Feature Story

Cisco Sharpens its Focus on the Home

The company has formed a dedicated consumer business group and council, changed the way it builds products for the home, and is rolling out new audio and video product lines

January 7, 2009

By Laurence Cruz

Cisco Systems is zeroing in on the consumer market like never before.

As part of a new strategy centered on the home, the networking giant has transitioned its Linksys subsidiary into a dedicated consumer business group, formed a consumer-focused council, and made key changes in the way it builds consumer products, Cisco officials say.

To kick off the new strategy, the company is introducing two new networked entertainment product lines at the Consumer Electronics Show this week - one a wireless home audio system, the other a media hub.

John Chambers, Cisco's chief executive officer, touched on the company's new consumer strategy before a gathering of analysts last month. "We think the time has come for Cisco to make a huge play in the home," Chambers said, adding that the centerpiece of this "architectural play" will not be devices but the network itself.

Chart: Growth of Home Networks

The transition of Linksys into a new consumer business group and the creation of a cross-functional council cement what analysts say is the company's most cohesive approach yet to the home networking market. A key goal of the changes is to make it easier for Cisco to build brand awareness among consumers worldwide, says Ned Hooper, senior vice president for the group. The Linksys brand name has been replaced with "Linksys by Cisco."

Hooper says the newly created Consumer Business Council pulls together efforts from across the company and Linksys, as well as two existing groups within Cisco - the Service Provider Video Technology group, which is founded on the company's 2006 acquisition, Scientific Atlanta; and the Cisco Media Solutions Group, which is focused on improving consumers' experience of digital media content.

Cisco is also making bold changes in the way it builds products for consumers. It has recruited new talent and is bringing much more of its software and product design in house. Software, in particular, will play an increasingly important role for easing consumers' pain from such tasks as troubleshooting and device installation, Hooper says.

"The time has come for Cisco to make a huge play in the home."

— John Chambers, CEO, Cisco Systems

With that in mind, Cisco has folded home networking software maker Pure Networks into the new business group. Cisco acquired the company last July and now plans to use its Network Magic software - which makes it easier for consumers to set up and manage home networks - to build ease-of-use capabilities across Cisco's entire consumer product set, he says.

The Networked Home: The Holy Grail

Cisco has been collecting the pieces for a unified approach to the consumer market since 2003, when it acquired home networking company Linksys. Over the past year, Linksys has sharpened its focus on building Cisco's consumer business by transitioning its small business and service provider operations into Cisco corporate.

In its new consumer push, Cisco's first order of business is to expand the home networking market in a big way, Cisco officials say.

Cisco believes home networking is on the cusp of a major transition. Far from "living-room friendly," home networks to date have tended to be tied to the personal computer and focused on productivity, as well as tricky to install and manage, says Mike Wolf, an analyst with technology research company ABI Research.

But Cisco foresees a home network of tomorrow that will be much more user friendly, allowing consumers to securely access and share photos, music, and movies on multiple devices wherever they are. Cisco calls it the "Media Enabled Home."

A multimedia home network can be defined as a network that shares a broadband connection with at least one PC and at least one consumer electronics device, such as a digital video recorder, a TV set-top box, a video game console, an Internet radio, or an IP telephone. In Cisco's vision, these devices would also connect and coordinate with each other, company officials say.

Eventually, Cisco foresees an even more advanced incarnation of this vision - the company calls it "Visual Networking" - where high-definition video, full-spatial audio, and social networking and collaboration technologies will converge in an even more immersive experience.

Network Centric vs. Device Centric

If Cisco's vision of a digital home sounds familiar, it is. Many other technology giants - Microsoft, Sony, and Apple among them - have set their sights on gaining control of the home, says Wolf. "It's a strategic market that forms the foundation for numerous future services and communications," he says. "That's why you have so many of the large players looking at it."

For all that, the holy grail of the digital home is still very much up for grabs.

Wolf says that's due in part to the fragmented nature of the home networking market, which he defines in two distinct "layers." One is the traditional router (wired broadband and wireless) market, in which Cisco is well positioned domestically, he says. The other, a much more complex layer outside the core router market, is a Wild West of competing products, services, standards, and protocols in which no one player has emerged as a clear leader, Wolf says.

It's precisely the emergent nature of this market that makes it so valuable to Cisco, Hooper says. He says Cisco's strategy, unlike the device-centric approach its competitors have taken, is a network-centric one. That is, the company aims to seamlessly connect the multiple devices found in the home - from TVs and game consoles to personal computers and mobile phones - using the underlying network as the platform.

In providing this unifying element - the glue, if you will - to such a fragmented market, Hooper says Cisco will meet a growing consumer need as more people share content, play games online, stream music and videos, download high-bandwidth content, and increasingly expect that content to be available on IP-enabled devices anywhere.

"It's increasingly important for consumers not just to be able to connect to the Internet, but also to make all of their devices connect seamlessly to the Internet, to easily set them up at home, and to make them connect and work together," Hooper says.

Misses and Potential Hits

It's not the first time Cisco has made forays into the consumer market. Since it acquired Linksys, the company has struggled a bit to find the right balance of its own strengths with those of the subsidiary, analysts say. "There have been a lot more misses than hits, no doubt," says Jonathan Gaw, an analyst with research consultancy IDC.

So why should Cisco's efforts to generate demand for its products in this profoundly fragmented market fare better this time around, especially in a recession?

Gaw says it won't be easy. Cisco is hardly a household name, and many consumers and partners have yet to grasp the benefits of a networked home, so Cisco will need to educate the marketplace, he says.

But he also notes that Cisco today is better positioned for success on several counts. For starters, he says, Cisco now has products sitting at every juncture of the networked home infrastructure - thanks in part to its acquisition of Scientific Atlanta, a leading cable set-top box maker and expert in building video-based networks. "So as long as the market for the digital home grows, Cisco grows with it," Gaw says.

And analysts agree it is a sizable, multi-billion dollar market that is growing at a healthy rate. According to IDC, the number of homes worldwide with multimedia networks will nearly triple by 2012 to about 120 million - also an indication that consumers are growing more receptive to networked entertainment, Gaw says.

Finally, Gaw says one reason the networked home market is so fragmented is that none of the players in the space has found the right solution. "If you believe the hard part is the networking part, then you've got to say that Cisco has a decent chance," he says.

Laurence Cruz is a freelance writer in Los Angeles.