March 22, 2003
Cisco Moves to Soho
By Paula Musich and Carmen Nobel
Cisco Systems Inc.'s foray into the small-office/home-office networking space, with its purchase of Linksys Group Inc. last week, is being met with mixed reactions from customers and industry watchers. While some believe the move is a natural extension, others worry that Cisco's influence could ultimately result in traditionally simple products becoming more difficult to install and maintain.
Cisco officials said the $500 million deal takes pressure off the networking gear company's enterprise WLAN (wireless LAN) division, which was looking for a way into the burgeoning SOHO market. "This enables Cisco to continue to focus on the enterprise WLAN segment while our new Linksys colleagues continue their success," said Ron Seide, product line manager in the Wireless Networking Business Unit at Cisco, in San Jose, Calif.
Privately held Linksys, of Irvine, Calif., makes some 70 products, including wireless routers and access points, wireless network adapters, and wireless print servers, as well as wired products such as Ethernet routers and cable modems, unmanaged switches and hubs, print servers, and network-attached storage. Its focus is on inexpensive products for the mass market—not an area of strength for Cisco.
"I don't think Cisco pretends that we are experts in this market," said Charlie Giancarlo, senior vice president and general manager of product development at Cisco, who will oversee Linksys as a separate division of the company. "One of the reasons we acquired Linksys is that they're experts."
Products will still be sold under the Linksys brand through its retail, distributor and e-commerce channels, officials said. Cisco plans to add home-grown features from its enterprise line to the Linksys line, officials said, which leads some users to worry that the gear will get too complicated.
"I have a bunch of Linksys gear in my house, and it works really well. I hope I don't have to learn IOS [Internetwork Operating System] now to use it," said Dave Passmore, an analyst at The Burton Group Inc., in Sterling, Va.
Cisco officials maintained the company has no plans to add complicated features such as the proprietary security protocols that appear in its high-end products to Linksys gear. "The focus is on ease of use," said Tushar Kothari, vice president of new business ventures.
Besides a new market, the Linksys acquisition will give Cisco access to client-side devices. Cisco's focus to date has been on the back end, and the company wanted to make sure other companies' client-side products work with Cisco gear, even though Cisco uses proprietary protocols in many of its access points.
Last month, Cisco announced plans to give away WLAN software to several semiconductor and computer manufacturers through the CCX (Cisco Compatible Extensions) Program. Linksys will make client cards that support CCX, Kothari said.
The Linksys acquisition is a change in Cisco's acquisition strategy, which in the past emphasized buying new products and technology it could sell through existing channels.
"[Cisco] actually bought a routing company," said Frank Dzubeck, president of Communication Network Architects Inc., a Washington consulting company. "They said years ago that's something they'd never do. This is a buy for market share, not technology."
"Linksys is a standard in the home network/SOHO market," said Alex Georgevitch, an independent consultant in Ashland, Ore., who uses both Cisco and Linksys networking gear.
Cisco's Kothari said his company expects lower gross margins in that business but said "operating expenses will be appropriately lower to provide profitability at the bottom-line level consistent with Cisco."
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