Cisco's Curious Week

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Last week was a curious one for Cisco Systems. The company’s public move to break into the server market and a splashy consumer electronics acquisition seem like deviations from the company’s historical strategy of thoughtfully managing its disruptive growth.

As described in Seeing What’s Next, Cisco’s history traces back to disruptive innovation. At the core of Cisco’s disruptive march over the past two decades is the Internet Protocol. Cisco started by using IP to disrupt the transmission of basic data, then went to mission-critical data, then began to focus on voice and video. The company has acquired dozens of companies to help it improve its core technologies and edge into adjacent product markets, and a couple of companies to extend its business model in new directions.

An article in last Monday’s Wall Street Journal described what seems on the surface to be a markedly different strategy. The article described Cisco’s plan to sell “blade servers” that sit in data rooms. The move puts Cisco in head-to-head competition with historical partners like Hewlett-Packard and IBM. It feels like a land grab for a large lucrative market, with deep-pocketed incumbents that have a lot to lose.

Cisco said it is following a different approach focused on the “cracks between silos” in the data center. John Sviokla suggests Cisco’s approach is about controlling the “access point” in the virtualization / “cloud computing” movement. But Cisco’s approach doesn’t feel particularly disruptive.

The second eyebrow-raising move came on Thursday, where Cisco announced it would pay close to $600 million to acquire Pure Digital, who makes the popular Flip line of handheld video cameras.

At first blush, the acquisition seems to be similar to Cisco’s 2003 purchase of Linksys, or its 2007 purchase of WebEx. Both of these acquisitions allowed Cisco to enter into new markets.

In the case of Linksys, Cisco had publicly failed twice to break into the home and small business networking market. Linksys provided a ready-made way to enter that market, with a product category that was tightly related to Cisco’s core products.

WebEx was a ready-made business, providing a platform for future expansion into Web-based applications. It also fit Cisco’s basic theme of networking and interconnectedness.

While purchasing Pure Digital fits Cisco’s stated desire to drive deeper into the consumer market, the move doesn’t provide the clear business model value that Linksys provided, or the clear platform for future growth that WebEx provided.

A commentator on Silicon Valley Insider summed it up well:, “While in the abstract, I like this deal if Cisco is serious about growing its consumer business, I still can not figure out if their strategy is about buying a bunch of disparate chicken parts or instead, about assembling a living, breathing chicken.”

Perhaps future moves by Cisco will reveal the living, breathing chicken. From a disruptive perspective, Cisco’s moves feel like unfocused attempts to chase markets that look attractive. Hopefully this doesn’t mark the beginning of the end of Cisco’s 20-year disruptive ride.

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