers.


In 1986, Cisco officially launched its first multi-protocol router and the world's first commercial router - AGS (Advanced Gateway Server). AGS's first customer was Utah State University.


It has to be said that the timing of AGS's launch is perfect.


In 1983, the National Natural Science Foundation (NSF) invested in the construction of a wide area network, NSFNet (which is also the prototype of today's Internet), connecting various universities and several supercomputer centers in the United States. At the time, the network was built to allow researchers to use supercomputers remotely.


In 1985, NSFNet began to interface with commercial networks. As the networks of universities and companies use different network protocols and devices, there is a strong demand for multi-protocol routers.


AGS meets these needs perfectly. As a result, orders keep coming. In the first year alone, sales reached $200,000.


However, when Cisco's business was just picking up, Stanford University filed a criminal lawsuit against them for intellectual property. Stanford University believes that Cisco's products are "service inventions" and the school owns the intellectual property.


After urgent negotiation, Stanford University finally decided to open the door, reducing the claims against the Bosaks and Cisco and did not pursue further investigations.


Now it seems that the school's decision is wise. Had Cisco been killed at the time, there would have been no network equipment overlord. The development of human network communication technology will also be greatly affected.


In July 1986, the Bosaks, along with Kirke Rauched and others, officially resigned from Stanford University and started a full-time entrepreneurial career.


In April 1987, Cisco officially paid Stanford University $19,300 in cash and agreed to pay an additional $150,000 in future royalties (with corresponding product discounts). The lawsuit between the two sides ended, and Cisco's first crisis was also lifted.


Later, in order to thank Stanford University for its "don't kill", the Bosaks contributed a huge donation to the school, which far exceeded the amount claimed at the time.


1988-1994: Looking for investment, getting on the right track


After operating full-time, the Bosaks worked hard to advance Cisco's business.


At that time, their situation was not optimistic. They set up the company in their parents' home. In order to cope with the capital needs of the company's operations, they applied for a large number of credit cards and used debits to advance expenses. Because there is no money to advertise, all their new customers come from the promotion and introduction of old customers.


After realizing the constraints brought by insufficient funds to the company's development, they thought of venture capital.


So they came to Sandhill Road in Silicon Valley to start a fundraising operation. This is the home base of the world's major venture capital firms, with hundreds of them.


After being rejected by 76 venture capital firms, the Bosaks finally reached a cooperation intention with the famous Sequoia Capital .


Having said that, Cisco's technology is so popular, why do many venture capital companies reject them?


Mainly because of the character of the Posac couple.


The legendary founder of Sequoia Capital, Donald Valentine, has participated in early-stage investments in companies such as Apple, 3Com, and Oracle. For Cisco and the Bosaks, he recalled this:


"Entrepreneurs are the key to success in a business... The Bosaks are great scientific experts, but they are a terrible pair of business operators..."


The Posacs has worked in colleges and universities for a long time and are good at technology, but lack the management experience of modern enterprises. Their business style is very extensive, with neither marketing strategies nor market goals.


Van Lundin agreed to invest $2.5 million in Cisco, but provided the following conditions:


The Posacs must give up Cisco's operational leadership; Van Lundin himself serves as the company's chairman; hire an outside CEO and rebuild a professional management team.


The Posacs were not interested in corporate governance, and they desperately needed capital to keep the company afloat. As a result, they agreed to Van Lundin's conditions, giving up most of the equity and business management rights, retaining only 35% of the equity.


In 1988, Van Lundin hired John Morgridge, formerly president of Grid System , as Cisco's CEO.


After handing over the reins, Leonard Posack served as the company's CTO, while Santi Lerner served as vice president of customer service.


Santi Lerner is a very irascible woman. She was extremely dissatisfied with Van Lundin and Mowgli. She believes: "They are just a pair of businessmen who just want to borrow Cisco to make money... I am completely different from their philosophy."


In order to express her dissatisfaction, she often quarrelled with Mowgli in the company, and constantly intervened in the business of various departments, becoming a headache for everyone.


