Cisco’s emphasizing the establishment of small internal “start-ups” for innovation rather than forming, funding and acquiring spin-in companies to develop new products for key markets.
CEO Chuck Robbins says Cisco is setting up small teams internally to “give them big hairy problems to solve” in areas the company prioritizes for product development and revenue growth. Such areas include data center, security, service provider routing, software programmability – including automation and orchestration -- collaboration, and analytics for the Internet of Things.
This week will produce results of the internal start-up innovation cycle when Cisco introduces some new programmable routing products, Robbins said in an interview with Network World last week after announcing its Q1 financial results.
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“What we’ve been testing over the last year is, can we take all the things that worked really well in the spin-in model and recreate them in an internal start-up model,” Robbins said. “And what you see coming out (this) week is reflective of that being successful. We took all of the benefits of the spin-ins without the complications of the legalities and those sorts of things. We isolate these teams inside the company we create similar environments for them, similar benefits for them upon success, and so far we think that’s going to work. I wouldn’t rule out that (spin-in) possibility in the future but I think if we can get this right it’s actually a bit faster.”
The spin-in model has been very successful for Cisco as a way to introduce new products into new markets. But they also create resentment within Cisco among the engineers that are not selected to participate in, and be rewarded for, the successful development and sales of the products they produce.
To date, Cisco has completed three with top engineers Mario Mazzola, Prem Jain and Luca Cafiero, and marketeer Soni Jiandani: Andiamo Systems for SAN switching, Nuova Systems for data center switching, and Insieme Networks for programmable, software-defined networking.
Insieme’s Nexus 9000 and Application Centric Infrastructure (ACI) products lines are undergoing a healthy ramp for Cisco. The Nexus 9000 gathered 900 additional customers in Cisco’s fiscal 2016 first quarter for a total of 5,000 in the two years it’s been shipping. ACI’s APIC controller tallied 200 more customers for 1,100 overall since it began shipping in August 2014.
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In data center switching overall, Cisco achieved $500 million in revenue in Q1, a boost 140% from last year and 26% last quarter, putting the business on a $2 billion run rate. It will reach an inflection point in the second half of Cisco’s fiscal 2016 where sales of the newer Nexus 9000, 3000 and ACI platforms will offset the decline in “historical” architectures like the Nexus 7000 and Catalyst 6500, Robbins said.
All spin-ins have turned into billion dollar businesses for Cisco, and billionaires for the founders.
“(Spin-in) has been very strategic for us in certain areas, but I also believe (in) what we’re seeing now with some of these internal start-ups,” Robbins says. “We isolate these small teams, we give them what they need, we allow them to step outside of the day-to-day operational side of the business and focus on innovation. And give them big hairy problems to solve. And we’ve seen some early success so we’re going to accelerate that. At some point if there’s something going on that would lead us to need to do a spin-in, we’d certainly look at that as an option. But while this model works I think it’s actually more effective for our teams and I think it gets us there faster.”
In addition to internals start-ups, Cisco has $2 billion invested in start-ups around the globe, Robbins says. And partnerships like those recently announced with Ericsson and Apple could help align all of these investments into a product development assembly line.
“In lieu of looking at large acquisition strategies, joint development can bring solutions to the customer the next day,” Robbins said. “Customers are making decisions on what they believe they’ll get from us in the future.”