Zeus Kerravala
Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his...
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Zeus Kerravala | January 24, 2013 |


Cisco Says Goodbye to Linksys

Cisco Says Goodbye to Linksys This completes the consumer chapter in Cisco's history. Many looked at Linksys as a distraction to Cisco. It served its purpose and now it's time to move on.

This completes the consumer chapter in Cisco's history. Many looked at Linksys as a distraction to Cisco. It served its purpose and now it's time to move on.

Remember back to 2003? The Iraqi war had started, the movie "Chicago" won an Oscar for best picture, the Buccaneers beat the Raiders in one of the worst Super Bowls I remember, and we were all listening to Norah Jones and Michelle Branch. In tech though, March of 2003 was when Cisco stepped into the consumer market with the $500 million acquisition of Linksys.

For the record, VMWare was acquired a few months later by EMC for just a couple of hundred million more. What could have been? I remember thinking Linksys was a bit of an odd acquisition at the time, in fact I was quoted as saying so in this article.

While I was initially skeptical, there's no question that Linksys thrived under Cisco, and as home networking grew, so too did the Linksys share. I think it's fair to say that Linksys has been the most successful home networking company in history under Cisco's ownership; but like they say, all good things must come to an end.

Late Thursday, Cisco announced it was divesting of Linksys by selling the business unit to Belkin for an undisclosed amount of cash--although considering how the size of the home networking market has grown, Cisco should have fetched substantially more than the $500 million it paid for Linksys 10 years ago.

The decision to sell off the Linksys business unit makes sense for Cisco. In fact, I'm a little surprised they didn't do this a bit earlier. After Cisco shut down Flip, CEO John Chambers had made a commitment to focus on core areas and shed parts of the business that didn't fit into the company's architectural approach. Soon after, the Umi telepresence product went, and that made Linksys stick out like a sore thumb. Many people thought Scientific Atlanta would be on the chopping block first, but the set top box actually is part of the cable operator's network more so than the home network.

I'm not saying the acquisition of Linksys was a mistake. Far from it. When Cisco bought the company there was a lot of debate in the industry about what the future of home technology would look like and what would be the centerpiece of the networked home. If you remember back, Microsoft was pushing its media center PC and others were vying for that position. There's no reason to think that when content and applications were resident in the home, the Linksys device wouldn't have played a key role.

Also, Linksys filled a gap for years for Cisco in the SMB space. Selling traditional Cisco equipment into SMBs is like trying to recruit Sidney Crosby to come play hockey on my men's league team. It could be done, but it would be far too expensive and overkill for my needs. So too with Cisco; and Linksys filled the gap for a time. Eventually Cisco did release a line of Cisco-branded infrastructure specifically for that level of the business market and Linksys became a consumer-only product.

So Linksys did make sense for a while, but times change. Content is moving to the cloud faster than Bill Belichick ran off the field after losing the AFC championship game. This means the home networking infrastructure plays a more limited role--connectivity and adding a few functions that most people don't use, like time of day access, rate limiting and guest access. Of all the extended features, a small percentage will enable guest networks but that's still the minority of the deployments.

Additionally, the proliferation of Apple devices has made functionality like Bonjour support in the home a must, so many buyers have just turned to the Apple products. Sets up easy, extends easy and Apple tells you to buy it, so why not? This means the rest of the home networking market is facing commoditization, since the role is now limited; and Cisco doesn't really like commodity markets, so selling the business is well timed.

For Belkin, the combined share gives them about 30% of the overall home market, and Belkin plans to maintain the Linksys brand, at least in the near term. This fits nicely into the large portfolio of consumer products Belkin already has, and the company should be able to leverage the Linksys products better than what Cisco would have been able to.

The companies did state they would maintain a strategic relationship between the two on a number of initiatives, the most obvious one being products that are sold through service providers into the home.

So this completes the consumer chapter in Cisco's history. This should be well received by investors and customers, as many looked at Linksys as a distraction to Cisco. It served its purpose and now it's time to move on.

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