Cisco and Linksys—It Works; It Doesnt

Three weeks ago, Cisco and Linksys were just about the most dramatically different companies you could find.

Cisco sold expensive networking gear to enterprises, service providers and carriers; Linksys sold low-margin, high-volume gear to end users, mostly through the retail channel.

So it was somewhat of a shock when Cisco announced the purchase of Linksys two weeks ago, but it does make some sense. It might seem like a crazy purchase, for sure, but $500 million for a rapidly growing company that has mastered its channel is a bargain. Its especially a bargain when compared with Ciscos $6.9 billion purchase (the paper equivalent, that is) of Cerent three and a half years ago. Cerent products now sell used for less than a third of their original price.

Heres how the Linksys deal works. Cisco wants to be the king of wireless. Its already the leader in the enterprise space, owning more than 30 percent of the market. (Note that Cisco got to this position via the purchase of Aironet in 1999-2000 for $800 million.) Linksys, meanwhile, has become a leader in the retail space. Anyone with an 802.11 card can see that most nonsanctioned hot spots (those put up without corporate backing) use Linksys gear and the default unsecured Linksys settings.

Cisco has said Linksys will operate as a separate division within Cisco and retain its own branding. Thats a good move for now. What Cisco really needs is for all the Linksys cards and drivers (and operating systems) to support Ciscos LEAP (Lightweight Extensible Authentication Protocol). Once that happens, Cisco can finally get out of the networking card business and focus on enterprise security. Interestingly, Linksys will most likely pursue the 802.11i standard for security, which is not compatible with LEAP.

Heres where the deal faces some issues. Linksys is not the upstart that many think it is. Its been around since 1988 and is just four years younger than Cisco. This spells culture clash. Cisco obviously has to throw the “youll remain an autonomous division” bone to Linksys for the time being. But, eventually, Cisco will want to protect its own brand.

In addition, Linksys brands more than just 802.11 products. It also has NAS devices, switches, hubs, routers, gateways and print servers.

What the heck is Cisco going to do with an entire lineup of products that wont work with its core operating system? Write to me at john_taschek@ziffdavis.com.

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