Cisco (NASDAQ:CSCO) and its Generosity for Three Men


Mario Mazzola, Prem Jain and Luca Cafiero are the three extraordinary engineers at Cisco (NASDAQ:CSCO) who are the heart, soul and brains of the company.

Cisco (NASDAQ:CSCO)’s CEO, John Chambers has rewarded them and their teams with $2.38 billion in the past 20 years, even though, technically speaking, they weren’t always working at Cisco (NASDAQ:CSCO). This way of preserving top talent is quite unique and is known as spin-in.

A spin-in is a type of R&D, where the company acts as the only financer in a start-up. It assigns a group of workers to develop an experimental product and then ends up purchasing that start-up for a fixed but healthy price.

About $763 million has been invested by Cisco (NASDAQ:CSCO) to get hold of each spin-in that was introduced by these three men.

In order to understand the uniqueness of this setup, imagine if every time Apple (NASDAQ:AAPL) needed to develop a new product like a music player or a smart phone, it sends its top candidates like Jony Ive, Jeff Williams, Craig Federighi and Eddy Cue on a start-up financed by Apple (NASDAQ:AAPL); and later paid them three-quarters of a billion dollars to possess the product on its completion.

This relationship between the company and the three employees has been beneficial to both parties.

If you search the word spin-in on Google, chances are that the articles that come up will be about Cisco (NASDAQ:CSCO), and a company called Insieme; which originated Cisco’s (NASDAQ:CSCO) next generation networking product called Nexus 9000. It changes the company’s game in a new market called software-defined networking. SDN brandish to harm Cisco (NASDAQ:CSCO)’s $21 billion router and Cisco (NASDAQ:CSCO) could be destroyed without the SDN product.

It is not common for a company to hand over a product of such importance to a start-up but Cisco (NASDAQ:CSCO) is different.

This spin-in is the 3rd one that is being handled by the same three core engineers. Each of these engineers has cost Cisco (NASDAQ:CSCO) hundreds of million dollars. This company is the fourth one bought by Cisco (NASDAQ:CSCO) from these men.

Joel Snyder, a cofounder of Opus One calls this spin-in unprecedented. Snyder is a product reviewer at Network World and is highly respected in the field. He was also the only person who got invited by Cisco (NASDAQ:CSCO) to do a hands-on-test of the Insieme product right after its launch.

These three men are literally worshipped at Cisco (NASDAQ:CSCO)’s campus in San Jose. They are known as the nice guys by all. They are known as “MarioPremLuca”, spoken as one word.

Shashi Kiran, senior director at Cisco (NASDAQ:CSCO) says that MarioPremLuca are affectionately called as MPLS. MPLS is a popular technology for creating high-performance networks that were invented by the help of Cisco (NASDAQ:CSCO).

A former executive at Cisco (NASDAQ:CSCO) said that MarioPremLuca have a lot of followers within the company. They have delivered repeatedly and they draw the best talent, these people have vision and they have been able to define new product categories that others wouldn’t even think about.

MarioPremLuca are the reason for about all the Cisco’s (NASDAQ:CSCO) breakthrough products, therefore it wouldn’t be wrong to say that these people are actually Cisco (NASDAQ:CSCO).

Cisco’s (NASDAQ:CSCO)’s popular acquisition strategy can also be tracked back to these people. Cisco’s (NASDAQ:CSCO) first purchase in 1993 Crescendo Communications was the company of the trio. This purchase was a shock for Wall Street; and the stock took a spill. According to John Chambers, he paid $92 million for the deal.

Crescendo then made a network switch, a new hardware to acquire high speed networks. It was a threat to Cisco’s (NASDAQ:CSCO) business before the deal. Crescendo later became Cisco’s (NASDAQ:CSCO) catalyst 6000/6500 business pr Cat6. According to Snyder it evolved as the most successful networking product.

Jayshree Ullal was another engineer that Cisco (NASDAQ:CSCO) got when it purchased Crescendo. Ullal stayed at Cisco’s (NASDAQ:CSCO) marketing scene for 15 years and finally became the vice president of data center and switching.

Chambers while talking at the Fortune Brainstorm Conference in July reminisced about that first acquisition in 1993. He said that he paid $92 million for a company that had a couple million in revenue but is generating $13 billion in revenue now with great gross margins.

According to Networks World, Mazzola launched his first start up called David Systems in the 1980’s with the help of Olivetti and VCs.

