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Cisco throws baby in the Belkin bathwater

It’s unavoidable, but still kind of despicable how much the Market, the Street, big money… whatever you want to call it, has so much influence on the direction of a company, particularly a tech company.

The understanding of economics does not necessarily equate with an understanding of technology, and this has resulted in the most stupid move Cisco has made yet: Selling its Linksys brand.

Cisco didn’t even sell its Linksys-branded division of consumer/SOHO networking products to a company that could make the products better. It sold a successful brand of well-designed products to Belkin, which has not been nearly as accomplished at turning out quality wireless routers and other equipment for consumers. In fact, many of the products we’ve used from Belkin in the last few years have been plagued with less-than-stellar performance issues and software problems.

This move is bad news for Linksys fans, and it will likely result in the degradation of quality Linksys products.

Since 2009, Cisco has led the wireless LAN equipment market not just in the enterprise but in the consumer and SOHO spaces as well. So why did it sell off a division that’s actually been doing well?

Revenue generated from the Linksys brand, while strong, is just a drop in the bucket compared to Cisco’s overall revenue, which largely comes from Cisco’s sales of networking equipment to enterprises and service providers.

When Cisco reported drops in total revenue back in 2011, shareholders went ballistic. CEO John Chambers, in an effort to assuage investors, promised to streamline Cisco’s portfolio. This resulted in the company killing the Flip video camera and stopping production of a consumer-targeted videoconferencing product, the Umi. Now, it’s bye-bye to Linksys.

Cisco started dabbling in the consumer space in the first place because its enterprise networking product sales became stagnant. Which makes sense – there are only so many switches and routers businesses and providers need to purchase or upgrade at any given time; networking equipment is not a constant buyers’ market.

Cisco’s consumer division makes money, just not enough money. So Cisco’s back-pedaling and, in a panic, refocusing on its core enterprise networking roots. Lose Linksys, shouted the wheelers and dealers and those who focus primarily on the bottom line.

There’s just one problem with this strategy. Cisco is going to find itself right back to facing stagnation again, with its withdrawal from the SOHO and consumer markets.

There’s an emerging trend on the horizon and one we are likely to be hearing about more this year: True, robust virtualised networking. Datacentres will continue to shift to the cloud: Switching, routing, management. All components that still largely remain physically on-premise will start to be deployed like apps and services. The days of the traditional on-premise datacentre in businesses and organisations are numbered.

Eventually, the purchasing base of enterprise networking equipment will largely consist of ISPs and cloud providers.

In the meantime, consumers are getting more demanding and more sophisticated when it comes to home networking equipment. The consumer, SOHO market is a networking equipment sweet spot.

Belkin was a likely candidate to purchase the Linksys division because, quite frankly, the company needs the help. But as is so often with acquisitions, the company doing the buying imprints its vision and way of doing things on the business it consumed, rather than taking a good look at what was attractive about buying the business in the first place, and keeping and enhancing what worked.

If Belkin changes the Linksys recipe to make Linksys products more like Belkin products, the Linksys line is doomed. Look to Netgear to take the lead in the consumer networking space, after years of trailing behind Cisco. It’s also an opportune time for smaller companies like Buffalo to really push innovation in the consumer networking space, and make their existence better known in the home and smaller business market.