History of Cisco: 1984-2000

An American is a person who does something because they haven’t done it before.
Mark Twain

Greetings! My name is Sergey Minaev, I represent the company VISTLAN LLC , which is engaged in system integration, including solutions based on Cisco products. I am sure that in order to do your job well, you need to know as much as possible about the subject you are working with. And in the list of this knowledge, the history of the subject, the history of the products with which you work, takes far from the last place. Indeed, an understanding of history is an opportunity to better understand the characteristics of products, as well as imagine possible development prospects.

And now I present to you a translation of an article that reveals in sufficient detail the history of the creation and development of Cisco. I think this story will be interesting both to those specialists who have been working with Cisco products for a long time, and to those who are just discovering the possibilities of Cisco products.

We planned to write our own article about the history of Cisco, but when our experts began to collect information, we found an excellent article in the English-speaking segment of the Internet, which tells in great detail about the history of the company from its foundation until 2000, inclusive. And now I present to you the translation of this article .

How Cisco developed in the following years, what products appeared, how technologies developed and much more, we will tell you separately, in another article that we are preparing.

Cisco History and Prospects

Today, Cisco has a worthy position in the Internet economy and helps many people completely change their approach to work, study, entertainment, and even life!

Key dates:

1984: Cisco Systems, Inc. founded by Leonard Boseck and Sandra Lerner.
1986: The company sold its first product, a router for the TCP / IP protocol suite.
1988: Donald T. Valentine, a venture investor, gained control of the company; John Mordridge became President and CEO.
1990: The company became a joint stock company; Lerner was fired, and Bozac left of his own free will.
1993: Cisco completed its first deal with Crescendo Communications.
1994: For the first time, company revenue exceeded $ 1 billion.
1995: John T. Chambers became CEO.
1996:The company acquires StrataCom, Inc. (switchgear manufacturer) for $ 4.67 billion.
1998: Cisco's total market value goes over $ 100 billion.
1999: The company acquires 17 enterprises, including:

• GeoTel Communications Corp., a manufacturer of call routing software, for $ 1.9 billion;
• Cerent Corporation, a manufacturer of fiber optic networking equipment, for $ 7.2 billion;
• Aironet Wireless Communications Inc., a manufacturer of wireless equipment, for $ 800 million;
• Manufacturer of fiber optic communications equipment Italy Pirelli SpA for more than $ 2.2 billion.

2000: The total market value of the company reaches 450 billion dollars.

history of the company

Cisco Systems, Inc. - One of the world leaders in the field of supply of goods, including software, as well as services in the creation and maintenance of computer networks. The company's product line includes routers, switches, remote access devices, protocol converters, Internet service and networking devices, network management software that integrates geographically dispersed local area networks (LANs), wide area networks (WANs), and the Internet itself.

Cisco serves three major market segments:

• Large organizations, including corporations, government enterprises, engineering networks, and educational institutions that need sophisticated networking solutions that typically connect different locations.
• service providers, including Internet service providers, telephone and cable companies, and wireless service providers;
• small and medium-sized enterprises, whose needs include operating networks, Internet connection, and / or communication with business partners.

The company is increasingly developing expertise in organizing fiber optic networks, as well as related expertise on multifunctional networks, which offer audio and video network capabilities in addition to traditional information capabilities.

The rise of multi-protocol routers

Cisco Systems was founded in December 1984 in Menlo Park, California, by Stanford University employees, a married couple - Leonard Boseck and Sandra Lerner. Bosek was the manager of the laboratory of the department of computer science, and Lerner supervised the work of computers in the higher school of business. At Stanford, Boseck created a way to connect the two local networks in the departments where he and his wife worked, extending 500 yards of cable for the campus.

Lerner and Boseck initially tried to sell the gateway technology that Boseck developed to existing computer companies, but they failed to interest anyone in the new features. Then they decided to start their own business, Cisco Systems, based on this technology. By the way, they came up with the name, looking at the abbreviated form of the name of San Francisco when they passed the Golden Gate bridge.

Boseck and Lerner were joined as co-founders by colleagues Greg Setz, Bill Westfield and Kirk Loid. Stanford University later attempted to receive $ 11 million in licensing fees from the new company because Boseck developed the technology while he was at the university, but ultimately the university accepted $ 150,000 in compensation, free routers, and support.

At the time of its founding, the company had an extremely limited budget. In fact, Bozek and Lerner had to lay down their house, increase credit card debt and defer the payment of salaries to friends who worked for them to successfully launch the enterprise. And even after two years of doing business, Lerner continued to work on the side to get a sufficient level of income for herself and her family.

