A former colleague once described the terse taxonomy often used for the zany landscape of telecommunication
infrastructure providers. Companies with a history in traditional voice switching gear, like Lucent, were the
"Bellheads." Those with a history in data networking, like Cisco, were the "Netheads."
"What about wireless equipment companies like Ericsson?" I asked. "Are they the 'Airheads?'" I guess you had to be there, or at least attend the WebEx.
In any case, last month's $7 billion acquisition of cable equipment oligopolist Scientific Atlanta (SA) by head Nethead Cisco was no joke. The move represented the second major consumer-focused acquisition for Cisco following 2003's $500 million purchase of consumer networking company Linksys. And this July, Cisco-Linksys shelled out $61 million to Kiss Technologies, which makes favorably received networked DVD players. With a growing portfolio of boxes in the home, is Cisco becoming a more consumer-focused company? Will Daily Candy one day feature the iRoute nano that it just spotted Gwyneth buying at The Cisco Store in SoHo?
The timing of the SA acquisition would indicate that the answer is no, as the set-top box market is poised to change dramatically in the next few years. The adoption of CableCard and its successors should greatly reduce the amount of control that companies like SA and Motorola (which acquired SA's chief competitor General Instrument in 2000) have today.
CableCard will likely give rise to two tiers of cable customers. Those who simply want to watch HDTV or preserve the
slim profile of their new LCD televisions will increasingly skip the box while those who favor functionality over
fashion will probably still acquire a set-top box. While TVs themselves will increasingly adopt features such as
wireless networking, its difficult to see manufacturers pricing themselves out of the market by trying to turn them
into media centers.
In any case, again because of CableCard and its successors, consumers will have more choice in selecting their set-top. Tomorrows TiVos and Windows Media Centers could integrate just as well with your cable service as todays Explorer 8000 set-top box from Scientific Atlanta. That said, consumers may not feel compelled to switch. Scientific Atlantas current products and roadmap includes many advanced features such as networked DVRs, downloadable on-demand programming, the ability to pull content off a PC, sideloading to portable media players and the like.
So, Ciscos interest is less related to the establishing a beachhead for boxes in the home than increasing its presence at the cable head-end as both cable companies and telcos eye a future of IP broadcasting in their triple plays and beyond. In particular, SA gives Cisco a portfolio of video server products to sell to the telcos where Scientific Atlanta had few ties. Unlike Nokia and Motorola, which also derive much revenue from service providers and rely on subsidized hardware distribution, SA does not have a strong consumer brand.
As for Linksys, it will surely continue to push forward beyond its antenna-clad networking equipment. The Skype-compatible VoIP phone that the company recently released may be its best-looking product to date, but for the foreseeable future, most of its products will likely stay out of sight, quietly managing the plumbing of the home network.
Its a shame about that iRoute nano, though. It looked just divine in plum.
Ross Rubin is director of industry analysis at NPD Techworld, a division of market research and analysis provider The NPD Group. Views expressed in Switched On, however, are his own. Feedback is welcome at email@example.com.