'We intend to leverage Cisco's huge international presence ," he says
What does Cisco's stock purchase of Linksys mean in the long term for the home networking provider's channel partners and products? VARBusiness editors David Strom and Robert DeMarzo recently spoke to Linksys CEO Victor Tsao and found out firsthand.
VB: Congratulations Victor: you signed the big deal of the year, so far. What commitment do you have in terms of staying with the company?
Tsao: I will be here at least a couple of years. I'm ready to take this organization to $1 billion. Right now we are close to $440 million in revenue, so doubling our size.
VB: How hard did you have to think about whether to sell to Cisco or continue going as an independent organization?
Tsao: Actually, it wasn't hard at all. We started talking six months ago with Cisco, and we knew this was going to fit because Cisco focused on enterprises and government when we are more focused on consumer home networking. Both organizations have very little overlap. We also realized that our cultures were very similar between these two organizations, even though they are about 40 times bigger than us. But the way we run our businesses actually are very similar. Both of us are focused and frugal. You know the people in Cisco, when they go out traveling, they take coach to Europe -- we do the same thing. I'm flying out this weekend to Amsterdam, and my flight is about $700. Overall, there are a lot of similarities -- a lot of similarities.
VB: Given that the home and SOHO spaces are not areas that Cisco has had much luck in, will Cisco know what to do with you guys? It seems to us that it's also a market they know nothing about.
Tsao: Yes, and Chambers is well-aware of this. He has wanted to do this home networking for almost four years.
VB: Does Cisco offer you an opportunity to provide more funding and more fire power when it comes to marketing, advertising, channel programs, education and things of that nature?
Tsao: We really haven't gone that far on our plans. But Cisco is one of the very few companies that still have a true R&D base in the U.S. But we intend to leverage Cisco's huge international presence and tap into their international account base. We are also looking into including Linksys' products into a Cisco business sales portfolio. The lines are going to be drawn very closely, you know, Cisco is going to handle their management switch and above. Linksys is not about those kinds of things.
VB: Do you think the Cisco channel will benefit from getting more access to the Linksys product?
Tsao: Yes, absolutely. The VAR can mix and match our products with Cisco's and be responsible for everything, for the total solution. As an example, Cisco's Aironet and our wireless solutions are very complementary -- enterprises need the level of security and sophistication found in Aironet, but we can fulfill SOHO requirements for simplicity in our line of products. They should have a very competitive package.
VB: Do you see that there'll be some retail outlets for Cisco products using your retail distribution partners?
Tsao: Possibly. And at this point, you know, the way we plan to do this is, Linksys has got to be an independent division of Cisco. As you know, since the early '90s, Cisco has acquired a total of 80 -- as of today -- 80 companies. We are the 81st. But it is the first one that Cisco is going to keep our brand. No reorganizations -- keep everything and everyone here at our headquarters [in Southern California]. But pretty much we at Linksys are going to be independent.
VB: So, you think that's where some of Cisco's partners might be able to play with the Linksys products line?
Tsao: Absolutely. They won't have to go to multiple vendors anymore. From a VAR perspective, we are talking about one-stop service, one work team and one service rep for your account. All of those things will make VARs' lives easier. Last year, our fastest growing segment was our VAR segment. We've never done any direct calls. One-hundred percent of our sales are through the channel. We don't compete against our partners. That's our commitment to the VAR community, and with this potential acquisition we could bring tremendous value to the VAR community. I'm sure a lot of VARs themselves have in their homes Linksys product already, and now we give them all the reason to start working with Linksys and build their business with both product lines and brands.
VB: Many of the giant networking companies have tried to penetrate the low-end consumer market and failed. So what do you think as you look back was the reason for Linksys' success? Why do you think you guys were able to maintain a foothold on a market that perplexed and confounded so many other companies?
Tsao: I think we're very focused on the consumer and the SOHO market, and what kind of product quality has to be there, and the kind of customer service that has to support these markets. And let's not forget about affordability. Our routers sell for less than $199, and we still get pretty good margins.
VB: So, do you think you have a better story for you know, the readers of VARBusiness today, Victor?
Tsao: [Laughter] Oh, absolutely, I think you know me completely. We continue to bring the value to the VAR channel.
VB: What about IP telephony? Do you see any synergies there?
Tsao: Yes, absolutely. Cisco is driving at that right now in the VAR channel. And we see a lot of small and midsize businesses approaching this solution in order to save money. We think IP telephony has high potential. You know that's the kind of product I expect Linksys will seriously look into -- how to weigh in and complement Cisco brands and strategy.
VB: Victor, do you have a board of directors or other investors?
Tsao: Not really. There's pretty much Jenny [his wife] and myself. There aren't other significant investors, but we do have employee stock owners as well.
VB: Will your employees benefit financially from this in terms of conversion to either Cisco stock or cash?
Tsao: Absolutely. We will convert our stock accordingly into Cisco stock. Let's face it: We have a lot of very aggressive staff here, and we have a potential now to have a bigger family here in Linksys. Once our staff grows out of Linksys, they now have room to move around into different divisions at Cisco. And I think that's tremendous for the staff in the future, and I think our future is limitless right now. With Cisco backing us, we won't go away.