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After selling Linksys, Cisco aims to reach consumers through carriers

Though it's pushing off its big consumer unit, Cisco is following service-provider networks into homes

Cisco Systems' sale of its home networking business to Belkin International marks the end of a 10-year odyssey through the world of consumer products, but the company plans to keep reaching consumers through their carriers and cable companies.

Belkin announced on Thursday that it would buy Cisco's Home Networking Business Unit, including its Linksys brand, for an undisclosed sum. The privately held maker of networking gear, peripherals and accessories plans to fold Linksys' employees and products into its operations while keeping the Linksys brand alive.

The deal, which is expected to close in March, has been in the cards since Cisco's shutdown of its Flip video camera business in early 2011. The company made that move as it kicked off a major reorganization in response to disappointing business results. Since then, Cisco has been sharpening its focus on enterprises and service providers, and the writing has been on the wall for the consumer business. Next Thursday, the company will shut down the short-lived home telepresence service it offered in conjunction with its already-discontinued Umi device.

Yet despite charting a course for leadership in IT systems, software and services, Cisco isn't completely leaving behind home networking and the burgeoning use of online video and other applications. Instead, the company is addressing the home indirectly through service providers, the kind of large, established enterprise customer it understands best.

Cisco already had strikes against it as a consumer products company when it acquired Linksys, a successful home networking specialist, in 2003, industry analysts said.

For one thing, Cisco builds most of its businesses around solid profit margins and maintaining market leadership over the long term, the hallmarks of product lines that are typically sold to top IT executives. It takes a different mindset to capture and keep fickle consumers, said Zeus Kerravala of ZK Research, a longtime Cisco watcher.

"It's a very rare company that can actually have a strong consumer brand and corporate brand," Kerravala said. Dell and Hewlett-Packard, for example, are struggling in both arenas, he said. "For Cisco to have done that, I think, would have required a much bigger shift in company strategy than they were willing to do."

In the 10 years Cisco owned Linksys, home networks began to merge with consumer electronics through online entertainment services and over-the-air streaming of video and audio. Cisco tried at one time to make its home networking products part of a broader architecture of consumer devices. At 2004's Consumer Electronics Show, it unveiled a DVD player that could stream video and audio over Wi-Fi and announced a music player designed for wireless streaming. A home media server for storing content was another such offering.

Yet even as networked entertainment fed the popularity of Wi-Fi, the core of Linksys' business, it also brought networking into the realm of more established consumer electronics brands.

As a consumer electronics company selling through traditional retail channels, Cisco was outgunned, analysts said. Vendors such as Samsung Electronics, which have long experience and established brands in that business, can fairly easily add networking to their products, said Roger Kay, an analyst at Endpoint Technologies Associates. "It's less likely that companies come out of the network and into the living room," Kay said.

Linksys now faces rivals such as Apple that are integrating Wi-Fi routers into other types of products, Kerravala of ZK Research said. For example, Apple's Time Capsule is a router and backup device in one box and is built to work with other Apple technologies such as Bonjour and AirPlay, he said. Cisco was faced with a choice between developing a competitive home ecosystem around Linksys or spinning off the company, according to Kerravala.

Most consumer electronics gear has since left the Linksys line, which is now dominated by connectivity products. At CES 2013, the division announced three Wi-Fi routers, a Wi-Fi USB adapter and a set of apps for managing home networks.

By retreating from the consumer business, Cisco is playing more in its sweet spot, which has always been supplying enabling technologies, Kerravala said. That's the essence of Cisco's business with service providers, where it makes both set-top boxes for homes and back-end infrastructure for content delivery. Cisco's big product introduction at International CES earlier this month was Videoscape Unity, a new version of its back-end software platform for video services from cable operators and other service providers.

Set-top boxes are becoming gateways to the Internet and other services in homes, and they're a platform Cisco can tune for and distribute through its service-provider partners.

Cisco also plans to keep a hand in the Linksys products, possibly making them work closely with its set-top boxes and, in turn, with service providers' networks. In the press release announcing the sale, Belkin said the two companies would develop a strategic relationship in several areas, one being products for the service-provider market. Belkin would have access to specialized Cisco software across all its product lines to create "a more seamless user experience for customers," the release said.

Cisco might get back into making consumer products and selling them at retail some day, ZK's Kerravala said. But if it did, the effort would probably look quite different the next time around.

"It's a more difficult challenge than I think they had realized at the time," Kerravala said.

Tags business issuesCisco Systemsconsumer electronicsNetworkingMergers and acquisitionsrestructuring

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