In fact, Mowgli's ability to manage the company is far stronger than the Possacs. Under his leadership, Cisco's business conditions improved rapidly and sales grew rapidly.


In 1989, Cisco's performance grew nearly 20-fold to $28 million.


On February 16, 1990, Cisco officially went public on Nasdaq with a market value of $224 million.


Shortly afterward, on August 28, 1990, Cisco's board of directors couldn't take it any longer and fired Santi Lerner.


After learning of the news, Leonard Posack announced his resignation in protest. In the end, the two sold their stock and left the company they founded with $170 million in cash. (Sadly, it didn't take long for the two to end in divorce.)


1995-2001: The strongman debuts and reaches the top


In 1995, Mowgli, 62, decided to retire.


His tenure was very successful. During his tenure as CEO, Cisco went from a company with only $5 million in annual revenue to a $1 billion public company giant. The number of companies also surged from 34 to 2,260.


There is no doubt that Cisco has completed its first transformation.


After Mowgli's departure, Cisco ushered in a more legendary leader - John Chambers, once known as "the most powerful CEO on the surface".


Chambers is a management genius. He joined Cisco in 1991 as Senior Director of Sales. Before that, he worked for IBM and Wang An Computer Company, and has extensive experience in company management and market development.


Before taking over as CEO, Chambers served as Cisco's senior vice president of the Americas for three years and has jumped to the company's second-in-command, responsible for the company's main business.


In January 1995, Chambers took over from Mowgli and officially became Cisco's new CEO.


After his succession, Chambers quickly began to make drastic changes to Cisco according to his own ideas. He used HP's system as a benchmark to transform the company's management structure. He also combed the product line, requiring each product line to become first or second place in the market.


In order to rapidly expand the scale of operations, Chambers also raised the banner of mergers and acquisitions.


In fact, Cisco's mergers and acquisitions as early as 1993 have been a small experiment. In September of that year, they made their first acquisition, buying Ethernet switch startup Crescendo for $90 million.


Later, they bought several similar companies one after another, and based on the technology of these companies, they launched the Catalyst series of switches (1994) .


After tasting the sweetness, Chambers decided to carry out the "buy, buy, buy" to the end.


In 1996 alone, under Chambers' leadership, Cisco acquired 13 companies. In 1997, the number became 19. This year, the number of employees in the company exceeded 10,000.


As of 2000, Cisco has acquired a total of 69 companies, and its turnover has grown from $100 million to $18.9 billion. The number of employees in the company exceeded 31,000.


The key to successful acquisitions is digestion, and Chambers knows that. Therefore, when he chooses acquisition targets, he will give priority to companies in Silicon Valley, which can avoid the trouble of moving the other party's employees and their families.


Moreover, in the acquisition, Cisco is very generous and generous, and can always make offers that the other party is difficult to refuse.


An interesting example is when Cisco acquired fiber-optic equipment company Cerent in 1999. Chambers found the company's CEO and asked, "Tell me, how much can I pay to buy your company?" Make you give up on this idea?"


Finally, let's talk about strength. Cisco bought the small company with just over $10 million in sales over two years for $6.9 billion worth of stock.


Chambers' sturdy acquisition style became a talking point at the time. Some people, therefore, describe Chambers: "Like a wolf from Silicon Valley, constantly searching for prey suitable for mergers."


Chambers himself said: "We will try to get the product we need, and once we find something we like, we will do whatever it takes to get it".


This maverick CEO style, the media has always been very fond of.


In order to praise the great success of Chambers and Cisco, the American media at that time can be said to be full of praise.


The wired magazine praised Cisco employees as the repairmen of the Internet age, building bridges for the Internet. "Business Week" called Cisco a high-tech wizard, and attributed Cisco's success to Chambers' "impeccable management, superb sales skills, and a series of rapid acquisitions."


Not far behind, Fortune magazine published a special feature praising Cisco as a super new force in the computer world, the real king of the Internet, and Chambers as "the best CEO on the planet."


