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Summary:

Cisco Systems, a company best known for selling mundane (albeit very lucrative) routers, switches and other networking gear, plans to launch a whole series of products at the upcoming CES that fall under the connected, networked entertainment category. But in order for Cisco to compete with Samsung, Sony and even Apple in the consumer electronics space, the company would need to rewire its entire DNA. And unfortunately, it ain’t got the skills.

Cisco Systems, a company best known for selling mundane (albeit very lucrative) routers, switches and other networking gear, has designs on the consumer electronics market. To that end, at the upcoming CES trade show, the company plans to launch a whole series of products that fall under the connected, networked entertainment category. For those of us that have been covering tech for some time, the idea of Cisco as a consumer brand is chuckle-worthy!

Chuckles aside, this is just like an NBA star trying to play baseball. It didn’t work for Michael Jordan and it isn’t going to work for Cisco. The closest the router and switch maker gets to the consumer is with Linksys, a company it acquired in March 2003 for $500 million. Of course, since then Cisco has put Linksys into the Cisco Consumer Business Group. (The products are still branded Linksys…for now!)

While that group has managed to make a splash in the home networking and SMB gear market, it is hardly a powerhouse in the consumer electronics business. In order for Cisco to compete with Samsung, Sony and even Apple, the company would need to rewire its entire DNA, and unfortunately, it ain’t got the skills.

Cisco has a checkered past when it comes to diversification into new markets. Take, for example, its foray into the carrier network business. It spent billions of dollars buying companies like Cerent and Pirelli’s optical division, but has had limited impact in the telecom world (beyond selling its core products.) Lets face it: Cisco’s skills are in selling equipment to “corporations” and “the government,” which is why their push into telepresence (video conferencing) and data center-related equipment makes a lot of sense.

How does a company that gets big fat margins from selling expensive equipment (and paying its sales team accordingly) live with the razor-thin margins of consumer entertainment gear? For Cisco this would like climbing Mount Everest without an oxygen tank. 

And this is not the first time Cisco has chanted the consumer mantra. I talked to them three years ago and they had the same grand vision (just a different guy doing press briefings). They’ve spent nearly three-quarters of a billion dollars (that’s before Scientific Atlanta) to buy consumer-focused companies — Linksys ($500 million), Pure ($120 million) and KISS technology — not to mention some investments in CE startups like Akimbo. With the exception of Linksys gear, they have nothing to show for it.

Ned Hooper, a senior V-P with Cisco, tells the The New York Times that there will be a lot of connected televisions and other devices in the coming years. I agree. Then again, even Yahoo has figured that out. What Cisco should be focusing on is how to make the “home network” work smarter. Instead of building its own gear, it should join forces with other equipment makers to build features that would make moving media inside the home possible.

Related Post: In Search of the Uber Set-top Box.

  1. I recall the company’s first substantial foray into Consumer, with the creation of CLOB headed by Robba Benjamin, announced with great hoopla and expense at CES 1999: http://newsroom.cisco.com/dlls/fspnisapifea1.html

    The Business Unit really struggled to get off the ground, likely running up against Cisco’s pre-eminent culture of Engineering guys making products for other Engineering guys. As Om has suggested they do here, they attempted to focus their effort on “enabling technologies” — putting products in the cloud with interoperability features to make other peoples’ edge technologies work better.

    The upshot is that the vast majority of these efforts failed. The success rate of pushing new protocols/standards/technologies from the core is historically quite low — if you want to become the dominant means of exchange, you need to work it from the edge. This is why the iPod has dragged along AAC to (some would say) defeat MP3 and made the iTunes Music Store the dominant commercial music site on the web.

    As Cisco has learned through many frustrating mis-starts in this category, you can’t drive change from the core. Most people reference LinkSys when looking at their consumer goals, but their acquisition of Scientific Atlanta probably speaks more to where they think they’ll be able to get traction, and it plays to their strengths: We buy cable boxes from CableCos, and Cisco has done a good job at selling to CableCos. To make things even better, Motorola’s HD PVRs are abysmally poor and consumers hate them.

    The real risk is that how we consume televised entertainment is shifting: many consumers are now downloading programming and viewing on AppleTVs and hacked set-tops. This is a trend. We are watching our cableTV feeds less and less.

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  2. Gheez – I don’t think that Cisco is stupid. This has to be about a grander vision of creating a greater reliance on the IP pipes into the home. The more consumers rely on IP anything, the better Cisco’s high margin infrastructure business does.

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  3. Don’t forget the CISCO branded VoiP telephones that are out there (mainly in offices). Wonder if we’ll see some tie up with that.

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  4. Don’t forget Scientific Atlanta and their family of settop boxes. Combine those STBs with a DOCSIS 3.0 cable modem/home gateway from Linksys, add some WiFi and a couple USB ports from Linksys and you got yourself a pretty interesting home media center that is the control point for all media in the home.

    Owning the home network and therefore the content that flows through it is a very compelling proposition. I’m not saying that Cisco as a company is able to get this done but I’m sure they’ll try.

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  5. Om,

    Brother don’t count Cisco out just yet as they continue to make smart business acquisitions. Lets not forget webex or ironport both of which are extremely smart business decisions. I talked to a number of Cisco people during a recent meeting and they stated Cisco seemed to be leaving their newly acquired business units alone which could work well for them in the consumer space. I’d bet my chips on Cisco to succeed in the consumer space with the correct management any day.

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  6. You’re right, OM. Cisco has shown a rare capacity for running high- and low-margin businesses simultaneously. For this alone they should receive credit. But nothing they have done shows a potential for success in consumers’ living rooms.

    If they succeed – and I’d be happy to be real money against it – it will be due to the ineptitude of companies like Sony, Panasonic, Tivo and others, their one chance. Still, we might see network switches by La-Z-Boy before we see a home entertainment console by Cisco.

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  7. Just wanted to compliment you on your use of similes, Om! :)

    Although I thought Jordan made an okay baseball player …

    I agree with your conclusion. There’s great potential for Cisco if it can play well with others instead of just trying to be its own team.

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  8. Harold Gilchrist Tuesday, December 30, 2008

    I believe Cisco, once the darling and talk of the valley, is loosing their way and becoming insecure with their present attention in the media.

    The writeup in the Times makes for a great press story, but most as you said Om, isn’t going to happen.

    I also chuckle when I hear them speak about “them” bringing video conferencing (excuse me Telepresence) to the living room. Wasn’t there a company once named PictureTel that was going to do that? … and isn’t their another company named Polycomm also in that space. Funny hoe they weren’t mentioned in the story.

    and “joining forces with others” doesn’t seem to be in their DNA.

    But we all know they make great Enterprise switches and routers!! They should innovate at or near their core and lead in the area they know best. Didn’t they learn anything from the history of Yahoo?

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  9. Om: I think Telepresence is central to Cisco’s long-term ambitions, even at the consumer level. Will this technology ever make it into the living room? Not at current price points, certainly. But I think the vision of Jetsons-style universal video conferencing drives a fair chunk of Cisco’s thinking. I think they want to own the equipment driving that technology, from the data center all the way down to the desktop and living room. The CES foray feels strange, but could be a case of Cisco laying early groundwork for cooler products to come.

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  10. Om saab, I think your opinion is more to do with lack of imagination than anything else. It does seem like people are piling on CS but lets talk a year from now.

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