Last Thursday, Cisco Systems announced it would pay $500 million for home networking company Linksys Group. A day earlier, 3Com reached out to China, with a $160 million investment in a joint venture with Chinese gear maker Huawei, to create a comprehensive enterprise networking business. Superficially very different deals, the two moves underline the trend in high technology toward building big offerings for business buyers.
Just as Hewlett Packard purchased Compaq Computer to fill out its server line, or IBM bought Rational Software to have its own software development tools business, Cisco's Linksys deal boosts its comprehensive line. Smaller player 3Com's deal more resembles the kind of alliances Sun Microsystems is striking with consultancies to present customers with a full-service offering.
Cisco's deal with Linksys does not on the surface seem like a corporate play. It is the first time in over 60 acquisitions that Cisco made its purchase into a separate division, with its own brand name. That may be good for operating margins--Cisco salespeople are more used to meeting chief technical officers at Forbes 500 companies than selling tiny antennas to managers at Best Buy--but deeper down there is a corporate connection.
News source: Forbes - Cisco, 3Com Want to Be Everywhere
Just as Hewlett Packard purchased Compaq Computer to fill out its server line, or IBM bought Rational Software to have its own software development tools business, Cisco's Linksys deal boosts its comprehensive line. Smaller player 3Com's deal more resembles the kind of alliances Sun Microsystems is striking with consultancies to present customers with a full-service offering.
Cisco's deal with Linksys does not on the surface seem like a corporate play. It is the first time in over 60 acquisitions that Cisco made its purchase into a separate division, with its own brand name. That may be good for operating margins--Cisco salespeople are more used to meeting chief technical officers at Forbes 500 companies than selling tiny antennas to managers at Best Buy--but deeper down there is a corporate connection.
News source: Forbes - Cisco, 3Com Want to Be Everywhere
Cisco is eager to sell its own bigger routers to service providers like Comcast, which currently buys relatively few products from Linksys (the service providers offer the home gear to families purchasing high-speed data). Having Linksys gives Cisco a new way to come at the challenge, after its earlier failed efforts to build a home networking business. If it succeeds, the higher consumption of data in the home would also boost Cisco's business with service providers.
"We've been asked by service providers to see what we could do with a box in the home--ways to move music around the house, set up mobile units, or establish virtual private networks between home and business," said Dan Sheinman, Cisco's senior vice president for corporate development. "These are all things we can do."
3Com used to compete for market share with Cisco but has been buried in its onslaught. In the Huawei deal, 3Com will take over sales of Huawei's big routers to businesses, while the Chinese firm will continue to focus on telecommunications companies. Underlining its disadvantage against Cisco, 3Com will initially target sales to government, educational, and certain retail and distribution businesses that use multiple vendors for their networks.
Another big market, said 3Com Chief Executive Bruce Claflin, is China, owing to Cisco's lawsuit against Huawei charging copyright and patent infringements. "In China the lawsuit has backfired on Cisco," said Claflin, "they are viewed as hostile to a smaller company."
Claflin agreed that, after three years bad years in corporate spending on tech, there's lots of pressure for fewer companies to offer big product lines. "Even the big guys are forming alliances and partnerships," he said. "No one can do it all, and customers don't want to talk to a hundred people."
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