Cisco's Gains Drain Riverbed

Cisco's (CSCO Quote) resurgence in data networking is starting to put the squeeze on smaller players.

A series of first-quarter sales warnings from outfits such as Web switchmaker Packeteer (PKTR Quote) and upstart network security shop Sourcefire (FIRE Quote) signals that competition in the business IT services sector is intensifying.

Analysts and investors say a big part of the blame rides on tech giant Cisco. The San Jose, Calif., networking gearmaker has been swinging its ample girth in such a way that jostled rivals are now steadily losing their footing.

"I talked to an industry executive about this recently," says Ovum IP infrastructure analyst Mark Seery. "He said, 'Everyone has 3% of the enterprise space, but no one has critical mass.'

"You can't make any inroads if you only have 3% market share," adds Seery, "especially against Cisco -- with its strong channel organization."

For the past decade, Cisco has dominated the business networking gear market. At the end of 2006, Cisco had 72% of the Ethernet switch business and 89% of the office router market, according to Dell'Oro Group.

This scale has become an even bigger problem for small players lately, as Cisco pushes its ISR platform further into the market, says Seery, referring to a Cisco interoperability format.

"They have been getting more aggressive. And as they say, no one gets fired for buying Cisco," says Seery.