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Building the Backbone of the Internet

By Alex Planes - Dec 10, 2012 at 10:30AM

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Learning from the market’s past to understand its present.

On this day in economic and financial history...

Cisco Systems (CSCO 2.73%) was founded on Dec. 10, 1984 by Sandy Lerner and Len Bosack, who had developed a groundbreaking new connectivity device called a router while working on Stanford University's computer staff. At least, that's the short story. The real story -- as is often the case with any massive technology company with hardscrabble beginnings -- is a little more complicated. Much of this story is documented in a 2001 essay by Pete Carey that was published in the San Jose Mercury News, Cisco's hometown paper.

Stanford University's work with computing connectivity had begun with the very first ARPANET communication in 1969. However, the leap to modern routers actually began with the Xerox (XRX) PARC Alto workstation, a granddaddy of the modern PC. This computer was built to work on Xerox's local network, which necessitated building a new technology: Ethernet networking hardware. Some of these Alto workstations and their requisite connectivity hardware were donated to Stanford, where computer-science staff and students focused their efforts on getting the advanced machines connected to the early Internet.

The Stanford computer crew developed a box -- blandly named "The Blue Box" -- that allowed various computers (including non-Xerox models) to communicate with the Internet at the same time. Bosack is among the contributors to its development, and Lerner has also acknowledged that there were many contributions to this router's development. In an email to the Mercury News, she says "The only person I'm certain had nothing to do with it is Al Gore." However, by 1984, Cisco had incorporated, and it petitioned Stanford for the rights to sell the Blue Box but was rejected. By 1985, Bosack and Lerner were successfully constructing router devices remarkably similar to Stanford's Blue Box while still on the Stanford payroll.

The situation came to a head in 1986, when Bosack was discovered to have sold networking boards to Xerox, completing the circle of networking technology. He had done so in Stanford's name but had not communicated this to the university. Administrators confronted Bosack and fellow computer staff member Kirk Lougheed, one of Cisco's earliest employees, with an ultimatum -- return the work they'd done on Stanford time or leave. Bosack and Lougheed resigned, and Cisco became a full-time business.

The university, caught in the position of having developed this potentially lucrative technology without having the means or the mandate to produce it, came to terms with Cisco. A licensing agreement gave Cisco the right to use updated software protocols for its routers for the total sum of $169,300. Today, that would be worth about 0.0002% of Cisco.

Lerner and Bosack quickly found a market for the devices, but financing was difficult. It took the pair nearly 80 meetings with different venture capitalists before they found one willing to fund the operation's growth. They sold a third of the company for $2.5 million, and by 1990 the company went public at a market cap of $224 million. Lerner was fired soon afterward, and Bosack resigned in solidarity. Cisco continued to grow, reaching milestones few could have imagined in 1984. The company became the world's largest public company during the height of the dot-com bubble and joined the Dow Jones Industrial Average (^DJI 2.68%) in 2009. It wasn't even the first tech giant with Stanford founders to join the index; Hewlett-Packard (HPQ 4.01%) beat Cisco to the punch by 12 years.

Cisco's early innovations, so to speak, gave it a commanding lead in the networking industry. However, competition has intensified, and Cisco's diversification efforts have not gone swimmingly. Will Cisco remain on top of the growing Internet, or are its best days behind it? The Fool's tech analysts answer your questions in our exclusive premium research reports, updated regularly with fresh information in response to the latest news. Click here to subscribe today for a full year of access.

Honoring a lifesaver
Agronomist (that's plant scientist to you) Norman Borlaug won the Nobel Peace Prize on Dec. 10, 1970. It was a fitting capstone for a career that earned him the title "The Man Who Saved a Billion Lives." No matter which way you cut it, a billion additional potential consumers is a huge deal for the global economy, but Borlaug also helped spread a second Agricultural Revolution across the planet, ensuring that billions more can potentially be fed in the future.

His work on plant genetics led to hardier, higher-yielding wheat strains in Mexico in the 1940s. These modified wheat strains, which were soon paired with advanced monoculture farming techniques and adapted to other developing countries, resulted in a nearly fourfold increase in wheat yield per hectare in developing countries from 1950 to the year 2000. The true impact of Borlaug's work would thus not become truly felt until well after his Nobel victory.

Today, Borlaug's legacy is most closely carried on by seed company Monsanto (MON), which is often vilified in the public for its efforts to genetically engineer various crops. Monsanto became the first company to genetically modify a plant cell 12 years after Borlaug's Nobel award. By 2009, it controlled 27% of the worldwide seed market.

Two years to a million cars
The 1 millionth car rolled off Ford's (F 3.89%) assembly line on Dec. 10, 1915, nearly two years to the day after the company first introduced its innovative manufacturing process. The company was in such a hectic rush of production that no one really noticed. An internal Ford newsletter later admitted that "with twenty-five assembly plants ... and with a big factory in Detroit assembling so many Ford cars a day, we passed the million mark without knowing it."

By 1924, Ford passed the 10 million mark, and it reached 15 million in 1927. These numbers represent just a year or two of work for today's Ford. The company managed to sell 5.7 million cars in 2011.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,500.68 (2.68%) $823.32
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$44.10 (2.73%) $1.17
Ford Motor Company Stock Quote
Ford Motor Company
$12.01 (3.89%) $0.45
HP Inc. Stock Quote
HP Inc.
$35.23 (4.01%) $1.36
Monsanto Company Stock Quote
Monsanto Company
Xerox Corporation Stock Quote
Xerox Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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