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The phase we have entered--and where Cisco reigns--is one in which all those PCs and devices are getting linked to a free network, the Internet. The costs of data transmission are dropping even faster than Moore's Law is increasing processor speed. How much did you pay to send your last e-mail? Cisco, as the maker of the gear that runs the network, has been ideally positioned to capitalize on this trend. "We are the center of this Internet firestorm," says Don Listwin, Cisco's executive vice president.
CEO Chambers is fond of saying the Net has become "a home game" for Cisco, but the company's success is also due to another trend that is part of the new networked economy. From the start, Cisco has supported open Internet-protocol standards like TCP-IP (protocol is how servers talk to each other) rather than proprietary standards like Microsoft's closely guarded Windows source code. "Open standards are what unleashes the power of the Internet ecosystem," says Listwin. "IBM let only IBM build on its computers. Microsoft let only a few thousand build on its platform. The Net lets billions build on it." He has a point. The most widely used Web server program, Apache, and the most widely used e-mail application, Sendmail, are either free or open-source.
Certainly, Cisco is unique among today's MVCs (Most Valuable Companies) in that most people, including many shareholders, can't tell you what it makes. For the record, the Cisco equivalent of Windows or the Big Mac is the Catalyst 6000 family of routers and multilayer switchers. These are the souped-up computers that enable data--your e-mails, video files and MP3s--to whiz around the fiber-optic networks that are the Internet. "The fiber is the railroad tracks, and Cisco makes the trains," explains Hal Varian, dean of the School of Information Management at the University of California, Berkeley. "There's been a lot of investment putting fiber into the ground. If you want to use that fiber, you need Cisco routers."
Cisco's lean corporate culture--top execs fly coach and work in cubicles--signals a break with the perquisite-laden past of many of America's industrial-age Goliaths. Much of what is taken for granted at Web start-ups and tech firms originated at Cisco--open offices, free sodas, the hazy divide between work and play. But Cisco and Chambers rarely lose focus, maintaining a state of readiness reminiscent of a nuclear submarine on tactical alert. "They are one of the few companies that really live it," says Virginia Brooks, an analyst with the Aberdeen Group. "Given the kind of pressure they are under from the shareholder community, it's like they've done it backward and in high heels with the whole world watching."
This is a company that remains on the prowl--for new technologies, partners and especially acquisitions. Cisco has made acquiring and integrating other companies a house specialty, having done it 55 times since its inception and seven times already this year. Again, unlike Microsoft, which maintains a strong Bill-centricity that leaves acquired companies feeling like outlanders, Cisco has made it a central strategic tenet to integrate its bought talent. "When we acquire, all I'm acquiring is people and next-generation products," says Chambers. "I pay between $20,000 and $20 million per employee of a firm. If I lose the people, I'm in trouble."