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Cisco acquires Linksys

Today’s announcement about Cisco’s acquisition of Linksys is one that leaves me scratching my head a little. What is the logic behind this? Could this represent a change in Cisco’s strategy? Or is it a realization in the part of the networking equipment vendor that its future may not be enhanced by moving into the now heavily depressed telecommunication field. Let’s imagine for a second what this could do in the long term.

First of all, by acquiring Linksys, Cisco gets a strong foothold in the small office/home office market as well as the hobbyist/consumer market. Why? Largely because this is where Linksys’ strength is. What Cisco gets out of this is a new source of revenues in a market it has had troubles getting into. The announcement that they will not change the name of the company and will let it run as an independent unit seems to point to that end.

Second, it provides Linksys with strong support in enterprise sales. Linksys has been getting into the enterprise largely through the back-door, with employees installing cheap wireless routers in offices. Now, with Cisco’s backing they can get into the enterprise as part of a more complete solution.

The next question is what this does to Cisco’s strategy as a telecom vendor. Linksys already sells voice over IP products. There may be some people at Cisco edging their bets in terms of the telecom bet. It could be that they figured that VoIP could also come in through a cable connection, which in itself would undermine sales of equipment to large phone companies and move more telephone traffic into the hands of cable companies. Alternately, Cisco could start selling solutions that would allow for a complete end to end solution for VoIP: Large offices would use Cisco’s existing solutions and smaller branch offices could take advantage of the Linksys offerings.

However, the real prize in this acquisition is in the wireless space. Linksys has already established itself as one of the strongest players in that market and Cisco will probably take advantage of those gains, eventually demising its own offerings in that market. The advantage for them is consolidation of product lines and an early toe in the 802.11g arena.

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