In fact, the reason why Chambers and Cisco can quickly expand mergers and acquisitions is that in addition to having two brushes in their own management, the more important factor is the help of the general environment.


At that time, with the rapid development of the Internet, technology stocks were sought after by the capital market. Therefore, a lot of money has flowed to technology companies like Cisco, which not only drove up the stock price, but also formed a bubble.


It is because of the "help" of these capitals that Chambers can spend a lot of money and buy everywhere.


Tech Expansion Routes in the 90s


In any case, from the perspective of technology and products, Cisco's crazy acquisitions have indeed helped itself build an unprecedented huge business map and a dazzling array of product systems. Their tentacles extend to almost all corners of information technology.


We might as well stand from the product point of view and see how Cisco's technology line developed in the 1990s.


When Cisco went public in 1990, it was still a router manufacturer mainly focusing on AGS products.


In January 1993, Cisco introduced the Cisco 7000 router.


The router's forwarding performance is 110,000 packets per second, a 50 percent improvement over previous "AGS+" routers.


In addition, it includes redundant power supplies, hot-swappable line cards, and memory for easy software upgrades. It supports multiple protocols such as SNA, DECnet, IPX, AppleTalk, and IP, making it the first true carrier-grade router.


At that time, the US MCI and PacBell (Pacific Bell) companies are Cisco 7000 users. They used this router to build their own Internet infrastructure.


In June 1993, Cisco launched the Cisco 2000 router series for the low-end market, mainly for small and medium-sized enterprises.


While improving router technology, as mentioned above, Cisco has also entered the Ethernet switch market through acquisitions and has gradually become a leading company.


In the 1990s, ATM and Frame Relay technologies developed rapidly. In particular, ATM technology is in a state of fierce competition with IP technology. Cisco reserves all of these technologies, some through self-research, and some through mergers and acquisitions.


In April 1996, Cisco acquired StrataCom for $4.67 billion for their ATM and Frame Relay WAN switching equipment technology.


At that time, many telecom operators were based on ATM and Frame Relay technology to increase network capacity. With the acquisition, Cisco has also extended its market from traditional government and enterprise customers (large corporations, government agencies, utilities, and educational institutions) to the operator field.


The mid-to-late 1990s saw a boom in digital subscriber line (DSL) equipment and IP telephony, and Cisco acquired a number of related companies. DSL and Voice over IP technologies helped Cisco later enter the emerging networking field.


First introduced in 1997, the Cisco 12000 series routers, with a processing capacity of 2.5 million packets per second, were designed to support the "backbone" arteries of major telecommunications companies, significantly improving the performance and reliability of the Internet.


In 1999, Cisco added two new emerging acquisition areas: fiber optic networking and wireless networking.


In that period, telecom operators focused on building fiber-optic networks and expanding network capacity in order to cope with a large number of voice, video, and data demands. Cisco has also made investments and layout accordingly.


It is worth mentioning that, in addition to products and technologies, Cisco also attached great importance to personnel training and ecological construction at that time. The famous Cisco certification was officially launched by Cisco in October 1997.


This certification has a very high gold content in the early stage, which often means high-tech treatment, and many young people flock to it.


2001-2005: Falling from the altar, besieging the opponent


Entering 2000, Cisco finally reached its peak.


At that time, Cisco's network switch market share was as high as 69%, and the network router market share exceeded 85%. Microsoft's Windows, Intel's processors, and Cisco's network equipment are known as the wintelco system, representing the three major standards of computer software, hardware, and networking.


On March 27, 2000, a historic moment, Cisco's total market capitalization reached a record-breaking $555 billion, making it the most valuable company in the United States at the time. The trading volume of Cisco's stock in one day once exceeded the entire Shanghai stock market.


The extremes will reverse, and the prosperity will decline. Soon, Cisco ushered in its darkest moment.


In 2001, the global Internet economic bubble burst, which brought a heavy blow to many technology companies, including Cisco. Cisco's market value once fell from $579.2 billion to $164.2 billion (down two-thirds).


In order to reverse the decline, in April 2001, Chambers, who had vowed never to lay off staff, took a stab at it. Not only did he write off the excess inventory of $2.2 billion, but he also laid off 18% of the workforce or 8,500 people.


At the same time, he lowered his salary to a dollar a year, making him the lowest-paid CEO in the world. (This practice was later followed by many CEOs.)


Along with layoffs and pay cuts, Chambers began to examine his strategy of blind expansion. He slashed Cisco's 50 product lines by 20 percent, remodeled the remaining products, reduced the number of parts they needed, and reduced suppliers by 60 percent.


The bursting of the Internet bubble hit Cisco hard. But after all, Cisco's foundation is still there, and after a period of recovery, it has gradually returned to the right track.


At this time, Chambers suddenly found that his competitors "suddenly" increased.


Before 2000, Cisco was in absolute market dominance and had almost no rivals in its field. The few companies that can pose a threat to it are Alcatel, Lucent, and Nortel.


After 2000, things changed. Juniper and Huawei rose rapidly and began to challenge Cisco's position.


Juniper is a young company, born in 1996.


In 1998, Juniper released its operating system, JUNOS, followed by its first product, the M40 router. The product boosted Juniper's revenue to $100 million in 1999, capturing 15 percent of the market.


In 2000, Juniper officially went public and launched the M-160, an enhanced core router, which became the sworn enemy of Cisco's high-end routers.


What scares Cisco, even more, is Huawei, a new technology force from China.


In 1995, Huawei established a research institute in Beijing and began to enter the carrier router market. In 2000, Huawei released China's first high-end router, NetEngine, which marked the beginning of its core router product capabilities.


In 2002, in a series of major domestic project tenders, Huawei beat Cisco one after another and gained a large market share.


Internationally, Huawei is also boldly attacking.


In June 2002, Huawei made its first official appearance at the Telecom Equipment Exhibition held in Atlanta, USA. The data products shown by Huawei have the same performance as Cisco products, but the price is 20% to 50% lower than that of competitors.


Huawei also placed extremely challenging advertisements in mainstream American media: "the only difference between them is the price ".


It is said that Chambers quietly stayed at the Huawei booth for more than ten minutes at that time, asking in detail about the technical situation of Huawei's full range of routers. The Huawei staff did not recognize Chambers but tried their best to explain.


Realizing that Huawei was a serious threat, Chambers quickly embarked on his own crackdown plan. The most effective means he thought of was legal proceedings.


As a result, there was the later famous Huawei-Cisco "Century Litigation".


I don't need to say much about the process of this lawsuit. Finally, on July 28, 2004, Huawei and Cisco reached a settlement agreement to terminate the lawsuit.


The lawsuit helped Huawei make a name for itself around the world. Later, Huawei grew even faster, eroding Cisco's market share. H3C (Huawei 3COM), jointly established by Huawei and 3COM, also poses a great threat to Cisco.


2006-2011: Entering the consumer market


In 2006, Chambers realigned the company's growth strategy and began a rebranding program.


This year, Cisco proposed " The Human Network (the future of mankind) " brand campaign and changed its company name from "Cisco Systems" to "Cisco", aiming to turn itself into a personal and home consumer brand.


According to Chambers, Cisco needs to transform its corporate image from a supplier of hardware and software technology to a company that changes the way the world and people communicate, and a leader in communication and collaboration technologies (VoIP, video conferencing, online collaboration).


To this end, Cisco also specially created the Linksys (leadership) brand to produce home networking consumer products.


They also laid out Web conferencing and audio and video conferencing telephony and introduced later well-known products such as TelePresence (Telepresence) and WebEx.


In 2005, Cisco acquired set-top box maker Scientific Atlanta for $6.9 billion to strengthen its video streaming technology.


In 2008, Cisco's revenue reached $39.5 billion and it employed more than 65,000 people worldwide.


In 2009, Cisco bought camera maker Pure Digital Technologies for $590 million. This company is known for making Flip Video cameras. Cisco intends to seamlessly connect these cameras to the Internet so users can easily share their photos.


