Cisco Ups Ante In Digital Solutions Space

Already entrenched in the consumer and SOHO space via its Linksys division, in recent months Cisco has taken steps to expand that reach. First, the San Jose, Calif.-based vendor acquired KiSS, a Denmark-based vendor of networked entertainment devices, including networked DVD players and recorders, to eventually bolster the Linksys suite of home products. While those products are still sold only in Europe, a Cisco source says they could reach the states soon.

Then in November, Cisco created Linksys One, a new business unit within Linksys that targets hosted VoIP services for SOHO and small businesses.

The creation of the unit ushers in a radical business model shift that calls for partners to sell bundles that combine its new Linksys One product family with hosted VoIP services from partners such as MCI. Linksys is pushing its partners to shift to an agentlike recurring revenue model paid by the telco. Later that month, Cisco also unveiled a blockbuster $6.9 billion buyout of cable set-top box vendor Scientific-Atlanta.

With the moves comes Cisco's creation of two new Advanced Technologies (AT) designations, one dubbed Hosted Small Business Systems around Linksys One, and the other related to Scientific-Atlanta around digital video. AT is Cisco's identification of product groups it expects to grow into billion-dollar annual businesses and maintain a No. 1 or No. 2 market share. Cisco already counts home networking as one of its ATs, so the vendor is clearly aiming to rake in at least $3 billion per year from networking, VoIP and video to the home, SOHO and SMB markets.

What remains to be seen is how much of that opportunity will filter through the hands of digital home integrators. With Scientific-Atlanta, for example, the primary channel for set-top boxes has been and will continue to be cable providers.

Still, Cisco plans to roll out a variety of new Linksys products that tie into the set-top boxes to facilitate the sharing of content throughout the home. These new products range from displays and video phones to radios, says Charles Giancarlo, Cisco's chief development officer and president of Cisco-Linksys. The strategy of combining networked products with cable set-top boxes fits into Cisco's Connected Home architecture, which is based on the idea that all devices in the home will eventually be connected to each other via IP, Giancarlo says.

For digital integrators, tie-ins between set-top boxes and other Linksys product lines could open more opportunities to tap growing trends in IPTV, wireless video and flat-screen displays, says Matt Peters, president of Wireless Home, an integrator in Naples, Fla. "We could capture sales that perhaps today are lost because of the lack of quality wireless video," he says.

One factor that will determine integrators' success with IPTV solutions is the amount of content available, Peters says. "We won't see [heavy] adoption until there are choices, not just choices in providers but choices in programming," he says.

Cisco recognizes this need and says it is trying to foster partnerships between content providers and service providers, though no particular company names or time frames have been released.

Integrators have more questions about the opportunities to sell the Linksys One VoIP products into the home and SOHO markets. While the announcements sparked interest among many IT solution providers looking to sell hosted VoIP services to small businesses, home integrators are divided about whether Linksys One will find much traction in the home and SOHO spaces.

Dan Schwab, vice president of marketing at D&H Distributing, a Harrisburg, Pa.-based distributor, says the Linksys One program will appeal to integrators seeking to boost margins by adding a services component to their business. Linksys One is "all about the channel," and will serve to strengthen the relationship between VARs and their customers, Schwab says.

"Putting the services and hardware together is a new twist that makes [Linksys One] a very unique offering," Schwab says. "Having the local VAR, who is the trusted data networking person, be responsible for the voice network as well makes the bond with the customer that much stronger."

Jim Wyborny, president of ExpedIT Solutions, an integrator and Cisco partner in Carrollton, Texas, says that while he still makes decent margin on hardware, he's more interested in the potential of selling services. "We'd like to take advantage of the opportunity to become a hosted service provider and have monthly revenue coming in," he says.

Wyborny says that the Linksys One Services Router with 16 LAN ports seems to be geared more to actual small businesses, so the SOHO market might see it as overkill. "Although there is obviously going to be ROI with this box, I don't see much of a business case for the SOHO majority, which doesn't need to have that many phones in-house," he says.

One key benefit of the new solutions is that the Linksys One hardware is self-configuring, which should lower the bar for integrators that haven't been able to enter the VoIP space because of the technological complexity involved, says Nigel Williams, president of service provider and channel operations at Linksys. "This opens up opportunities for a new kind of VAR that we can go and attract," he says.

However, Carrie Miles, president of Compuchicks, an Orlando, Fla.-based integrator, is concerned that Linksys One may actually be easy enough for small-business owners to implement themselves. "If Linksys goes and sells this at Office Depot, then we're in trouble--there won't be any margins for us," says Miles.

Schwab maintains that while Linksys One products are relatively easy for small businesses to set up, the vast majority of end users today still need the support and ongoing maintenance that integrators provide.

Another question is whether Cisco will develop the channel support that integrators need to sell its products into the home. Cisco has said it will develop channel programs for home integrators, but specifics have not yet been set and there is no time frame as to when a program would be launched. If Cisco can solve the channel issues, Schwab says the extensibility of the Linksys One products will make them beneficial to integrators for years to come. "When you consider that the platform can be used going forward with technologies like wireless VoIP and IP videoconferencing, it makes the technology that much more interesting," he says.