Executive Thought Leadership

IP, the Foundation of New Market

Internet Protocol gives companies the solid foundation and the flexibility they need to innovate in a rapidly changing market.

Thanks to the Web, Internet Protocol (IP) is everywhere. IP can be used as a tool to capitalize on new market opportunities, generate new services, and develop a broader customer base.

A Global Language

Networking protocols like IP are analogous to languages. Just as languages use sentences as their basic syntactic components, IP uses packets as its basic elements. And as sentences are made up of smaller components such as nouns, verbs, adjectives, and so forth, packets contain a set of components such as source and destination addresses. These elements describe the application that is being transported and the payload, and include checksums to ensure the integrity of the packet itself.

As with human languages, one networking standard isn't necessarily better than another. However, there are two major distinguishing factors: prevalence of usage and cultural heredity. First, consider the network effect of a large number of speakers. For example, Latin is very well constructed, but is not useful because no one speaks the language today. English, on the other hand, is quite useful given its popularity worldwide. Second, languages carry a cultural heredity that makes them appropriate for a given application. Italian, for example, is very effective for conveying emotions. By these standards IP is powerful because it is the most broadly utilized protocol and it has inherent technical and business characteristics that distinguish it from other protocols.

Like any language, IP operates under some key principles. First, IP is based on open standards that were defined by the Internet Engineering Task Force (IETF), a community of vendors and customers. The open nature of IP allows for dynamic innovation because all IP developers have access to the same information. Second, the protocol's scalability and robust nature allow it to perform with synaptic effectiveness: Data flows seamlessly along multiple redundant pathways. Circuit networks of the past used a single deterministic path for communication between two points. IP, on the other had, takes advantage of diverse network paths and shuttles packets using the best route at the time. Third, the protocol's distributed nature means that there is no "central intelligence" in an IP network. The lack of such an entity encourages organic network growth and inherent robustness. Fourth, IP's flexibility enables it to carry a variety of communication. Initially designed to convey different forms of traffic through both local- and wide-area networks, IP is a unifying protocol. Finally, IP's essential simplicity allows for rapid adoption and implementation in both large and small footprints.

The Bedrock of the Internet

IP is the bedrock of the Internet, providing the foundation necessary for companies to become technological innovators. According to the Gartner Group, IP is growing so fast that by the end of 2001 more than 98% of all corporations will be using it as part of their corporate networking architecture. This opens the door for innovation, both beneath the IP layer—with routers, switches, and devices that move the packets—and above the IP layer, which supports application and communication infrastructures.

Armed with the flexible distributed architecture of IP, companies are equipped to develop and test new business initiatives and are capable of rapidly changing to meet customer demands. For example, IP has allowed Cisco to create mutually beneficial relationships with its customers and partners. These relationships enable both parties to operate more effectively and respond to market changes more quickly.

America Online is one company that benefited greatly from early adoption of IP. AOL entered a highly competitive emerging market at the same time as many other Internet service providers, but quickly emerged as the market leader. Unlike its competitors, AOL built its business on an IP foundation, which allows it to serve more than 40 million users and offer the greatest number of differentiated services, all while running one of the most efficient and effective networks in the world. Using IP, AOL distinguished itself by offering more features and services and reaching a larger customer base than its competition.

Had AOL failed to rapidly acquire and develop service tools, build its subscriber base, or cultivate e-commerce and media alliances, it would not have differentiated itself enough to become a market leader. The natural agility that springs from IP allows companies to embrace change, use external assets, and respond rapidly.

Surviving and Thriving in Tornado Markets

Today's volatile market fosters the conditions for tornado markets, which are characterized by rapid industry changes that are difficult to predict and challenging to navigate. A tornado market occurs when larger and larger markets quickly adopt cutting-edge products. One example is instant messaging, a technology that would have sounded implausible five years ago, but which is now widely used. With its Instant Messenger software, AOL anticipated a customer need and drove it to success. This would not have been possible without the flexibility of its IP infrastructure.

It's important to be on the lookout for signals that a tornado market could be on its way: quarter-over-quarter growth of product offerings, decline in sales of legacy systems, increasing momentum in customer adoption, and the development of a rich ecosystem around a given technology.

Markets such as content delivery networking and enterprise voice over IP (VOIP) are showing early signs of the tornado stage. As innovative new services spring up around these technologies, profits are increasing, new applications are proliferating, and independent delivery channels are being developed. For example, streaming media could soon be widely used for corporate communications, online training, special events, and entertainment. This new application is enabled by content delivery networks as well as VOIP.

Although it's nearly impossible to forecast when or where tornado markets will occur, it's essential to do all you can to prepare for them. Using IP can give you the flexibility and agility you'll need.

IP is not just any protocol. Its principles translate directly into opportunity for industries around the world. Cisco uses IP not only to constantly evolve its business and adapt to the ever-changing marketplace, but also to help its customers do the same by developing a platform for progress. If you want to experiment and respond with the innovations that will make you a new market leader in the midst of a tornado market, you'll need a solid IP foundation to ensure you don't get blown over in the storm.