Almost 10 years ago to the month since Cisco announced it would acquire Linksys, the company has told investors it has agreed to sell the unit to Belkin, the privately held home networking specialist based in Los Angeles, CA. Financial terms have not been disclosed. The transaction is expected to close in March 2013.

What is often misunderstood about Cisco’s recent strategic moves, including the closure of its Flip video camera business, is that it still has a strong interest in consumer markets: what has changed, and is now complete through the Linksys divestment, is that Cisco no longer plays directly in the consumer retail space – instead it supports its service provider customers in delivering solutions to end consumers. In that role Cisco still maintains a strong interest in understanding and driving emerging connected consumer technology trends.

The most interesting aspect of the Belkin deal is that Cisco will enter a strategic relationship with Belkin “focused on a variety of initiatives including retail distribution, strategic marketing and products for the service provider market”. My interpretation of this is that Belkin and Cisco will work together to support Cisco’s service provider customers in home networking product development and distribution. Apart from any transaction fees (and its rising share price) this would appear to be the one benefit to Cisco from the Belkin deal.

Cisco’s ten-year odyssey through the world of low margin consumer electronics has been exciting and expensive. In the early days we questioned whether Cisco would become a major consumer technology brand alongside Samsung and Apple. And when the company introduced wireless home audio systems and media hubs in 2009 it looked like things might begin to accelerate. As I wrote at the time, Cisco’s consumer strategy at that time represented a “compelling, yet high risk vision”.

The wireless audio strategy proved to be disastrous, and once the economic downturn hit Cisco’s corporate results the financial markets zoomed in on the weak spots. Linksys’s low margins (relative to Cisco’s traditional enterprise businesses) meant trouble and the writing was on the wall. It was only a matter of time before retail consumer electronics would become an interesting footnote in Cisco’s history.

David Mercer

Barely two years after first announcing its intention to buy Pure Digital Technologies, makers of the Flip camcorder, Cisco is closing the division, making 550 people redundant. The move is part of a series of steps intended to drive Cisco’s business towards “greater operational excellence”.

As well as closing Flip, Cisco will “re-align” other elements of its consumer business in line with its core strategic objectives. Specifically, that will mean that Umi, the consumer telepresence business, will be folded into Cisco’s Business TelePresence unit; and the Linksys home networking group will be refocused towards the core networking infrastructure activity at Cisco.

Video remains a core strategic objective for Cisco, and its vision remains that the network will expand into a video platform in the home. But the company has accepted that retail consumer electronics is, for the most part, outside of its competency, and will now focus its efforts on helping its service provider customers to maximise the potential of the dramatic changes in consumer media and technology markets expected over the next 5 to 10 years.

We have tracked Cisco closely over the years, and have noted on many occasions the challenges associated with a dual service provider-retail strategy. Not just because of the potential customer conflicts this entails, but also because of the highly contrasting economic and business challenges of retail and service provider models. If Cisco had been serious about consumer electronics, its overall results would inevitably have been impacted by lower margins: the only major player which has managed to avoid this golden rule is Apple. The real disappointment with Flip was that its famed ease of use and software strengths could not be transferred to other Cisco units in the consumer space.

Cisco's announcement includes a review of the Eos Media Solutions products in terms of its integration with core video technologies. Eos is a key element in the Videoscape strategy announced at the end of last year, so its future is particularly important. If Eos capabilities can be repositioned towards the needs of video service providers in over-the-top video and television services, this can only be a good thing.

Cisco may be pulling out of consumer markets, but they remain vital to the company’s interests. How and how fast consumers switch to IP-based video services and devices over the coming years will have a major impact on the company’s core technology and network businesses.

David Mercer

Client Reading: CES 2011: Connected TV Growing Up and Tablets Join the Ecosystem

Kent Displays is not a name which will immediately bring recognition to consumer electronics industry veterans, but it’s one to watch out for. The company, based in Kent, Ohio, makes a unique and patented variant of LCD displays, Reflex™, and after many years of trying different professional applications finally came out with its consumer-oriented Boogie Board towards the end of 2010. According to CEO Albert Green, the company’s initial sales projections of “a few thousand” were vastly exceeded, with several hundred thousand sold in the run up to Christmas. Boogie Boards were available at $39.99 in Brookstone stores if you were lucky enough to find one. Sales will exceed one million this year. What are they? Basically they are small, very light, notepads, and require no power to retain the image since they use reflected light. The image can be erased instantly and this function requires a small 3V watch battery. The writing experience truly is very similar to paper, in fact in many ways it is much better. When the company adds local storage in future iterations, this will become a powerful, simple, low cost and easy-to-use notepad which could synch directly to a PC or smart device for further processing. I can’t wait to get my hands on one before next year’s CES. David Mercer