Friday, November 18, 2005

News from my old life: Cisco buys SA

I'm a cable gal. Or at least I was for 7 years. I competed against SA and Cisco every day. Cisco was the borg in our world, not Microsoft. SA was one of the old stand-bys, not always the company leading the charge on new technology, but being #2 in set-top market share and a significant infrastructure player, they were nothing to get complacent about.

Now Cisco has bought SA for almost $7 billion.

Om Malick has a good run-down of the details and the possibilities that ensue here.

Cisco has been the dominant data player in the cable space for years now. Not only the routing back-end, but the #1 CMTS vendor by a huge margin. CMTS stands for cable modem termination system. CMTS products are pretty sophisticated devices that are typically both an IP router on the back end and a termination point for the RF access network on the front end. Cisco obviously always had way more mature IP routing feature sets than any of the other CMTS vendors out there. It began to matter less and less that their RF side was only so-so, because buying decisions became more and more centralized, and the guys in the central office were less and less often "old cable guys" and more and more often networking guys. Not only that, but as cable operators upgraded their access networks, they got more and cleaner bandwidth anyway. And Cisco wisely did invest in improving their RF side, and in bringing more of the IP in-house, rather than relying solely on Broadcom as their silicon supplier.

Their home-grown attempts to get into the household from a data perspective never got that much traction, so they recently acquired Linksys and were able to truly sell the "end-to-end" cable data system they had been talking about.

Cisco was never much of a video player. Not that they didn't try. They acquired or investigated acquiring just about every little video player out there. They actually did acquire a couple, but never made any of those acquisitions pay off. SA ain't no little video player. They are a large public company with projected $2 billion dollars in revenues next year. And they are everywhere Cisco isn't...providing the cable infrastructure between the headend (where the Cisco CMTS sits) and the home. And being deep inside the home.

For years the industry has talked about the all-powerful, all-in-one home device that would manage a customer's voice, video and data services. I could argue that people don't want a single monolithic device...cost, single point of failure, complexity. But with both Linksys and SA in the house, Cisco now has the shot to make it happen.

So does Motorola, their only real competitor now, when it comes to being a full portfolio vendor.

If I were Cisco and were dreaming about how to leverage this new capability I would start to dream about how I could bypass the cable operators altogether. Cable operators wants to commoditize everything, and they don't want to pay for valuable innovation. And there are so few of them, and there is so little competition amongst them that you end up with a market where the purchaser (the cable operator) has all the power. Only the big companies, who can in turn squeeze their suppliers, like Cisco and Moto, or the overseas companies, who can make true commodity products like cable modems for a pittance, survive in this environment. Really. Check out the other vendors in the cable space. All struggling.

But after all this blather, wanna know the first thought that really popped into my head after reading about this deal? Here it is:

If Cisco paid about $7 billion for a company with a huge established customer base, both on the operator and consumer side, a company with $2 billion in annual revenues, can someone explain to me again why eBay paid $2 billion for Skype?

San Jose Merc's brief mention of the deal.

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