The main product of Cisco from the very beginning was the gateway router, as well as hardware merging with software, which automatically select the most efficient route for data transfer between networks.

Cisco routers supported multiple protocols (data transfer standards), and therefore could combine different types of networks with different architectures based on different hardware, such as IBM-compatible personal computers, Apple Macintosh computers, UNIX workstations, and IBM universal computers.

So, in 1986, after Cisco introduced its first product, a router for the TCP / IP protocol suite (TCP / Internet Protocol), it became the first company to provide commercial multiprotocol routers.

A year later, Cisco sold routers for a total of $ 250,000 per month. Sales at the end of the fiscal year - July 1987 amounted to $ 1.5 million, while only 8 employees worked in the company.

Cisco initially sold its routers to universities, research centers, the aerospace industry, and government organizations, connecting with programmers and engineers through ARPANET, a precursor to what later became known as the Internet.

In 1988, the company aimed to sell its gateway routers to leading corporations with geographically dispersed divisions that used different networks. To this end, Cisco has developed routers that support even more communication protocols, as a result of which it has become a leader in its segment, as Cisco routers have been able to support more protocols than analogues from other manufacturers.

Towards the end of the 1980s, when the commercial market for inter-network communications began to develop, Cisco's high-performance, low-cost routers gave it a significant advantage over emerging competitors.

Although Cisco had a high sales growth rate, the young company still needed investors; in 1988, Bozac and Lerner were forced to seek support from a venture capitalist, Donald T. Valentine of Sequoia Capital. Valentine, however, demanded that the owners give him a controlling stake in the company. Thus, Valentine became chairman and then hired John Morgridge as the company's new president and CEO.

Morgridge, who had an MBA degree from Stanford University, was executive director at GRiD Systems Corp., a laptop company, and before that he worked for six years as vice president of sales and marketing at Stratus Computer. Morgridge replaced several Cisco managers, who were friends of Bosek and Lerner, with more competent and experienced leaders.

In February 1990, Cisco became a joint stock company, after which Bozek and Lerner began to sell their shares. Sales at the end of the fiscal year - in July 1990 amounted to $ 69.8 million, net income was $ 13.9 million, and the company employed 254 employees.

Under Morgridge, Boseck was given the position of head of research, and Lerner made the head of customer service. However, Lerner, as you know, was not on good terms with Morgridge and, in August 1990, she was fired, after which Bosek also left.

When Bozac and Lerner left the company, they sold the remainder of their shares for $ 100 million. The couple subsequently donated most of their profits to their favorite charities.

In the early 1990s: rapid growth with the spread of the network

Meanwhile, Morgridge created a sales department that was supposed to sell products to corporate customers. At first, Cisco corporate customers were departments of research companies that already had large internal networks. Later, Cisco was able to sell its products to all major corporations to help them connect the computer systems of their main and regional offices, as well as branches.

As Cisco's customer base grew, the company's biggest problem was customer service support. The large size of the network systems Cisco supplied the products made the customer support task particularly challenging.

The company grew at a tremendous speed, as the market expanded rapidly. In the early 1990s, companies of all sizes installed local area networks (LANs) for personal computers. The potential market for combining these networks, both with each other and with existing minicomputers and personal computers, has also grown. Cisco sales rose sharply from $ 183.2 million in fiscal 1991 to $ 339.6 million in 1992, and net income rose from $ 43.2 million to $ 84.4 million in the same period.

In 1992, Fortune magazine declared Cisco the second fastest growing company in the United States. Cisco could redefine and expand the market as it grew, as a leading provider of gateway routers.

While new communications technologies have become widespread, Cisco has adapted and added capabilities for processing new protocols to its product list. In the fall of 1992, Cisco introduced the FDDI Ring Fiber Link technology and the improvement of the High-Performance Token Ring Router. At the same time, the company also introduced the first ISDN router (ISDN) in the Japanese market.

Until 1992, Cisco products were not distributed in the IBM System Network Architecture (SNA), the proprietary network architecture used by IBM computers. But in September 1992, after IBM announced plans to license the Advanced Peer-to-Peer Networking Protocol (APPN) used for SNA, Cisco responded by announcing plans for the rival Advanced Peer-to-Peer Internetworking Protocol (APPI) to support SNA

But these plans were not implemented. By August 1993, Cisco had abandoned the decision to develop a competing protocol because IBM had made it clear that APPN would be a more open protocol for working with products from different manufacturers than originally announced. As a result, Cisco continued to work with IBM to further define the APPN standard and purchased a license to use APPN technology.

The advent of asynchronous transfer method (ATM) technology as the new standard multi-protocol data transfer method has become a challenge for Cisco and the router industry. ATM is a cell switching technology that can provide high-speed communication of data, voice, video and images without using routers.

