Cisco (NASDAQ:CSCO) has made the right decision in choosing to concentrate its innovation on open standards and open source. At the base level, Cisco's technologies will be available on the open source platform while the company will continue to add value from the top. This is a very successful business model as limited versions of software programs and networking products can be made available to smaller businesses and developers, while professional grade products and services can be sold at premium prices to medium and large businesses.
By choosing to keep base level technologies on an open source platform, Cisco is effectively increasing its long-term profitability. A networking ecosystem that is premium at the upper levels and open source at a basic level will have a great appeal among developers, small, medium and large businesses.
Moreover, small businesses that need assistance from Cisco's experts can go ahead and purchase networking solutions at an additional cost. The best part is, Cisco's technological integrations can be used in any type of the industry, enabling production lines that are monitored by means of an intelligent network, with benefits for production management, product quality and cost reduction.
Cisco also announced a plan for global availability in the fourth quarter of 2012, bringing a teleconferencing and networking solution that incorporates tools for effective online meetings, both in the office and in mobile environments, albeit in a private cloud environment. Again, by introducing open source platforms at the basic level, Cisco will be able to harness customers and clients who may otherwise have chosen to seek cheaper competitors who are easily available. By making Cisco's technologies open source, the company is in effect choosing a marketing strategy that works in its favor. It is akin to giving free samples so that those who try it can come back for more and purchase it.
People eventually tire of open source products, especially if huge databases are involved. For instance, the city council in Freiburg, Germany, voted in favor of dumping OpenOffice and using Microsoft's (NASDAQ:MSFT) Office instead. Microsoft has often insisted that though it encourages open source platforms, precision and efficiency can only be achieved with the help of enterprise level solutions. With that in mind, we can understand why Cisco has chosen to support open source technologies at base levels. Eventually, free users will have to upgrade and purchase its premium support and services.
Juniper Networks (NYSE:JNPR) has been working on open source solutions to create a controller for software defined networks (SDN). The company took that move in September in order to offer open source alternatives to Cisco's proprietary services and products. Juniper however will be disappointed to learn that Cisco has made the open source plunge as well, at its basic level. Cisco and Juniper Networks have often competed with each other in the realm of software defined networks usually purchased by corporations.
Intel (NASDAQ:INTC) is no stranger to throwing its technologies to open source platforms either. Recently, it announced its GraphBuilder tool that is expected to help firms' handling of unstructured data. GraphBuilder tool can also be used to analyze unstructured data. The tool was developed in collaboration with the University of Washington. Certainly, Cisco's rivals are no strangers to throwing their services and products to open source platforms, even if it means making just a small percentage of the product catalogue available for free.
On the other hand, Alcatel-Lucent (ALU) understands the needs of enterprise networks to continue to evolve. The company has continued to present solutions and expanded its partner ecosystem, helping them improve operations of corporate networks. The company is launching an enhancement of its Application Fluent Networks, providing resources to optimize and automatically adjust enterprise network which can be supported on mobile devices. Alcatel-Lucent also helps corporations to run real-time applications on LAN, Data Center and WAN smoothly and effectively.
With all this in mind, I am confident that Cisco will be able to bring in a lot more clients than it could bring before, when it was not open to open source platforms. Base level software and networking programs are hugely popular across different sizes of enterprises. Many companies find it difficult to afford premier networking products. However, open source platforms allow them to access technologies which they otherwise cannot. Thanks to open source networking products' structural and technical limitations, companies invariably upgrade and purchase premium versions of the same software in the long-term. Cisco has thus hit the right nail at the right time, and its profits will continue to rise in the long term.
Cisco has a market cap of $105 billion and an enterprise value of $77 billion. This suggests that Cisco's worth has increased dramatically. Just 2 weeks ago, Cisco's market cap was $95 billion and its enterprise value was $65 billion. While we cannot attribute the increase in numbers to its decision to open up to open source platforms, investors can certainly see why most analysts have been pointing at Cisco, when it comes to reliable companies in the long-term.
Cisco has a profit margin of 17.90%, which is very good, and has $45 billion in total cash. I strongly believe that these numbers are great, and with new products and services being launched by Cisco, these numbers will only improve further. Most importantly, the company's decision to make base level products open source is a wise one. This decision will help the company to sustain its profits in the long term. After all, in a globalized world, open source technology developed by Cisco will always be in demand.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.