David System became source of the foundation of MarioPremLuca, who later founded Crescendo and went on to work for the next 30 years.

Mazolla is famous for persuading Cisco (NASDAQ:CSCO) to keep all 62 employees of Crescendo for the minimum of 2 years, while Cisco (NASDAQ:CSCO) was acquiring Crescendo. This gave birth to “Mario rule” at Cisco (NASDAQ:CSCO), according to the rule before firing any employee of a newly purchased company; both the CEO’s consent is needed.

Mazzola tried to retire from the company in May 2000 but ended up doing the company’s first spin-in that was funded in 2001. And in 2005 he did the 2nd spin-in while trying to retire again.

Prem Jain worked as the director of engineering alongside Mazzolla at David Systems and became the cofounder of Crescendo.

Jain is known for his humility. He advised to stay grounded and not try to become a star, at an interview with Indian Blog

Luca Cafiero is also known as a very nice person just like the other two. Because of the Italian background of both Luca and Mazolla, alongside a few other engineers that have worked with the trio, it is said that the offices of MarioPremLuca feel like Italy – and that they serve the best tasting coffee.

In 2005, Luca also tried to retire just like Mazolla but ended up joining Mario and Prem at another Cisco (NASDAQ:CSCO) spin-in.

The trio along with Soni Jindani got their first spin-in in 2001. The company was called Andiamo Systems.

Andiamo’s aim was to make Cisco (NASDAQ:CSCO)’s first storage product. Cisco (NASDAQ:CSCO) placed $184 million funds and one year later in 2002 decided to purchase it. However the deal got finalized in 2004 and Cisco (NASDAQ:CSCO) paid $750 million in stock.

According to Snyder, Andiamo was not really important.

However, Cisco (NASDAQ:CSCO) does not agree with it and claims that the product has been good; and Cisco (NASDAQ:CSCO)’s market shares are growing. Cisco (NASDAQ:CSCO) revealed that it has more than 125,000 storage switches installed at more than 20,000 customer sites.

In 2006 Cisco (NASDAQ:CSCO) used the team to enter into another brand new market of computer servers.

The concept was to have a new kind of server that could bring together the computer, storage and the network – also, a new kind of operating system known as “virtualization” initiated by VMware.

MarioPremLuca convinced the VMware, cofounder of Ed Bugnion to join them.

Cisco (NASDAQ:CSCO) paid more than $70 million and then, Nuova Systems was founded. The team named the product Unified Computing Systems (UCS) servers; Cisco (NASDAQ:CSCO) purchased the system for $678 million in 2008.

Bugnion left Cisco (NASDAQ:CSCO) in 2011 to earn his PhD and later became a professor.

MarioPremLuca in 2012 launched a software defined network called Insieme. Cisco (NASDAQ:CSCO) invested $135 million in November and bought the product for $863 million.

Insieme was not like the most of the other products brought in Cisco (NASDAQ:CSCO) by the trio. For the first time MarioPremLuca were told to build a core networking product that Cisco (NASDAQ:CSCO) was capable of doing itself. Cisco’s (NASDAQ:CSCO) engineers are leaving to work on SDN start-ups, and Cisco (NASDAQ:CSCO) has a lot at stake. However, Cisco (NASDAQ:CSCO) is confident about its decision and says that it is witnessing a lot of interest in the new product.

Snyder on the other hand is not too sure about it. He has seen the product and has his doubts.

The Nexus 9000 has two sides, by flipping a switch you can get Cisco (NASDAQ:CSCO)’s fastest networking switch. Although some company’s would like to have that but is not the SDN.

Flip the other switch and you will get SDN software built by MarioPremLuca. But it is not compatible with the older Cisco (NASDAQ:CSCO) products.

Cisco’s (NASDAQ:CSCO) acquisition cost of all the four companies was $2.38 billion with the original investment of $289 million.

All three men have had normal jobs at Cisco (NASDAQ:CSCO) while they were not running for the spin-ins. Mario was the chief development officer at Cisco (NASDAQ:CSCO). Prem was a senior vice-president and the director of engineering. Luca has worked as the senior VP and GM of switching, voice and storage group at Cisco (NASDAQ:CSCO) systems.

But the exact amount out of the $2.38 billion that was earned by the trio is unknown.

They were not “section 16 officers” under the spin-in setup. So Cisco (NASDAQ:CSCO) was not bound to report their stock ownership.

Regardless of the records, it is evident that these men have been paid generously every time Cisco (NASDAQ:CSCO) purchased companies.