Cisco Systems (s CSCO), 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 (s sne) and even Apple (s aapl), 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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
@Ciscokid,
Sure and I got a bridge to sell you in brooklyn if you are so inclined. of course i can wait till next year. My lack of imagination … you surely meant to say… Cisco’s lack of imagination.
@Rich Miller
I think you are right about telepresence, but they better start slashing prices fast on this. I think they can make a lot of money by selling moderately priced systems, especially now that companies are slashing their travel budgets.
As far as owning the consumer — fat chance — regardless of what Cisco thinks of itself.
@Harold Gilchrist
Well said…. by the way did anyone notice that HP and other low cost competitors are starting to nip on their heels and cause some problems in their core markets.
http://gigaom.com/2008/11/25/cisco-to-shut-down-for-4-days-at-year-end/
These are like the flutter of the butterfly wings in Africa that cause massive storms on distant shores.
Might be a good move.Their eastern competitor especially Huawei already come up with the setup box way back in 2004. Joining the fray late add advantage to CISCO. They can learn what their competitor did wrong and areas for improvement.
That is if they really do that. If not, they would just be another company trying to sell a product base on WHAT THEY WANT TO SELL instead of WHAT WE WANT TO BUY..heheh
You might be right, however, this is the direction that we need to be going in. Unfortunately, the cable companies have not moved in that direction. Ultimately, it will be their loss as all media moves to iPhone-type devices.
Om: You raise some good points here. As others mentioned, seems like Cisco could do well building products around teleconference in the living room. But the truth is, as a consumer, I’m not dying to get my hands on that functionality–even if it is HD quality.
What I am interested in getting in the living room is media content from my computer. On this front, the Xbox 360 is almost there. I use the Media Center Extender every day for accessing live and recorded OTA TV, music, pics and videos. Been watching lots of streaming Netflix over the holidays. Only items on the wishlist are a video rental system that’s not tied to the goofy MS points system YouTube access. Right now, am using the Apple TV for those two functions. Also use it to watch a lot of HD trailers on it as well.
My point in raising that is that I don’t really see a need for a set top box from another vendor. We’ll see what Cisco is going to announce at CES.
The Family Room will eventually be the place to virtually meet with the family, friends and colleagues.
“Telepresence” should mean the ability to meet from anywhere, anytime, by anyone using voice, video, and data.
I now have an ethernet connection to my Blu-Ray (or VUDU) device at my TV. I see a time in the very near future where my TV (or nearby set-top) will come with VC capability. BUT….the need to perfect video, and perfect audio will not be needed (think consumer’s love of the cell phone). I’m not sure Cisco can get over that particular requirement.
I wrote a big comment early on but some bug caused it to get nuked after I hit Submit.
The jist was that talking about Linksys whenever Cisco + Consumer are mentioned is a bit of a cop-out. Scientific Atlanta likely has more to do with their consumer plan, which plays to their strengths. They know how to sell to Service Providers and since set-top boxes are consumer devices we get from our Service Providers, working them as a channel is a consumer strategy that Cisco can handle easily. MOTO’s DCTs and PVRs are atrocious and this leaves the Set Top Box market wide open.
I very nearly joined the first Consumer LOB @ Cisco in 1998 — they revealed themselves at CES in 1999, headed up by Robba Benjamin. Their mandate was to drive enabling technologies from the network core leveraging partnerships with consumer tech companies to do it. This strategy rarely works … enabling technologies are driven by edge devices and software, and systems in the cloud must adapt to support them — not the other way round. The upshot was that lots of brilliant ideas were germinated within these partnerships but, without consumer adoption or a desireable product to tie them to, never really hatched.
With the SA acquisition Cisco has signaled that they really have figured it out.
All good and valid points, after all they have tried it and it didn’t work, NortelNetgear have also tried it to some degree of success. But on the whole Cisco et al don’t seem to be able to effectively enter the home market, and hold on to it.
Past performance in this area hasn’t been promising and consumers don’t seem to have an appetite for expensive one trick ponies, if history is anything to go by.
I think Cisco will be hard pushed, if they make a standards box, it will be prone to a number of cheap ‘me too’ plays. If it makes a proprietary box well, we all know how well that will end up.
I think TV vendors will also have a play in this space a la Panasonic and Samsung.
It will be very interesting to see Cisco enter the low margin high volume business.
OM – good commentary! “With the exception of Linksys gear, they have nothing to show for it.” – Ain’t that’s simple plain truth!!
I have diligently followed the consumer initiatives from Cisco – disappointing, since I really felt they would pull it off. The chain gang running their consumer business at Cisco has been rambling endlessly about the “home network” with the not-so-prophetic tones of a mad scientist who got a weekend pass at a mental institution.
Cisco’s problem is “enterprise product managers tasked with selling to the consumer market”. They are now headed into the 2nd showing at CES since they announced their strategic vision for consumer products.
A new PR firm and giving out WSJ interviews may have worked when they launched a new router – but does not cut it in the brutal consumer market.
They need a change of hands on deck with laser focus (a Steve Jobs pedigree crew). It is puzzling Chambers does not see this obvious problem – they need to bring in outside talent – consumer oriented Sherpas (using your Mt. Everest reference) if they are going to be a contender in the consumer business.
