I wrote about Juniper's (JNPR:Nasdaq - news - boards) recent upgrades to its family of routers a few weeks ago. Cisco appears to have declared full-scale war on its increasingly successful competitor Juniper, as Cisco has been slashing prices and cutting creative deals with service providers. Tuesday's announcement of the availability of new features in Cisco's routers is another indication of its seriousness about the telecom service-provider market. The software upgrades that these companies are working on are nothing revolutionary, but they are clear indications of continued innovation in the router market.

Let me explain the "telecom service-provider" qualification in Cisco's battle with Juniper, as well as the difference between enterprise and telcos equipment. You see, routers are devices that figure out exactly where the information is that you requested when you typed in www.realmoney.com this morning. If you work for a big company, your request was probably initially handled by a router that sits in the same building you do. (This router somewhere in your building is called "CPE," or customer premise equipment, because it sits on the premises of the service providers' customer.) Anyway, that router keeps a database of exactly where other routers on the network that we commonly call the Internet sit. It directs your request along the network to another router that will help get your request to the proper destination, which will send back the information that you're reading right now.

When you hear people talk about how enterprise demand has picked up, they mean the demand for these routers that sit in your building and direct traffic coming from your company. This enterprise product obviously doesn't have to be as robust or need to -- in most cases -- offer the same suite of services as the routers that actually sit further in the core of the network.

The routers that sit further in the core of the network -- say, in a service provider's major point of presence, or POP -- have to be more robust because they're handling more traffic than just the data from your office. Not only that, but also these routers need to help carriers provide additional services other than the plain old Internet service that pulls up this Web site. So Cisco's announcement that it has again upgraded its software to better enable the provisioning of these services (like VPN, which I wrote about in that same Juniper column) should be well-received by the service-provider market.

While there's little doubt that the demand for Cisco's enterprise products has picked up, the new features announced Tuesday should help Cisco in its war against Juniper. The core Internet-router market is one tough place to play these days. After having shown robust growth for every quarter since the Internet came into commercial existence, the market actually shrank last quarter by about 10%.

Market Share

The market for these more robust carrier routers is the place where Juniper has really been taking it to Cisco, with Juniper now having 38% of the market to Cisco's 59%. Just a few years ago, Cisco had about a 99% share of the high-end router business. Now more than ever, both Cisco and Juniper are busily adding new capabilities, features and innovations to their lines of core routers. That's the beauty of capitalism: We're seeing some serious innovations as a direct result of such tough competition.

In addition to the new software upgrades, Cisco also announced the release of several new routers that are basically its current high-end routers in smaller boxes. Space in many POPs across the country has become limited, as service provider after service provider has opened shop in these POPs. Cisco's new, smaller chassis is another feature that I imagine will be well-received by the service-provider market.