In recent years, the Silicon Valley company bought Linksys for home routers and Scientific-Atlanta for its cable boxes. And last week, the company signaled that it will be a very different company in the years ahead with the creation of new business group called Media Solutions, which will develop and market products to digital media content owners.
, will head the group, reporting directly to CEO John Chambers.
will head the Media
Most recently, Scheinman has been responsible for Cisco's mergers and acquisition strategy as senior vice president of corporate development. In that role, he led the company to acquire more than 40 companies, including the, a home networking and Wi-Fi routing company, and the , the No. 2 cable set-top maker.
In his new position, Scheinman will help lead Cisco into the next era, one that could help make the company a household name--like other giant technology companies such as Hewlett-Packard, IBM, Microsoft and Apple Computer--in the next 5 to 10 years.
"I think 2007 and 2008 are going to be dramatic years of change for Cisco," said Zeus Kerravala, a vice president at the market research firm Yankee Group.
"(Cisco Chief Executive) John Chambers has said over and over that the things you do today won't impact the company for two or three years. So I predict Cisco will make some aggressive bets this year and next to ensure that the company continues to grow," he said.
Cisco has long been a solid financial performer, but recently it has experienced record-breaking growth. In November, the company beat Wall Street expectations for its first quarter of fiscal year 2007, which ended on October 28. The company generated $8.2 billion in revenue, a 26 percent increase from the same quarter a year earlier when it generated $6.5 billion. The company's profits also increased 21 percent to $1.9 billion.
Sales grew thanks in part to its phone and cable customers who were upgrading their networks. The company also got a huge boost from Scientific-Atlanta, which it did not own last year.
Scientific-Atlanta's financial success over the last year has been somewhat surprising. When it announced the acquisition nearly a year ago, Cisco had predicted that Scientific-Atlanta's sales would grow anywhere between 10 percent and 14 percent. But Scientific-Atlanta has exceeded those expectations, growing its revenue for the quarter in the low 20 percent range compared with a year earlier.
Chambers said during the earnings conference call in November that Cisco's success today comes from bets the company made years earlier.
"We laid the cornerstones of this strategy three, five and seven years ago," he said. "Many of the market transitions we anticipated are converging today as more and more communications and IT capabilities are moving into the network."
While the bulk of Cisco's revenue will likely continue to come from its, the company is that are more , such as video, home networking and even consumer electronics.
Scheinman believes the next step in the company's strategy is to work more closely with the companies that are creating the movies, TV shows, music and other multimedia content that end up in consumers' homes.
"It's going to be really important for us over the next few years to get closer to the media companies, such as Disney, Viacom, Time Warner, etc.," Scheinman said. "If you look at the media landscape, only a few have had big online success. Fox and Viacom have done fairly well, but a lot of the companies are still figuring it out. We want to work with them as they become more Web friendly because that will ultimately help us enable services that consumers really want."
Scheinman's new role will be to work with these media companies in New York, London, Mumbai or wherever else they are creating the content to make sure that Cisco is building products that are relevant to their goals.
This strategy has worked well for Cisco in selling products to large business customers. For years the company has consulted its largest customers as part of its sales process in hopes of learning more about their business needs.
"The one thing that Cisco seems to have learned is that good technology can do wonders for the business," Kerravala said. "But the ecosystem and partnerships really help provide long-term viability. The more relevant Cisco can be to the content owners, the more success they're likely to have."
Cisco has started doing this already with its service provider customers. In August, it, a software company that aims to help cable operators and phone companies deliver a more flexible video-on-demand service. Last week Cisco announced that it repackaged the software so that service providers can offer network-based personal video recorder services and the insertion of local advertisements.
"The Arroyo product takes advantage of the Internet model to create a good experience for customers and provides a new revenue stream for service provider partners," Scheinman said.A strong foundation
The Linksys and the Scientific-Atlanta acquisitions to address a changing tide in how media is delivered and consumed in the home.
The acquisition of Scientific-Atlanta, the No. 2 set-top maker in the U.S., gives Cisco end-to-end video delivery expertise and instantly gets the company into millions of homes. Add to that Cisco's networking expertise, and a powerful operation is forged.
Cable operators are converting their networks to Internet Protocol. Telephone companies are entering the TV market with IP-based TV services. Much of this IP-centric video is being generated by on-demand services that allow consumers to stream to their TV whatever movie or TV show they want to watch, whenever they want to watch it. As these services become more popular, video will eat up more capacity on the network. And Cisco, being the company that provides the infrastructure that boosts bandwidth, has the gear to increase capacity.
"The market is at an inflection point," Scheinman said. "Video and high-definition video is taking off, and few companies out there can build big-scale video networks."
But Cisco doesn't just want to sell big routers and switches to cable and telephone companies, it also wants to provide equipment that sits in people's living rooms. Just as Cisco helped the corporate world gain efficiency by networking workstations, printers and servers, it plans to use the same strategy to help consumers connect consumer electronics and access entertainment over an IP network.
This is where the set-top boxes from Scientific-Atlanta, the consumer electronics devices from Kiss Technology--a company acquired last year--and the home routers from Linksys come into play.
At the same time, a dramatic shift in consumer behavior is under way. Until recently, home networking has largely been confined to connecting PCs to a broadband modem. But many people are starting to link multiple computers, telephones, televisions, personal video recorders (PVRs), games consoles, home security systems and other digital devices into a home network.
"We're all becoming more demanding, craving access to up-to-the-minute entertainment and information, wherever and whenever we want it," said John Bird, Principal Analyst at the U.K.-based consulting firm Understanding & Solutions. "Home networking is the new gateway that manages, transports and stores our information across multiple devices within the home: it's the great content enabler."
Bird predicts that by 2010 at least 30 percent to 50 percent of all consumer electronics devices for sale will be network-enabled. What's more, PCs are increasingly being used to store entertainment content, which consumers want to access and view on other consumer electronics around the home such as TVs and home stereos.
All of this spells good news for Cisco, which plans to be the company making all this video and multimedia sharing possible--from the content creators to the service providers to, ultimately, the consumer.
"The market is telling us what kind of company we have to be in the next several years," Scheinman said. "We are hitting the market at a time of change that is being driven by consumer demand. And in technology, if you don't keep up with where the demand is coming from, you run the risk of falling behind. So we have to be more consumer-friendly."