In early 1993, Cisco entered into a joint development project with AT&T and StrataCom to develop standards that ensure that ATMs work within existing Frame Relay networks. Cisco has also become one of the four founding members of the ATM Forum, which has also worked to adopt the new standard.

In February 1993, Cisco announced a strategy for integrating ATM into protocols that support its products. And in fiscal 1994, Cisco introduced its first ATM switch.

In January 1993, Cisco introduced the new leading product, the Cisco 7000 Router, which showed a 50 percent improvement in AGS + performance, the existing high-end Cisco router.

In June of that year, Cisco introduced a new, lower-cost, low-cost production line: the Cisco 2000 family of routers. The Cisco 2000 targeted companies wanting to bundle their smaller, remote units or even individual employees, but not wanting to pay for the premium version. Also at this time, the first network was created with more than 1,000 Cisco routers.

International sales steadily increased, accounting for 35.6% of sales in the 1991 financial year, 36% in the 1992 financial year, 39% in the 1993 financial year, and 41.9% in the 1994 financial year. Most of Cisco’s international sales were conducted by distributors, while in the United States, most sales (65% at the beginning of 1994) were conducted directly by end users.

Cisco also began to actively sell its technology, in particular software, to telephone companies, since the removal of state control of American telephone providers allowed them to transfer more different types of data and more services. For example, Cisco entered into a joint marketing agreement with MCI International to integrate Cisco routers into continuous telephone networks.

In 1992, Cisco entered into new distribution agreements with Bell Atlantic Corp. and US West Information Systems Inc. Cisco also signed marketing agreements in fiscal year 1993 with Pacific Bell, whereby Cisco became the preferred provider of routers for the company's network systems.

Around the same time, Cisco also began to enter into contracts with major European telecommunications companies. British Telecom has become a customer of original equipment manufacturer (OEM) of all Cisco products. We also began cooperation with OEM Cisco and other European telecommunications companies, including Alcatel in France and Siemens AG in Germany. And at the end of 1992, Olivetti in Italy agreed to sell Cisco products in accordance with a value-added reseller agreement.

Cisco has entered into other strategic alliances to better position itself in the emerging Internet gateway market. To reach less technologically advanced customers, Cisco entered into a joint agreement with Microsoft Corporation to market the first Cisco PC-based routers in conjunction with Windows NT Advanced Server through Microsoft marketing channels.

Similarly, Cisco has established business relationships with Novell to integrate Cisco routers with Novell network software to provide communications between Netware and UNIX-based networks. In addition, Cisco began working with LanOptics Ltd. to develop remote access products.

1993-94: The first wave of acquisitions

In September 1993, Cisco acquired Crescendo Communications for $ 95 million, resulting in a brand new product called the Copper Distributed Data Interface (CDDI).

The development of Crescendo's ATM technology has been the main reason Cisco acquired this company. Subsequently, Crescendo Communications was renamed the Workgroup Business Unit, and the switching technologies it developed were later incorporated into Cisco routers.

Cisco made its second major acquisition in August 1994. It was Newport Systems Solutions, which was bought for $ 93 million in equivalent shares. Newport Systems Solutions sold the LAN2LAN product line, as well as the software used in the local area network connection. This software product was the first new product of the Workgroup Businesses Unit, starting with the acquisition of Crescendo.

In early 1994, Cisco announced the creation of a new network architecture, CiscoFusion, which will help provide customers with a gradual transition from routers to new LAN and ATM network switching technology switches. CiscoFusion allowed users to use and direct switching methods with maximum convenience. Several new switching products were introduced in March 1994 as part of this architecture, including an ATM interface processor and a Catalyst FDDI-to-Ethernet LAN switch.

During this period, Cisco moved its head office from one end of Silicon Valley to the other, from Menlo Park, to the newly-built office building complex in San Jose, California. The growing size of the company required a larger office. The company's labor resources grew from 1,451 in July 1993 to 2,262 in July 1994. This year, Cisco has actively recruited talented personnel from smaller, desperate companies that had to lay off staff.

In fiscal 1994, Cisco received $ 1 billion in sales, ending the year on July 31, 1994, with $ 1.24 billion in net sales, a 92 percent increase in sales over the previous year, and $ 314.9 million in net revenue, an increase of 83%. than in fiscal year 1993.

Later in October 1994, Cisco completed two more acquisitions of companies involved in the switching sector. She spent $ 240 million on Kalpana, Inc., a manufacturer of Ethernet switching products; and $ 120 million at LightStream Corp., which handled ATM and Ethernet switching and routing.

