What Cisco Could Teach Carmakers

At the North America International Auto Show in Detroit this week, the desperation of U.S. automakers is palpable. While they roll out hybrid cars, electric concept vehicles and plans for more efficient products over the next two years, the inescapable truth is that the Big 3—General Motors, Ford and Chrysler—are playing catch-up to their foreign rivals and trying to shake off their own insolence.

The American auto industry has been in steady decline since the 1970s, when the two OPEC oil embargoes and poor-quality products turned consumer appetites to smaller, more efficient foreign vehicles. The Big 3’s one bright spot over the last 30 years came with cheap gas that fueled margin-rich SUVs and light trucks. In the 1990s, General Motors, Ford and Chrysler even posted profits and market share gains. During those good times, the Big 3 poured their resources into more of the same products while their foreign rivals invested in high gas mileage hybrids and conventional vehicles. It’s a mistake that may cost the U.S. car companies their very existence.

Cisco Systems CEO John Chambers was faced with a similar, albeit less dire situation during the last recession when the dot-com bubble burst. While Cisco didn’t have the overhead cost burdens or the poor quality problems of the carmakers, it was caught suddenly by the double whammy of a market collapsing and boxed-in product line.

Unlike GM, Ford and Chrysler, Chamber and Cisco learned when the company got back on solid financial footing not to take its fortunes for granted. Rather than doubling down on its core networking companies, it invested in innovation and breaking out of its Layer 2 and 3 past. Chamber said it best at Cisco’s 2006 partner conference in San Diego: “The time to change isn’t when times are bad, but when times are good.”

That change came in the form of the Emerging Technology Group, a division that is part R&D skunkworks and part venture capital incubator. The idea of this group is to take good ideas that build upon other Cisco technologies and develop them into billion-dollar businesses.

“What you’ll see come out of the Emerging Technology Group is Cisco’s innovation engine,” says Steve Benvenuto, the director of sales business development and worldwide channels for the Emerging Technology Group.

The most visible product coming out of Emerging Technology Group is Cisco’s groundbreaking telepresence product line. Initially, the high-definition, point-to-point videoconferencing is revolutionizing the entire concept of the telecommuting and videoconferencing. Chambers, who has a unit in his home, promises to bring the expensive technology to the small-business and home markets within the next 18 months.

Cisco’s push into digital media and physical security technologies is being born out of the Emerging Technology Group. “Emerging Technology is going to be the engine for new and innovative technology to leverage the network as a platform, but it’s not the only place we’re going to innovative,” Benvenuto says.

Physical security may seem an odd place for Cisco, but not if you subscribe to the long-standing Cisco position that the network is the platform for all things in the user’s business. By developing, integrating with and acquiring physical security technologies that run over IP networks, Cisco is quickly becoming a leader in converged security technologies and opening new opportunities for solution providers.

The same holds true for digital signage and desktop video, which the Emerging Technology Group is gambling will be the next frontier and billion-dollar business. The explosion of video as an Internet media continues to capture the imagination. If Cisco is able to integrate desktop video with optimized networks and its unified communications products, it could have a powerful set of offerings that are unmatched in the marketplace.

“A lot of these opportunities are coming out of the Emerging Technology Group that Cisco wasn’t even talking about three years, and it’s happening on top of the network that has to continue to evolve,” Benvenuto says.

For Cisco partners, the Emerging Technology Group is perhaps a compass for future opportunities. Already, Cisco is recruiting physical security providers and matching them up with logical security partners to attack opportunities in the convergence space. And Cisco is helping to train and equip solution providers with the tools to take advantage of the new products it is producing.

“We need to give partners an opportunity to build out an entire practice where I can do everything from end to end,” Benvenuto says.

What Cisco has essentially created is a bridge to its future. Similar to automakers such as Toyota and Honda that continue to innovate new, eco-friendly vehicle technologies that are funded by the successes of their earlier innovations, Cisco will use the Emerging Technology Group as a means for keeping Cisco nimble and evolving. The recession may dampen Cisco’s momentum, but the Emerging Technology Group will likely keep Cisco and its partners from falling into the same state of decline as the U.S. car companies.

GM and its ilk could learn a lesson or two from the Emerging Technology Group, if it’s not too late.

Lawrence M. Walsh is vice president and group publisher of Channel Insider.