Cisco's R&D outlook

Chief development officer Charles Giancarlo on the company's R&D direction and strategy

As Cisco's chief development officer, Charles Giancarlo oversees the company's R&D direction and strategy. With the expansion into new markets and technologies -- such as consumer electronics and video -- the types of engineers Giancarlo manages at Cisco have diversified beyond router, switch, ASIC and network software developers. He spoke with Phil Hochmuth about handling juggling Cisco's various R&D activities, as well as some enterprise security technologies to expect from Cisco this year.

Cisco says 45 percent of its business comes from enterprise, 25 percent from service providers and commercial customers [respectively] and around 5 percent from consumer products. How are R&D spending and product development resources allocated to these businesses? Does it reflect in percentage of revenue coming in from these segments?

It's quite different. The business model in each one of those segments is quite different. We tend to spend, relative to revenue, the most in service provider, followed by enterprise, followed by commercial and then consumer.

Even though service provider is not quite as large a business for us as enterprise, the nature of the service provider business is one that drives greater demand for R&D. Albeit we probably spend less on sales for service providers. So there's a bit of a trade-off. [Service providers] are bigger customers and require fewer salespeople, but on the other hand they require larger amounts of R&D.

The complexity of the products and the nature of the competition [are the reasons for this]. With large service providers, they expect very custom environments. If you compare the traditional P&L of a service provider business versus traditional P&L of an enterprise business, the service provider vendor will spend more on R&D and less on sales than an enterprise business. Of course we're a blend of all of those.

As Cisco pushes further into the consumer market, how is this affecting R&D strategies and operations?

We're blending what we've learned from experts in the consumer business with what Cisco does well. I would say that in general, Cisco is a very strong research and development organization. It always has been, and I think we're well respected in the industry for our capabilities there. Obviously the things that you need to focus on in the consumer world are quite different from other markets. That's an area where we're still learning. But it is one where we're going to apply our resources. We'll also leverage whatever technology we have in other market segments to the extent that it's useful -- in the consumer market.

What areas does Cisco need to learn more about, or improve in, to succeed in the consumer market?

Things that we need to learn are the importance of establishing brand, establishing market presence. Technology-wise, it's things like ease of use, user interfaces, all of these things that tend to be less important in our other business segments are important things for us in the consumer market. We're learning a lot about these things day by day. It's the difference between [selling products] to expert technologists and to the common consumers. [Consumers] are not experts, but on the other hand, they want something that's not only easy to use but fun to use. Certainly, we're not there yet, but it's something we aspire to.

Does this mean Cisco is hiring new types of engineers? Or is there shuffling around of R&D personnel among the business units?

We do have separate R&D staffs in Linksys and Scientific Atlanta. It's about getting the right mind-set there. Getting them focused on the right qualities of both low-cost and a focus on the user.

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Phil Hochmuth

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