Will Cisco suffer the same fate as Yahoo?

Invincibility is binary. You either are invincible or you aren’t. Until recently, Yahoo Inc. and Cisco Systems Inc. seemed deserving of the accolade. Now neither can make that claim. The question in my mind is whether Cisco is in store for what Yahoo has experienced.

While operating in different parts of the new economy, each was a juggernaut in command of its market – “the” brand – and often miles ahead of the competition. Each had a special power over its customers that inspired or commanded loyalty. Now at least in the case of Yahoo, that invincibility seems to be the root cause of a backlash more severe than that being felt by others. And the similarities to Cisco are eerie.

A page one story in the March 9, 2001 Wall Street Journal detailed the unraveling of Yahoo. According to the CEO of Geocities, a firm Yahoo acquired in 1999, the parent company was “alienating the clients they would some day need the most.” His criticism was leveled at “the company’s aggressive sales tactics.”

“People hate you. You’re arrogant and condescending. When there’s a downturn in the market, they’ll cut you first,” a source in the article said. It appears that is what has now happened. Might Cisco suffer the same fate?

Without knowing how many purchase orders were cut out of sheer loyalty to product and brand vs. those deals consummated with the help of management pressure, we can’t answer that question – yet.

What we do know is that, for years now, Cisco has replaced IBM Corp. as the “safe” vendor – nobody ever got fired for buying Cisco. There is significant anecdotal evidence that some network managers got in hot water for not wanting to buy Cisco. Might Cisco have alienated key clients by going above their heads?

With its leadership position, insanely high market cap, usually decent products and “can-do-no-wrong” armour, many network managers made the pragmatic decision to go with flow and buy Cisco.

Given Cisco’s “darling” status in the stock market, I often wondered how many of the purchase order-approving executives were also holders of non-trivial amounts of Cisco stock. By helping Cisco, they were helping themselves – and Cisco’s continued rise became a self-fulfilling prophecy. With the stock way down and the first layoffs in 17 years underway, Cisco may have lost its most important weapon: perception.

Until now, that has enabled Cisco to prevail over reality, the reality that when compared to the competition, Cisco’s products typically exhibited lacklustre performance, less-than-leading-edge features and sported the highest price tag. In effect, they thumbed their nose at the “faster, better, cheaper” mantra that typically drives the technology business – and got away with it.

Within the industry, Cisco has been almost critic-free. For the most part, the company has been able to manage the analysts as well as manage its customers.

With the aura of invincibility gone, it is likely that a gaggle of long-repressed customers (and perhaps some analysts) finally will come forth and tell us how they really feel.