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Summary:

Cisco Systems, the San Jose-based router giant has bought Pleasanton, Calif-based Arroyo Video Solutions, a four-year-old video on demand software company for about $92 million in cash. Given that Cisco rarely parts with cash and often uses stock for acquisitions, it seems that the company is […]

Cisco Systems, the San Jose-based router giant has bought Pleasanton, Calif-based Arroyo Video Solutions, a four-year-old video on demand software company for about $92 million in cash. Given that Cisco rarely parts with cash and often uses stock for acquisitions, it seems that the company is placing high strategic value on the deal. Signing that big check must be easy, given that Arroyo has the attention of some of the major cable operators such as Cablevision.

The move is yet another part of Cisco’s bid to turn itself into a consumer centric company. As you might remember, it has spent over $6 billion and acquired companies like Linksys, KISS Technology and Scientific Atlanta. It has also made investments in consumer video offerings such as Akimbo and Cinema Now.

Arroyo, is the latest and perhaps the most crucial piece of the puzzle. Since Arroyo’s products allow carriers – wireless, wireline and cable operators – to deliver video on demand to any platform: television, computer of mobile phone, Cisco now has acquired three must-have features of any future video offering.

These features are allowing consumers to access web video on all “three screens,” time shift the traditional video experience, but most importantly, place shift the video content to the device of their choice, regardless of location. (Read: Place Shifting is everywhere.) Arroyo is said to be a market leader in the controversial but interesting technology called the networked personal video recorder, which is slowly winning over the cable operators and content owners.

The Arroyo acquisition seems to be a counter move to Microsoft’s IPTV effort which promises seamless video experience across computers, set-top boxes and mobile phones. (As long as they all use Microsoft OS.) Motorola has its own version of place shifting and time shifting technologies, and is Cisco’s archrival in the cable operator markets.

When we posed this question to Paul Bosco, Cisco Vice President responsible for video and cable initiatives, he said, “We don’t necessarily as a competitive move, but more really it is about broader adoption of the media, devices, and video on those machines.” He explained that carriers are also looking at the user generated content quite closely, and are making moves to bring the open content to the traditional living room environment. He was quick to point out that Arroyo also has products for TelcoTV markets. Sure, but that’s like saying Hummer 3 is small and fuel efficient, compared to H1.
The biggest winners of this deal are Arroyo investors – Matrix Partners, Doll Capital Management, and Foundation Capital, and the venture arms of Comcast and Time Warner. Arroyo raised about $25 million in venture funding.

More on Cisco’s consumer strategy later!

By Om Malik

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  1. Surely the next acquisition for Cisco has got to be the “screen” it doesn’t quite have a handle on: mobiles. It’s got access to TVs and PCs already, so why not splash out on Palm now it isn’t lumbered with the software division? It’d piss off Microsoft too, which whatever Cisco says has been a key angle to many of its recent launches, notably unified communications.

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  2. Cisco lacks a smart content capture, manage, brand and package solution.
    When the time comes to distribute assets to a dozen different technologies with unique distribution specs and branding requirements, an essential survival characteristic in a pull versus push media universe, they’re going to find that no encode/transcode provider has a solution.
    But I do.

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