Cisco's Lesson on Hype vs. Hope


Message to Cisco: There's something to be said for underpromising and over-delivering.

And while taking a page from the Apple playbook leading up to today's "significant" webcast announcing a new product may have seemed like a good idea at the time, next time you may want to dial it back a bit.

Look, I don't argue the significance of the new CRS-3, the major, 3-fold capacity increase over the prior generation of this router, and the 12x capacity against Cisco's nearest competitor, but you gotta let the market highlight those things on its own. The hype leading into this announcement virtually set Cisco up for instant, unrealized expectations. And we certainly saw that at the stroke of 11 am ET, as the news crossed the wires, Cisco shares, which rocketed northward yesterday, gave back a little more than 1 percent.

Now that the immediate disappointment, and sell-on-the-news folks have been combed from the market, Cisco shares are beginning to recover as the true impact of this technology starts to resonate. Cisco's factoids are helpful too: the entire printed contents of the Library of Congress can be downloaded in a little over a second; every man, woman and child in China can make a video call simultaneously; every motion picture ever made can be streamed in under 4 minutes. These are impressive stats. The capabilities might still be 18 months away, but they're pretty impressive nonetheless.

Also noteworthy: AT&T has already been testing the new equipment in a 100 gigabit network between New Orleans and Miami and is apparently very happy with the performance. This is important. For Cisco's routers, there may be no more important a customer than big T, and if they're happy, investors will be happy.

A note on the hype: It's no secret that competition for a high-speed network build-out is stiff. Googlesent the entire industry into a telecom tizzy last month when it announced its plans to build out a pilot broadband network of its own. Google as a network service provider alternative might be a compelling choice for consumers looking to get out from under the thumbs of AT&T or Verizon or Sprint , or even Comcast for that matter. If speed really matters, and it certainly does nowadays that up- and downloaded video across a network is becoming so important, than the message seemed to be clear that Google was going to be the marketplace leader, even though its pilot plans would only reach about a half million nationwide customers.

Cisco's hype machine seem to have a deeper purpose: reassuring its customers — and maybe more importantly the marketplace — that new equipment was coming that would at worst equal, and at best rival anything Google planned to offer.

Still, the company played a dangerous game of over-promising and under-delivering, never a good strategy for today's sell first and ask questions later climate on Wall Street. Cisco shares are now essentially flat on this news, which makes sense. Routers make up only about 17 percent of Cisco's overall revenue. But I suspect as this news and this technology start to sink in, they're the kinds of things that help a company gain market share. Cisco is facing competition on a variety of fronts, from Hewlett-Packard , IBM , even Dell . This is the kind of shot that will ring in their ears for a while and could certainly stem any market share losses Cisco has already suffered

It's certainly a big deal. Cisco might have been better served giving the market and the media a chance to discover that by themselves. But somehow, and I think soon, Cisco and its new router will live up to all its build-up.

Questions? Comments?