January 7, 2000 Web posted at: 10:10 a.m. EST (1510 GMT) by Paul Desmond

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(IDG) -- By any measure, Cisco dominates the market for enterprise data network equipment. Nobody argues that fact. But the landscape is changing, with talk of adding voice to data nets and an emphasis on professional services to help users make sense of it all. At the same time, Cisco is trying to mount a credible assault on the carrier equipment market, which many prognosticators, not to mention Cisco itself, consider essential for the company's growth.

So in the struggle to retain its spot atop the network equipment market, it's really Cisco vs. everybody else, most notably Nortel Networks, Lucent Technologies and 3Com. But coming up on the outside are a slew of well-heeled start-ups fresh from wildly successful IPOs. This bunch includes Foundry Networks, Juniper Networks, Redback Networks and Sycamore Networks.

Can any of these competitors take Cisco down and claim the top spot? Not likely, but that doesn't mean these competitors won't enjoy success of their own. Cisco won't keep its position unless it continues to stay focused on customer requirements. However, that is the single thing the company does better than any other.

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Cisco earned its commanding lead in the enterprise data market by building a loyal customer base. Many customers are so entrenched they won't go with a product from a competing vendor even if it can outperform a Cisco box.

"I'm less interested in another company's product that's slightly faster in packets per second," says Russ Davis, assistant director of network services for Ernst & Young in Lindhurst, N.J. Ernst & Young uses myriad Cisco products, including routers, remote access equipment, switches, load balancers and firewalls.

Introducing another vendor's gear at this point would only present interoperability problems and require his staff to learn how to manage another vendor's equipment. Davis, like many users, wants no part of it.

Kathryn Korostoff, president of Sage Research, a market research firm in Natick, Mass., recently conducted focus groups and asked users to match automobile logos to different network equipment vendors. "The majority say Cisco is the Mercedes - it's the brand you want to be seen driving," she says.

Even charges that Cisco products are overpriced don't sway users. "Price is important, but it's not number one," Davis says. "You really have to look at the total cost of ownership," which means factoring in training time, time to repair problems and vendor support. When you consider the hidden costs associated with other vendors, Cisco comes out looking pretty good.

Cisco faces competition from a crop of relative newcomers to the network equipment market. Extreme Networks, Foundry, Juniper, Redback and Sycamore are gaining market share in areas including high-speed Layer 3 switching, Internet access management and optical networking.

In years past, such developments were more like opportunities for Cisco, which makes no bones about the fact that startups serve as a big part of its R&D effort: It buys companies to gain access to new technologies.

Given the amount of money a startup can generate from an IPO, that's becoming tougher to do, says Peter Wagner, general partner at Accel Partners, a venture capital firm in Palo Alto. "Now top entrepreneurial teams have an alternative to being acquired by Cisco in terms of achieving liquidity for themselves and their companies," he says.

Proof of his theory lies in Cisco's August acquisition of optical switch maker Cerent, for which Cisco paid $6.9 billion. "Cisco for the first time had to pay a public market price for a private company," Wagner says. It's not that Cisco can't afford such prices - it can - but the bigger challenge is winning the hearts of the entreprenuers so that they are willing to be acquired.

That is absolutely true, says Drusie Demopoulos, vice president of marketing for Foundry. At the same time, a successful IPO makes a company such as Foundry more attractive to enterprise buyers because the influx of cash gives it staying power. "A couple of days after our IPO, I got a call from General Motors saying they wanted to look at our products," she says. "It could've been a coincidence, but I don't think so."

Could Cisco be toppled from its No. 1 spot in the enterprise? In an industry that's changing as dramatically as the networking technology business is, there's always that possibility. But it's tough to picture.

"In order for that to happen, Cisco would really have to lose its communication with customers and become so internally focused that it wasn't seeing the signs," Sage's Korostoff says. "And that's just not how Cisco is structured. The whole organization is customer-oriented."