Amazon Won't Be Entering the Enterprise Switch Market After All

Alarm bells rang for @Cisco Systems (NASDAQ:CSCO) investors last Friday when The Information reported that e-commerce and cloud computing giant @Amazon.com (NASDAQ:AMZN) was considering selling cheap #whitebox #networking hardware to third parties. Amazon entering a market should never be taken lightly, and Wall Street reacted by sending shares of Cisco and other networking stocks plunging. It was all much ado about nothing. Speaking to MarketWatch on Wednesday, a Cisco spokesman shot down the report: "Cisco and AWS have a long-standing customer and partner relationship, and during a recent call between Cisco CEO @ChuckRobbins and AWS CEO @AndyJassy, Andy confirmed that AWS is not actively building a commercial network switch." An AWS spokeswoman later confirmed that statement. THE CISCO CATALYST 9000 FAMILY OF SWITCHES. IMAGE SOURCE: CISCO SYSTEMS. What it means I argued last week that Amazon would face an uphill battle stealing market share away from Cisco. Cisco controls more than 50% of the market for networking switches, even after fighting off low-priced challengers for years. Amazon was reportedly considering undercutting Cisco on price by as much as 80%, which sounds like a disruptive move. But Cisco CEO Chuck Robbins said back in July that companies often spend $15 on operating costs over five years for each dollar spent on networking equipment. The price of the equipment, then, is far less important than the ongoing costs of using that equipment. Any cost savings from a lower-priced switch can easily be swamped by higher operating costs. Cisco's latest line of switches, the Catalyst 9000 series, uses machine learning to reduce operating costs. When the company was testing the switches with large organizations last year, it cited an operating expense savings of 61% for those participants. That wasn't the only benefit -- Cisco also said that the impact of security breaches was reduced by 48%.

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