Cisco finally bets big on video

Cisco's $6.9 billion acquisition of Scientific-Atlanta gives the company its biggest video bet and instant leadership in a market on which it has had little previous impact.

But the company's $6.9 billion acquisition of Scientific-Atlanta changes all that. Not only is it Cisco's biggest video bet, but it gives the vendor instant leadership in a market on which it has had little previous impact.

Cisco has made a few small acquisitions over the past 10 years, including the purchase of Precept Software in 1998, which brought serial entrepreneur Judy Estrin to Cisco, but those moves have had little effect in the market or in Cisco's top and bottom lines.

The Yankee Group says the worldwide market for corporate video is just less than $1 billion this year, up about 33% from the $750 million in 2003.

"If I were thinking of the top-five video vendors, I wouldn't put Cisco in there," says Zeus Kerravala of The Yankee Group. "They do sell some video infrastructure. It's pretty good stuff, but Cisco's been much more on the voice bandwagon for the past couple of years than video."

"They do OK, I wouldn't call it a large business for them by any stretch of the imagination," says IDC analyst Abner Germanow. "But video is an application that has a lot of potential."

Cisco's past enterprise-video initiatives were more for positioning itself for a potential market, as opposed to trying to attain a leadership position in a burgeoning market, says Gerry Kaufhold, a principal analyst at In-Stat.

"The timing was somewhat premature," he says. "Corporate video is just now becoming a popular item. Cisco knew all along, and correctly, that video would be part of the endgame, so they were positioning themselves to be in there."

The key to corporate video is video capture and edit, Kaufhold says. Cisco's early forays into video were aimed more at video distribution over Ethernet, he says.

But it wasn't until IPTV began to storm the consumer market two years ago that Cisco found itself pulled into a larger video role by default. Cable companies and telcos are relying on Ethernet to provision switched video into households and service specific edge routers to manage subscriber profiles and service characteristics. As the world's leading Ethernet switch and IP router vendor, the video game came to Cisco.

Cisco concurs that momentum in video started when industry activity in IPTV began to ramp up. But the company puts that timeframe more at three to five years vs. two.

"Certainly, activities in the video market . . . is at least the last three years or so, while the industry has been aware of and talking about IPTV," says Peter Clarke, director of Cisco's Service Exchange framework. "We've certainly been involved in video for a significantly longer [time], but IPTV specifically, probably about five years."

Cisco says more than 10 million video-on-demand subscribers are receiving services from Cisco networks.

"They've made a big dent in the cable market, building the core networks for cable companies," Germanow says. "As cable companies have built out large data networks, it's essentially been a greenfield opportunity for the data-networking industry."

With telcos spending billions of dollars to run fiber closer to homes for IP switched video and interactive video on demand, and with cable companies upgrading their infrastructures to stay a step ahead of the telcos, Cisco's push to control the set-top box in your living room was a natural progression. The set-top box is expected evolve to become the broadband router controlling digital entertainment in the networked home.

Video is now one of Cisco's $1 billion-a-year advanced-technology initiatives and a critical driver of Cisco's future growth. As CEO John Chambers said last week in announcing the Scientific-Atlanta deal: "Video is an integral part of our strategy that must be a core competency."

On the corporate side, video is coming into its own, analysts say. It chews up a lot of bandwidth, which means companies will be looking at substantial network upgrades if they require video applications for their workers.

Lights, camera . . . action!Cisco’s video endeavors leading up to the Scientific-Atlanta buy:
1998Acquired Precept Software for $84 million.Precept CEO Judy Estrin became Cisco CTO — Precept’s IP/TV application is still offered but has had a negligible effect on the market.
2001Unveils IP/VC 3500 videoconferencing product line.Products still offered — market effect not available.
2004Unveils uMG9800 line for cable companies.Products still offered — market effect not available.
Adds video phone features to CallManager VoIP software.Video could ride CallManager’s enterprise leadership position.
 Partners with Interactive Video Technologies for business video solution.Products still offered — market effect not available.

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