Cisco Systems' Next Move: Managed Services

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 |  Includes: CSCO, MSFT, VZ
by: Joe Panettieri

If you want to know where Cisco Systems (NASDAQ:CSCO) is heading next, think really big and really small. The company has big plans for the massive managed services market, but is also investing $100 million in the small business sector.

In the managed services market, big service providers such as Verizon (NYSE:VZ) and Sprint (NYSE:S) remotely administer, optimize and troubleshoot corporate applications, phone systems and IT security systems. So far, Verizon has managed services contracts with more than 4,000 customers. And in many cases, Verizon uses Cisco's Integrated Services Routers (ISRs) to manage and administer those networks.

During the current economic turbulence, large and small businesses are embracing managed services because they offer predictable IT costs and often eliminate the need for technology managers in branch offices.

As I look ahead to 2009, I expect Cisco to aggressively emphasize the following technologies to big IT service providers:

  • Wide Area Application Services (WAAS): Think of this as application acceleration. The goal is for branch office users to access centralized applications that perform as if they were running locally. In other words, someone in Florida could access an application from a New York data center without experiencing any performance problems.
  • Managed Video Surveillance: Cisco will attack that market opportunity from several directions. The company already offers video surveillance equipment. And Cisco plans to introduce more video surveillance solutions as part of a $100 million small business initiative. Stay tuned for more announcements in 2009.
  • Managed TelePresence Services: AT&T (NYSE:T) and other big service providers are already introducing managed TelePresence services -- which are next-generation video conferencing systems. But as TelePresence pushes into the home, I expect cable broadband providers to partner up with Cisco in this area as well.
  • Application Extension Platform ((NYSE:AXP)): Keep a close eye on Cisco’s AXP, which allows software developers to write network-aware applications. It’s a safe bet more and more of those applications will target the managed services market.

Long term, AXP positions Cisco to battle against Microsoft in the race to recruit software developers who write Voice over IP applications. Yes indeed, Cisco's managed services strategy will lead to a showdown against Microsoft.

Full Disclosure: My company, Nine Lives Media Inc., has done some consulting work for Cisco Systems for 2009.