Cisco's Big Gamble


Cisco Systems' $500 million stock deal to buy SOHO wireless network equipment leader Linksys is the most ambitious deal in its history.

For Cisco, which has transformed the art of integrating companies into its corporate culture into a science, the latest deal,its 81st,sets the networking vendor on a course to deliver a seamless and secure wireless networking experience from the home to the enterprise network. It also puts the company squarely into the fast-growing SOHO market (see our cover story). To its credit, Cisco has decided for the first time to maintain a company it has acquired as a separate division. It also appears that Linksys co-founder and CEO Victor Tsao and his wife Janie,Linksys co-founder and vice president of business development,will stay on at Cisco.


STEVEN BURKE Can be reached at (781) 839-1221 or via e-mail at sburke@cmp.com.

In the end, however, whether Cisco CEO John Chambers' big gamble is successful will depend on whether Cisco is able to effectively nurture and manage two very different and distinct channels and markets: the enterprise networking market and the SOHO market. Linksys solution providers fear that Cisco will mess with Linksys' secret sauce: the no-holds-barred price/performance of Linksys' 70 products.

In the recent CRN Channel Champions special report, Linksys bested Cisco in the wireless LAN category on the price/performance scale by a score of 88.7 to 77.5. Cisco was the overall WLAN winner, however, with a product reliability score of a whopping 101.8, compared with Linksys' score of 95.7, D-Link's 97.8, Proxim's 95.7, Nortel's 94.1 and 3Com's 92.3.

Cisco has already signaled that it intends to add its own components to the Linksys product line. The first Linksys product lineup brought to the table under Cisco's stewardship later this year will almost certainly have more robust security features. The question is, what impact will that have on Linksys' pricing? Cisco has long been known for obtaining a price premium. If Cisco tries to put that same stamp on the Linksys line, the result could be disastrous. The same can be said if Cisco takes its eye off the all-important SOHO solution provider channel.

Chambers urged Victor Tsao to call him personally if Cisco messed with the Linksys business model. That's a good sign. If the Cisco team follows Chambers' lead, then Tsao will never have to make that call.

What do you think of Cisco's big gamble? Let me know at (781) 839-1221 or via e-mail at sburke@cmp.com.