It is as you put it well – “a misguided foray” – and only the Cisco Board Room can remedy this current state. Time will tell if they have learned from their recent missteps – but, I would not place anymore bets on the Cisco Kid winning in the consumer business.
Hi Om,
I feel it is a bit early for a player like Cisco to commit on home networking. We are still testing with different sets of standards – WiFi, bluetooth, MOCA, etc. Right now we have not set the mood of the market and investing heavily in this area would be too risky, particulary right now.
However, with such a player’s entry, may be the things would settle down.
Interesting commentary on Cisco and their desire to enter the consumer electronics space. One key point to examine is the state, or health of the retail channel. The closure of CompUSA, and the sad state of Best Buy, as current examples,leaves many wondering how are new CE product companies, Cisco included, planning on selling and educating a market about its wares when one of the main conduits to consumers is failing? Consumers like to touch products and discuss features and benefits, even if it is with lame CE store clerks, we are just wired that way. Most mature CE products can be sold via online channels, because of price, but new products require touch and feel and education.
Cisco should be prepared to invest many millions on educating, supporting, training and marketing through traditional retail channels. This is a new skill set for Cisco and they may not be prepared or desire to take on that challenge. They have their VAR channel wired and new products geared for the enterprise flow relatively smoothly through these channels.
For established consumer brands like Sony, Samsung and even HP, they spend millions on end user marketing alone just to build the brand and hope for the ripple effect onto their retail channel partners. Additionally, they pump millions more to retail to support efforts. While those funds from these large CE brands has dwindled over the years it is still an essential ingredient for launching new CE products.
I don’t doubt that Cisco is doing its homework and acquiring or reassigning talent to address these issues, but I don’t think they fully understand what they are getting themselves into with regards to the retail channel – in all its forms.
To make the transition to consumer/retail company from router/business oriented company is difficult and requires a very different mindset. Hopefully Cisco takes this into account, and if not, it will fail, regardless of the hardware’s quality.
well cisco has a big war chest of cash. consider this their contribution to stimulate the economy 🙂
on a serious note, i think this is an interesting bet, if it takes off there is upside, if it does not it will at least force the hand of others to adopt IP quickly… btw, what is the feeling out there regarding delivering IP in the living room… wifi the best option??
clarification — even if cisco gets a little market share on this one, they may be able to kick off a virtuous cycle given the broadband investments…..this should at least yield something on the router side…
good for juniper too….
From NYT: ” it plans to introduce a new line of products, including a digital stereo system that is meant to move music wirelessly around a house.”….don’t we already have this.
“This holiday the vast majority of consumer electronics purchases will be connected,”—-Wow, really!
“Although they are digital, most of the high-definition televisions sold so far do not have Internet connections. But Mr. Hooper argues that televisions soon will also be connected to home networks and the Internet.”-TV is just a display. Why does it need to be connected to internet directly. It is like buying TV with DVD player built in….nobody wants that.
“We are all making this investment in high-definition television, but all we are doing with them is watching TV the same way,” Mr. Hooper said. “They can actually provide all sorts of experiences, whether it is viewing family photos or connecting to the Internet to watch video.”—-Duh. We are already using our HDTV for seeing family photos, connecting to internet, watching video!! Welcome to reality. Get a XBOX or AppleTV!!!
Mr. Hooper says Cisco has no interest in selling televisions. It will continue to make set-top boxes that bring in programs from cable and the Internet, but it assumes that eventually all televisions will simply connect directly to home networks.—-TV is just a display. Why does it directly need to connect to Internet.
I bet Apple has better chance of bringing telepresence via HDTV to consumers then Cisco. Apple already has most of the technology and brand to make this happen.
in this economy first thing to go in a household budget is cable and the set-top boxes go back to the providers. apple tv, netflix and you tube is way many people in the states get their programming. TP for the home, skype is for free, and already there. plus it’s portable and device unspecific. consumers love free and mixed platfrom stuff, and they like to try new things… hot requested electronic items this year… wii, xbox, iPod, iPhone.
this stuff is all from online mom’s groups. these women cut all demographic, regions and are key decision makers for much of this stuff.
cisco does not understand how to connect with these demographics. terms like telepresence and connected home are cool on presentations and in conferences. also what is value prop to consumer on a budget? what is the cool factor for the average consumer?
not sure off cisco will do it, but right now they are not focusing on what the consumer wants and needs.
I think the showcased products are just examples of the larger platform vision, you’ll see this coming in the next year and beyond, The platform will used to interconnect everyones devices to everything else, this will be focal point of this strategy. If you own the interconnect platform you can shape the path it takes, ultimately Cisco wants to control this path. You have to have showcase examples to see the power of the platform and how it provides new use cases and new growth businesses which will rise from the platform.
The “smarter” network is being tackled by HNAP protocol and Network Magic Pro by Pure Networks.
While I don’t think Cisco will succeed immediately, I do believe that one piece of their home electronics gameplan will come to be: That new digital TVs will be connected to home networks. The key question is what is the home network- IEEE 802.11n?
For my take on Cisco’s new initiative:
http://viodi.com/2009/01/01/cisco/