jump to navigation

Why Cisco bought Scientific Atlanta? November 22, 2005

Posted by John in Technology.
trackback
So Cisco is going to bet 6.9 Billion Dollars on Scientific-Atlanta. That’s a pretty big bet, but is it going to payoff? Well Cisco used to be the Internet company, providing plumbing to connect anything and everything. With Linksys acquisition they successfully entered the $100 consumer device market, and now Cisco is trying to bridge the gap from Internet to home, over cable, by this Scientific-Atlanta acquisition. Lets see what all does Scientific-Atlanta make and how all of this is going to workout.
Cisco provides all the plumbing for the Internet, connecting anything and everything in the data-centers and telco’s. And lately if you have bought a Linksys device, you would have noticed a Cisco logo on the device as well.
On home front, Scientific-Atlanta makes set top boxes and cable modems for the home, delivering DVR, HDTV, email, Internet access and interactive services such as on demand programming. For operators who deliver the services to consumers, they provide Digital Network Control System to provision these set of services. Scientific-Atlanta got Fiber-optic technology to deliver broadband services such as video, voice, data to consumers providing the last mile solutions and full spectrum of backroom end-to-end gear, and thats cool.
On the broadcasting end, Scientific-Atlanta makes the high-end digital video compression systems helping connect cable operators to content by helping broadcasters and service providers transmit more than 2000 channels of digital programming in 170 countries, that translates into roughly 90% of the market. Sweet and the home users do not need to know that (but we do).
So after this deal Cisco will get a strong foothold into your living room – correct? Not so fast. Lets look at what Microsoft is trying to do with Microsoft Media Server and with XBox 360. XBox 360 is Microsoft’s strategy to provide the digital entertainment platform — gaming, online experience, watching movies, Hi-Def content and all the good stuff. As the time goes by and market matures, there is nothing stopping Microsoft from adding more functionality to this family, de! livering rich digital communication and digital media experience. Cisco is betting on owning the back room digital distribution and services part of the market and also owning the end-point in the customers living room.
Guess what, it may not happen, because VDSL (Very high bit-rate DSL) may play spoil sports. VDSL allows download speeds of 52 Mbps and upload of 16 Mbps on ordinary copper phone line which comes to your home. Many companies are in the process of implementing Fiber to the curb (FTTC) and Fiber to the Neighborhood (FTTN) initiatives which will allow rapid full rate provisioning of VDSL to your home. Broadband over power lines is another emerging new technology for last mile solution.
Let me ask you this – what can you do with 52 Mbps? Almost everything we would need in next 10 years I guess. HDTV on demand, IP Telephony, Super fast Internet downloads – you name it. Mix VDSL, Xbox 360 and Internet, and shake well, Volla! – you get the digital content delivered to the digital home. FYI Microsoft has been quietly experimenting with IPTV and Windows Media Center.
So whats my point? By this acquisition Cisco is betting on the use of cable to deliver more broadband services to your home and that 5 years from now you will have more of your services provisioned over cable than you have today, and Cisco gets to pocket the money. For that to happen the telco’s have to fold-up, because if they don’t sell you landlines, DSL, VoIP etc. there would be nothing much left for them to survive. Instead chances are very hight that exactly reverse of this will happen. Once the broadcasting goes completely digital, Internet will play a key role in distribution instead of cable and satellite. VDSL or a similar last mile technology coupled with the enriched Xbox like set-top box of the future, or an open source product, will be the enabler of everything digital to your home.
And probably stock market and analysts understand that, and that’s why there was no reaction to the news of Cisco’s Scientific-Atlanta acquisition on Cisco’s stock.

Comments»

1. Loomia Blog » Blog Archive » Cisco’s Purchase of Scientific-Atlanta is a Key Marker - November 22, 2005

[…] We don’t want to go into an analysis of the deal and what it means in the short-term because others are much more adept. PodTech, for example, has some good comments on the deal plus The Diffusion Group offers some stellar analysis on IPTV, as well as on podcasting and portable video. (Unfortunately their latest email posting making the case that Comcast comes out the winner of this announcement hasn’t made it up on their site yet.) […]

2. Mr X - November 23, 2005

Cisco is spending 6.9 billion dollars to enter our living room. Currently Scientific-Atlanta, the company being acquired, only makes a net profit of 210 Million per year (http://finance.yahoo.com/q/is?s=SFA&annual). So how long will it take for Cisco to break even or develop this business would be fun to watch.

3. podtech - November 23, 2005

Mr X so do you think that it’s a good move for cisco. some say that Cisco doesn’t have it in them to compete?

4. DLender - November 28, 2005

Which is more reliable, Cisco routers & software or Microsoft XBox and Windows? The clash of Cisco and Microsoft will create lots of opportunity. Took a few days but the market reaction to Cisco-Scientific Atlanta turned positive.

5. Mr X - November 29, 2005

Cisco and Microsoft both have one thing in common – mass deployment. In any mass deployment scenario, when ever a bug or unstability is detected, vendor takes the heat and million of users are effected. In Microsoft case, users have a direct relationship with the company and Microsoft is directly blamed by the enduser. In case of Cisco, the result may be the service interruption or the ISP or Network admin may take the heat… End user may not even know that bugs may exist in IOS which may bring down major portions of the internet if exploited ….. http://www.wired.com/news/privacy/0,1848,69488,00.html

When Cisco is compared to Microsoft, Microsoft has clear advantage of interacting with the enduser, Microsoft is already in our homes and have a love-hate relationship with us. On the other hand the closest Cisco has ever come to the end user is LinkSys, which is still run as an independent unit.

Microsoft and Cisco both like to own the Markets and be no 1. Let the battle for living room begin and see who wins.😉

If I have to bet a dollar, I will bet it on Microsft. And I know that will be a safe bet.

6. Mr X. » IPTV and Digital content in our living rooms - November 29, 2005

[…] A nice write up on Microsoft, Cisco and the future. […]

7. Mr X - November 29, 2005

This time Cisco is enroaching on Microsoft’s turf. Cisco is betting on the delivery, which is basically backroom plumbing, and digital distribution. Guess what, in a digital world that won’t matter that much and there would be many many options available as the time goes by. Does bittorrent ring a bell?

The real war would be fought in the living rooms of Digital Homes. It is not how the content would be delivered, that would matter, but rather what is the overall user experience.

Cisco has no touch with the enduser community, my granddad and my neighbors. Except Linksys division, Cisco only interacts with technical people which run the backbone.

Cisco is number one in it’s space. Same is true of Microsoft. However, Microsoft always displaces whoever happens to be number one, once it decides to go after a Market. And this time- stakes are high – very high. It is after all the battle of digital home.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: