Is Cisco In Danger Of Losing Its Networking Crown?

Novanis' Vost, however, said he's seen first-hand how lower-cost competition can change the game. Novanis deals both in Cisco and ProCurve. In the six years it been a ProCurve partner, he said, he's seen the Palo Alto, Calif.-based networking arm of HP slice up pieces of Cisco's pie, offering him strong profits at the same time.

"What I've seen the last 12 to 18 months, I've seen ProCurve taking off," he said, adding that some large accounts, including major universities, have started taking out their Cisco gear and swapping in ProCurve.

And that's not just happening at the edge, it's happening at the core as well.

Vost said part of the dynamic stems from ProCurve's lifetime warranty on most of its gear, which in rocky economic times can be perceived as an attractive alternative to Cisco's SmartNet maintenance program. Add to that the generous margin typically offered by alternative vendors, and Cisco partners will start to take note, he said. ProCurve has also gotten more aggressive with partner programs, marketing campaigns and rebates, helping it connect with VARs and flex its muscle.

"It's kind of like a perfect storm, and I think ProCurve is going to explode," Vost said.

Going back three to four years, Vost said his business was split 90 percent Cisco and 10 percent ProCurve. Year by year, ProCurve sales have grown as Cisco has declined. Vost predicts that in a year or two his Cisco and ProCurve businesses will be split at an even 50-50. For Vost, ProCurve gear has become easier to sell as his base of clients seeks out lower-cost alternatives.

In its VAR survey, UBS cited ProCurve as Cisco's "main long-term threat" and Cisco's biggest LAN switching competitor. Seventy percent of respondents said HP would be more successful in its Cisco coup if it expanded outside LAN switching into other networking product areas, such as ProCurve's recent acquisition of wireless networking vendor Colubris.

Sixty percent of VARs surveyed said they see ProCurve and other low-cost alternatives stealing away Cisco partners.

"ProCurve is the real threat at the low end for Cisco," said Yankee Group Senior Vice President Zeus Kerravala. "A lot of companies want an alternative to Cisco. With ProCurve, you get a lot of the functionality of the Cisco switch, just not with all of the features."

Respondents to CRN 2008 Channel Champions survey also noted that ProCurve can turn a strong profit. In the SMB networking space, ProCurve beat out Cisco from a financial perspective, raking first for product margins, spifs and rebates, along with its service attach rates.

Despite ProCurve's increase, Kerravala noted, Cisco will still continue to perform. Kerravala said Cisco will always have an edge based on its high-quality gear and expansive feature set. Companies that buy Cisco and VARs that sell it know Cisco carries a premium price tag, but they also know what kind of bang they'll get for their buck, he said.

"A Cisco switch will do more than ProCurve's," Kerravala said. "The reason people continue to buy Cisco is you have a large installed base of Cisco-certified engineers out there. The cost of running an alternate vendor from an operations standpoint is more expensive. But there will always be VARs that want an alternative to Cisco, especially in the data center."

And while Cisco refuses to directly discuss the competition, it is no stranger to competitors. Cisco is quick to point out that for VARs selling point products and solutions, a quick and high margin may be attainable, but VARs can boost their overall value with Cisco's solution-based approach.

"We do embrace good, healthy competition," said Wendy Bahr, Cisco's vice president of channels in the United States/Canada theater. Regardless, Bahr said, Cisco does not let the competitive landscape influence its decision-making. Cisco has gotten to where it is, she said, by listening to partners and customers and launching a full solution play as opposed to a string of point products and pieces.

"Customers want turnkey, end-to-end, robust solutions," she said, adding that the solution approach gives VARs the opportunity for added revenue through services wrapped around Cisco's technologies, something other vendors lack.

"The market condition is in a state of flux," Bahr said. "Even if the macroeconomics are worrisome, at this point in time what customers and partners want to achieve is a solution to a critical business issue. What I listen to the most is what the partners and the customers are saying."

And, according to Bahr, they're saying a lot. She said partners are still seeing strong profitability and focus on the long-term outlook of Cisco investments over saving a few up-front dollars.

"We talk about all the elements that go into partner profitability and meeting their needs with robust solutions," Bahr said. "A single, less expensive component can't always solve that problem."

Bahr also cautioned VARs that relying on lower prices as a business strategy often falls flat. "Using price as a leading strategy never bodes well. If you go down that path, where's the value in that proposition?"

Along with ProCurve making the grade, VARs are also starting to consider Juniper a viable alternative. In January, Juniper unveiled a new line of Ethernet switches, the EX Series, the Sunnyvale, Calif.-based vendor's first-ever enterprise switching line.

NEXT: Juniper On The Rise