Cisco And Linksys: An Unholy Alliance

That's the good news. The bad news is that the Linksys acquisition is a stunning admission by Cisco that the home networking market is here to stay, and that they, Cisco, can't do a thing about it. Instead, Cisco has to buy their way in. This has such tremendous irony for a company who has been with the networking market (and really should take the claim that they are the dot in dot com, not Sun) since its dawn in the early 1980s.

All of a sudden, the air has been sucked out of the networking channel. Those choking sounds you are hearing are plenty of Cisco VARs who have to figure out a new livelihood. Between Dell and Linksys/Cisco, there isn't going to be much room -- call it margin, call it profit potential, call it making any decent coin -- anymore to play in this space. If you don't carry either line, now is the time to pick sides. Or maybe pick another line of work, such as security. The problem isn't that the home or low-end networking market is so profitable: it is that the mid-market isn't, and will have further price pressures to contend with.

As for the mid-market, Cisco can't claim that everyone needs IOS (the ubiquitous operating system that runs on all of its routers) now that Linksys will be offering the lower-priced spread. It presents a heap of conflicts for the channel, who now have to compete with sub-$100 products and near universal distribution. What value-add can they offer to configuring a Linksys router? These are products that you plug in and they pretty much work without any configuring. No arcane commands, no telneting. That's spells trouble.

It also spells trouble for Netgear, which has been Linksys' biggest competitor in the home markets and has just about the same wide range and reach. That is, if Cisco can leave well enough alone and let Linksys be all they can be. It will be fun to watch this fight.

The real trouble with buying Linksys is that Cisco doesn't exactly know how to run a consumer goods company. Indeed, it might have been better for Linksys to sell to Proctor and Gamble rather than Cisco: the similarities between selling toothpaste and soap and low-end networking gear is a lot better than selling low and high-gear products. They really are two different animals. Maybe Netgear should get into selling toothpaste and soap, at least home networks might be cleaner. Or maybe P&G should consider Netgear now.