However, with the rise of smartphones, this idea was quickly dashed.


In 2011, due to brutal market competition, Cisco's operations were once again in a dilemma. In desperation, they were forced to lay off 3,000 employees and cut costs by $1 billion. This year, they plan to sell the set-top box manufacturing plant to Foxconn.


2012-Today: Strategic Transformation, Looking for Business Opportunities

In 2012, Cisco set new goals to transform itself into a premier IT company by expanding in areas such as Internet security, wireless technology, and data centers. During that period, the situation of entire Internet industry has undergone drastic changes.


The rapid development of the mobile Internet and the rapid popularization of smartphones has driven the exponential growth of network traffic, which has put enormous pressure on operators' networks. As a result, high-bandwidth and high-performance network equipment, equipment that is easier to operate, maintain and expand, began to replace old equipment. The communication network enters a stage of intensive update iterations.


Oddly enough, at this stage, Cisco's equipment "failed" frequently. Cisco's product vulnerabilities and backdoor problems are also attracting more and more attention.


In view of this situation, China has begun to strengthen the domestic substitution of communication network equipment, and the transmission and data communication products of Huawei, ZTE, H3C, Fiberhome, and other companies have become mainstream. What happened after that is basically known to everyone. This trend of replacement has continued to the present.

In July 2012, Cisco acquired TV software developer NDS for $5 billion.


In 2013, Cisco Systems was mired in layoffs and product "backdoors" and had a rough time. However, that didn't stop Chambers from being on the cover of Forbes magazine.


This year, Cisco started to promote the concept of the Internet of Things and launched a new "Tomorrow starts here" campaign: "Today, more than 99% of the world is still not connected to the Internet. But we are working on it."


In 2014, Cisco announced another 6,000 layoffs or 8 percent of its global workforce.


In May 2015, John Chambers, who had been at the helm of Cisco for two decades, announced his resignation as CEO (but remained as chairman), handing the position to then-senior vice president, Chuck Robbins. Cisco thus entered the era of Robbins.


After Robbins took office, in order to save the company, he began to gradually withdraw from the personal and household consumer market and returned to system network equipment.


Around 2015, Cisco spun off its TV set-top box and cable modem businesses, selling its Linksys home router division to Belkin International.


In addition, Robbins began to focus on areas such as cloud computing, security, the Internet of Things, and data analysis.


According to Robbins' vision, Cisco needs to transform from a hardware-based company to a software and services-centric company.


Robbins also proved his ideas with action. Since taking over as CEO, Robbins has acquired a total of 19 businesses. Among them, only one is a hardware company, and the rest are software companies, covering fields such as SDN, cloud, security, and the Internet of Things.


In recent years, Cisco has continued to make frequent mergers and acquisitions and has also launched some new networking equipment, cloud and SaaS services, analytics platforms, and machine learning applications.


Whether these moves will help Cisco regain its strength remains to be seen.


Epilogue


According to the latest data, in 2021, Cisco's full-year revenue will be $49.8 billion and net profit will be $10.59 billion. This performance is still very good. The old giant, Cisco, remains a heavyweight at the poker table.


Looking back at Cisco's history, we can see that this is a great and legendary company.


In just a few decades, it has made important contributions to the development of global communication networks. Many of its technologies have been used on the Internet until now, supporting countless traffic and businesses.


Such a huge company has experienced both glorious moments and tragic sad years. He has witnessed the rise of the global Internet and the bursting of the Internet bubble.


Looking back at the reasons for Cisco's success, it is mainly because of the opportunities of the times. They stepped on the trend of technology, rapidly expanded their scale through R&D and mergers and acquisitions, and became an industry benchmark.


There are many reasons for their failure. In terms of external factors, fierce market competition and the rise of cloud computing have led to their decline. From the perspective of internal factors, the neglect of internal R&D and innovation under the habit of mergers and acquisitions, the disease of large companies, and the indifference to customer needs are also the main reasons for their fall from the altar.


Regardless, Cisco's story isn't over. Where will this giant go in the future? Let time tell us the answer.

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