With its recent acquisition of Linksys, Cisco is going “commodity” in a big way. It is difficult to see how Linksys, with its very thin margins, will help Cisco’s bottom line in the near term. More worrisome, though, is how the deal might dispel the aura that there is “something special” about Cisco technology – and ultimately hurt the brand.
The moment I heard about the move, my mind began to replay a meeting I had with a Cisco executive in the late 1990s. The topic was the potential acquisition of a LAN switch maker that also happened to make a big chunk of its revenue from selling network interface cards (NIC) – then selling for about $500 each.
The meeting at Cisco’s Research Triangle Park facility in North Carolina occurred when Cisco was wrestling with IBM for control of the data center where gear outfitted with the Cisco channel interface processor could go for as much as $100,000 per port.
The Cisco executive leaned back in his chair, shook his head and said unequivocally that, no, the last thing Cisco wanted to be was an NIC vendor. Clearly disparaging the whole idea, he made it clear that selling such trinkets clearly was not worth the trouble. While he didn’t use the term “bottom feeders,” that was the impression I had of how Cisco viewed such companies.
To be fair, this conversation took place some five years ago. The executive is long gone, and the world is a different place. Still, what if this fundamental bias against “commodity” products still exists at Cisco and how it might color the Linksys deal.
For starters, there is potential confusion over product lines. Cisco, undoubtedly will say that this is not an issue – that the lines don’t really overlap. Cisco sells to businesses and Linksys sells to the home market.
Unfortunately, there is a large gray area in the small- to midsize-business market where products from both vendors vie for customer attention – specifically edge LAN switches and Wi-Fi (wireless).
The price difference between roughly equivalent switching products is staggering – nearly an order of magnitude. Linksys hovers at about $10 per port while Cisco charges close to $100 per port. The Linksys EtherFast II 24-port managed switch sells for about $300 through CDW. The same site offers the Cisco 2924 for roughly $1,800.
While there are “value add” items that the Cisco switch offers, for basic small-office connectivity, they are likely to be about the same. If nothing else, Cisco’s purchase of Linksys legitimizes the Linksys product line.
Nowhere is this more critical than in the nascent – and booming – Wi-Fi market. Where Cisco leads in the enterprise network area, Linksys leads in the home market. As with switches, the fundamental technology is the same – but the prices are wildly different.
Cisco and other vendors such as start-up Trapeze Networks rest their hopes on bringing about a distinct class of wireless products built for enterprise network deployment.
More than ever, Cisco has to turn the gray area of Wi-Fi into black and white – small office/home office and enterprise. Then Cisco needs to convince the world that “enterprise”-class products are demonstrably different and, thus, worth the significantly greater cost. By purchasing Linksys, Cisco might have inadvertently undercut that argument.
