Think outside the home

Cisco is betting that last week’s acquisition of home/consumer networking leader Linksys will lead to bigger things with service providers.

Cisco is betting that last week’s acquisition of home/consumer networking leader Linksys will lead to bigger things with service providers.

Cisco is buying Linksys, a maker of wired and wireless switches, routers, access points, PC cards and antennas, and peripherals for home networks, for $500 million in stock. Linksys’ products, 70 in all, enable consumers to share broadband Internet connections, files, printers, digital music, photos and gaming over a wired or wireless LAN.

Cisco says the market for these home/consumers networks will grow from $3.7 billion in 2002 to $7.5 billion in 2006 worldwide. Cisco’s hoping that this growth will be accompanied by parallel demand for broadband connections to the home, which will spur demand among service providers for broadband aggregation and subscriber management equipment.

“It has been absolutely the case over the last year or so, service providers have repeatedly come to Cisco saying they really wanted help to drive broadband capabilities down into the home,” says Charlie Giancarlo, senior vice president and general manager of Cisco product development. “We think this move is going to be very well accepted by our service provider partners, and we’ll be able to work with them to define and drive new value-added applications into the home utilizing the broadband access they’ve been investing in so heavily over the last five years or so.”

So consider the Linksys acquisition not just Cisco’s entry – or reentry (the vendor’s been knocking on the home network market door for the past eight years) – into the price-sensitive, low-margin home/consumer commodity network market. Think of it as a $500 million bet that it can raise its profile with service providers looking to increase penetration of residential broadband. Think of it as a chip in the $10 billion/five-year wager Cisco’s making to cash in on the service provider market.

The stakes are much higher than just trying to make a profit from selling low-cost appliances into the home.