Surprisingly fast growth under John Chambers in 1995

In January 1995, John T. Chambers became CEO of Cisco, Morgridge became vice chairman, and Valentine became chairman.

Chambers, who had a fixed life at IBM and Wang Labs, prior to joining Cisco in 1991, increased the pace of company acquisition to outperform competitors and rectify production line flaws in an effort to provide customers with one-stop shopping.

The company made 11 acquisitions in 1995 and 1996, including:

• Grand Junction, Inc., a manufacturer of Fast Ethernet and Ethernet switching products, for $ 400 million in September 1995;
• Granite Systems Inc., a manufacturer of high-speed Gigabit Ethernet switches, for $ 220 million in September 1996.

But the biggest deal of this period was the StrataCom, Inc. deal, which brought in $ 4.67 billion in April 1996.

StrataCom was a leading provider of ATM and Frame Relay wireless switches capable of processing voice, data, and video. Adding Frame Relay switching products to Cisco’s portfolio was especially important because that technology adapted well to the needs of telecommunications companies and allowed them to expand their networking capabilities.

The agreement was also a key step in Cisco’s attempt to leave behind the main consumer category of customers - “enterprises” —that is, large corporations, government agencies, utilities and educational institutions — and move toward telecommunications Internet service providers, an area in which it faced with strong and huge competition in the form of giants such as Alcatel, Lucent Technologies Inc. and Nortel Networks Corporation.

Cisco continued its rapid pace of acquisitions in 1997 and 1998 with 15 more agreements. The largest of these was the purchase of NetSpeed, Inc. in April 1998, specializing in the manufacture of digital subscriber line equipment (DSL) equipment, a new technology at that time, providing homes and small offices with high-speed Internet access through existing telephone lines.

Another new network technology was IP telephony technology (Internet Protocol), which allowed directing phone calls over the Internet. Acquisition of LightSpeed ​​International, Inc. in April 1998 and Selsius Systems, Inc. in November 1998, Cisco helped secure a significant share in the Internet telephony sector. The areas of DSL and IP telephony are prime examples of Cisco’s emerging technology acquisition strategies.

By the late 1990s, Cisco Systems was the undisputed king of the networking world. In July 1998, the company’s market value exceeded $ 100 billion, just 12 years after its first open offering — a period of time that was believed to be the highest ever. Revenues reached $ 12.15 billion by fiscal year 1999, a more than six-fold increase over the 1995 financial result - $ 1.98 billion.

During 1999, Cisco became even more greedy, capturing another 17 companies. As a result of these purchases, the company received stakes in two more developing areas: fiber optic network and wireless network.
Several fiber optic companies were acquired, including the recently launched Cerent Corporation, which was purchased for approximately $ 7.2 billion, the company's largest acquisition.
Fiber-optic networks were based on telecommunications firms seeking to take advantage of their ability to process large volumes of audio, video and data, making Cisco's entry into this segment a matter of enormous importance.

In late 1999, Cisco announced that it would acquire the fiber-optic telecommunications equipment business Pirelli SpA (Italy) for approximately $ 2.2 billion, receiving Pirelli equipment that picks up a beam of light and breaks it into 128 'colors', each of which can carry a separate stream of voice data or video.
A key “wireless” acquisition of Cisco took place in late 1999, when it announced the purchase of Aironet Wireless Communications, Inc. for $ 800 million. It was a manufacturer of equipment that creates wireless networks in small and medium-sized companies.

It was also expected that this technology would also be used in home networks, where Cisco tried to capture a segment growing rapidly at the beginning of the 21st century: a network home. During 1999, Cisco also acquired GeoTel Communications Corp., a maker of routed call software, for approximately $ 1.9 billion.

By the beginning of 2000 - following 1999 and the frenzy of high-tech stocks - the market value of Cisco exceeded $ 450 billion, making it the third most expensive company in the world after Microsoft and the General Electric Company. And for a brief period at the end of March, Cisco was virtually considered the most expensive company in the world with a market value of $ 555 billion.

Revenues soared, and in the fiscal year 2000 alone, revenue reached $ 906 million. Instead of slowing down, Chambers planned to increase the pace of company acquisition by adding as many as 25 companies during the year 2000. Through acquisitions and strategic alliances with industry giants such as Microsoft, the Hewlett-Packard Company, and Intel Corporation, Chambers was set to increase Cisco Systems' revenues to $ 50 billion by 2005.

Cisco's share in almost every network sector, which grew at a tremendous speed, and the company's appearance in every new direction, as well as its ability to absorb and expand the acquired companies, indicated that the company is likely to achieve this goal and continue to play its undisputed role a leader in the network equipment industry.