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Cisco Video Thrust Telegraphs Bandwidth-Bandit Strategy
You gotta be impressed by Cisco's persistence. For most businesses, that line about using an economic downturn to positioning oneself for the rebound is just a meaningless mantra repeated from a motivational playbook. However, for Cisco CEO John Chambers, the recession has indeed been an opportunity -- a consumer opportunity -- that's come knocking on the networking powerhouse's door, and he's answered the call.
Consider that, on the business-technology front, Cisco used 2009 to extend its reach beyond its networking base and edge into the server market. Its unified computing move has been aimed squarely at the strongholds of HP and IBM. Now, at the Consumer Electronics Show in Las Vega, Cisco is going wide with the consumer part of its strategy. That plan, seemingly centered on videoconferencing (aka telepresence) and live video, is actually a smart and stealthy way of driving bandwidth usage. The upshot is that Cisco will sell not just video tech , but also seed the necessity for more more networking equipment. In Cisco's universe, it seems, new business opportunities always deliver some solid payback for its core business.
Cisco telegraphed its consumer-video moves Wednesday morning with a press release trumpeting its plans to "showcase(s) breakthrough consumer video experiences at CES 2010." That release makes more explicit the continuum between sales of the Flip Video camera, which Cisco acquired in 2009, and sales of home networking equipment from its Linksys division. Here's the money quote: "Cisco, which has shipped more than 200 million consumer devices to date, continues to generate momentum with its Linksys by Cisco home networking products and Flip Video camcorders."
But the most notable thrust is Cisco's plan to leverage its business telepresence leadership into the consumer space. As the release puts it:
At CES, Cisco will also share its vision and progress toward developing an entirely new category of video communication, called home telepresence, which uses a consumer's existing HDTV and broadband connection to deliver a unique natural video communication experience from the comfort of a living room. Cisco will enter U.S. home telepresence field trials this spring, with Verizon as an early partner. Home telepresence field trials in France will start later in 2010, with France Telecom as Cisco's early partner.
Cisco CEO Chambers emphasized that angle and indeed intends to take telepresence to a new level of consumer sexiness, talking about enabling live video over not just computers but also smartphones and TVs. "It will be about any device using video," he told reporters. (Full disclosure: I wasn't there. The quote is from The Wall Street Journal.)
Placed in context, Cisco's consumer play at CES isn't a bold new breakout, but rather a smart, incremental extension of a strategy that's been careful worked for some time. Consider Cisco's 2009 purchase of Flip Video camera maker Pure Digital for $590 million. If you don't have a family member or friend who's evangelized the wonders of the under-$200 Flip, you're probably still reading books on paper. Pure Digital created the category of the one-button camera, incredibly not sacrificing image quality while taking ease-of-use to heretofore unachieved heights.
But heavy consumer demand for the Flip cameras was just the first-order effect. As Cisco must have smartly surmised in evaluating Pure Digital's acquisition potential, a second-order dynamic is driven by thousands of consumers uploading family-picnic snippets and stupid-pet-trick videos to Facebook and YouTube. This translates into increased bandwidth demands, or more precisely--since the aggregate added bandwidth isn't all that daunting; we're not talking Avatar here--new home users, each requiring a Linksys router.
Of course, one can subsequently envision wireless coming to Flip, and then each of those users will go out and buy a wireless router to add to their networks. Though it beats the heck out of me how homes with more than three machines are going to be able to configure that wireless add-on to be an access point. Do they know not to use the WAN port and to disable DHCP? I guess that's what the designated IT-support relative -- me, in my house -- is for.
Anyway, you get the picture. Buying Flip was a way for Cisco to both add to its presence in the consumer space and to drive some core home-networking equipment business down the line. Emphasizing the angle was the statement Cisco put out when the acquisition closed last May. Noting that the Pure Digital operation was being folded into Cisco's consumer business group, Cisco said that "the acquisition will take Cisco's consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences."
Coincidentally, there's been an ancillary branding benefit for Cisco, analogous to what Intel achieved when it took its "Intel Inside" trademark to consumers in the 1990s. Perhaps you've seen Cisco's 15-second Flip ads, which run in heavy rotation on cable. They're to the point, smartly done, and integrate the Flip's distinctive turn-on tone to buttress the Cisco logo with an aural branding stamp, again taking a page from Intel's (in)famous five-tone melody.
A third leg of the video-strategy stool can be seen in Cisco's little-reported acquisition of Hong Kong video set-top-box maker DVN. This occurred last November. Here's how I reported it in a blog I wrote for Network Computing:
As Hilton Romanski, Cisco's vice president for corporate development, described it in a video posted on Cisco's Platform Blog: "When you look at the Chinese market, it's the largest cable market there is. There are 160 million subscribers in the country. A third of those subscribers are on digital networks today."
Here again there is bandwidth method behind what some financial analyst see only as acquisition madness. [This refers to Cisco's decades-long tendency to buy other companies.--Editor]
One final thought: An apparently unintended (though maybe it's not) side effect of Cisco's bandwidth-boosting buys is a blurring of the lines between traditional enterprise networks and where consumers reside. In a macro view, this is already happening; corporate workers no longer much nor care where they live, connection-wise. They're just interested in the resources to which they have access.
Still, I think this blurring of the line between corporate and consumer networks will be something that all networking vendors will have to navigate in the coming few years. In this regard, Cisco is seemingly setting the pace.
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