Cisco has built a formidable business in data plumbing since its creation in 1984. This success with enterprises and the back-end provision of the Internet made Cisco a wealthy company but one with a problem: Where to go when you’ve wired up the whole world?
A major strategy that the firm started about a decade ago was to move closer to consumers (or SMBs) through the acquisition of firms that made consumer premises equipment (Linksys, Scientific Atlanta), consumer devices (Pure Digital Technologies – creators of the Flip camera, KiSS Technology), or services (Pure Networks, makers of Network Magic). Naturally, these firms only represented a fraction of Cisco’s 150+ acquisitions over the years, but they stuck out as firms that weren’t in Cisco’s traditional market areas.
Cisco is also renowned for its ability to embrace, merge, and get good results from firms that it has acquired – so what went wrong with those consumer acquisitions? Why hasn’t the firm built a more recognizable name on the high street, and what does this teach us about today’s consumer technology space. Cisco has:
- No brand strategy. Cisco was never going to spend Apple-level money to build a consumer brand. Linksys has a good name in routers but only among those who understand/care about such things. And while most Cisco acquisitions could be brought in under the gold-plated Cisco business brand, this also was pretty unfamiliar to consumers. Back when Linksys was acquired, this wasn’t as big a deal as it is today, when branding from Apple, Samsung, and even Microsoft is so dominant.
- Razor-thin margins. For a firm that made an excellent business of higher-margin enterprise and infrastructure hardware – with additional revenue from training certification and maintenance contracts – making do with the 5% or less margin that manufacturers of successful consumer technologies get was never going to be easy.
- Increased competition from China. The past 10 years have also seen the emergence of stronger global competitors from China: Huawei and ZTE are the best known. While Cisco may be able to fend off much of the challenge in the enterprise space by playing the quality card or lobbying governments for bans on “security” grounds, stopping cheap home routers and mobile dongles (largely sourced by telcos and cablecos for rebadging and distribution to consumers) is far harder. A firm like ASUSTeK is even competing at the high-end with its excellent “Dark Knight” router.
- Made bets that misjudged the market. Finally, Cisco made a number of strategic bets that simply didn’t pay off. Two spring to mind: 1) building Linksys music streamers and home servers to compete with the likes of Sonos – both markets have proven to be tiny; and 2) getting into dedicated point-and-click imaging devices just as mobile phones became equally competent and user-friendly for shooting YouTube clips.
So what’s next? It seems likely that if the rumors of a Linksys sale do turn out to be true, one of the other consumer networking brands like Belkin, D-Link, or NETGEAR could pick it up. But, ironically, a firm like Huawei or ZTE would benefit the most from the (limited) brand recognition that Linksys offers in the marketplace. The disposal will mean that Cisco retrenches to its heartland of enterprise networking, licking its wounds after an interesting (from an analyst perspective) decade of consumer experimentation.
For other corporate-targeted entities with ambitious consumer goals (we’re looking at you Microsoft!) this is a cautionary tale – being a great technology company that excels at integrating acquisitions isn’t enough to catch a break in the consumer technology world today.
Last week, Synology announced a partnership with innovative cloud storage firm Symform. Finally, someone is combining the peace of mind and worry-free connectivity speed of the network-attached storage (NAS) drive with the convenience of cloud storage. Arguably, this is targeted more at small and medium-size businesses (SMBs) — those big enough to have a security and backup policy but too small (or too cheap) to build an enterprise relationship with a commercial cloud provider like Amazon. However, even with my consumer-focused hat on, I see a lot to like:
- It allows a trickle update of cloud files. As anyone who has wondered what the hell Microsoft’s SkyDrive desktop app is doing as it whirs away for a couple of hours will know that syncing to the cloud is still pretty tedious — especially if your connectivity speed isn’t up to scratch. By adding a central repository of your data on the always-on NAS drive, you bypass this issue while still ensuring your files are available in the cloud.
- It pairs two technologies that lack sufficient mainstream appeal, creating a compelling hybrid. As I’ve said before, NAS technology hasn’t hit the levels of popularity that I expected it to 5-8 years ago; it will ultimately be replaced by cloud storage — but not for many years yet. I’ve also said that in the long term, cloud storage isn’t really an “application” or a ”service”; it’s a facet or feature of other applications or services. Pairing lots of local networked storage with cloud back-up (or even just key directory duplication) means that you are getting the best of both worlds now rather than waiting for all-encompassing, super-reliable online services of the future.
- Symform’s business model doesn’t limit the amount you store in the cloud (unlike its competitors). Effectively, Symform works as a coordinator of available peer-to-peer (P2P) storage: Agree to let Symform use some of your space hard disk space (either on a PC, a NAS drive, or a server), and it will give you half of that amount as cloud storage for free (on top of the initial 10 Gb allowance). Symform promises secure, regulatory-compliant, globally distributed cloud storage for little more than the price of adding a new hard disk to your rack/NAS /PC – and that’s if your storage is nearly full. Of course, you can pay as well . . . but that makes the offering significantly less attractive.
But, there are some bridges yet to cross:
- It still means shelling out at least $500 for the local storage. Cost remains the biggest issue for consumers or small businesses looking at network storage. Why would you pay at least $400 for the most basic 2 Tb Synology NAS set-up (for example, the DS212j plus two Western Digital 2 Tb drives) when you can buy a 3 Tb Seagate external USB3 drive for $135?* Well, there are lots of reasons that a seasoned IT professional would recognise: availability, redundancy, multidevice access, file syncing, and management tools to name a few . . . but none of these resonate with mainstream consumers (oe even the small end of the business world). Let’s not forget that consumers are still failing to manage and back up the gigabytes of unique and irreplaceable content generated by their digital cameras.
- Symform’s business model is both a blessing and a curse. While I commend Symform for coming up with something different from the largely interchangeable offerings of Box, Microsoft, Google, Amazon, and Dropbox, there are still some thorny questions that need answering:
- Can Symform make money if only a small fraction of users pay for storage? Of course, you could argue that the same can be said of Dropbox or Box; at least Symform doesn’t have to invest in building massive storage capacity to support its service.
- Can a P2P solution rival a big honking data center in Texas for reliability and speed? Again, there is a persuasive argument that P2P is more robust and efficient than traditional “client-server” models — just look at BitTorrent technology. As with BitTorrent, redundancy will be the key; its imperative that a user’s files aren’t corrupted if another customer’s storage node drops out of the pool.
- Is it legal? This is an argument that could run and run (and I’m not a lawyer…don’t even play one on TV). Government agencies already frown upon cloud solutions which store files/data outside their home geography. Does distributing tiny fragments of files globally make this better or worse? Similarly, can the US government ask for access to customers’ files as they can from other US cloud providers? Incidentally, it’s a myth that the 2001 Patriot Act makes the US the only country able to do this.
- Given the above, is Symform a long-term bet? Back-up is, by definition, all about peace of mind. You want your data to be secure both now and for the foreseeable future. This makes Symform a risky bet for businesses — although at least switching to a different service is easier these days than replacing actual physical back-up devices.
- The security and confidentiality of cloud storage will continue to be an issue, especially given Symform’s business model. When it comes to cloud storage, IT pros rightly point out that file security and confidentiality can be a real issue; you are effectively transmitting your files (usually unencrypted) to a remote data centre protected by a single password. And you could argue that this issue is compounded by Symform then farming out the virtual data center to other individuals’ NAS drives.
Overall, I hope that Symform succeeds — they are trying something different and in theory offering a valuable free-ish service with little downside. The Synology partnership certainly strengthens its hand, while also making its NAS drives more appealing. There is bound to be a shake-up in the cloud storage market in the next 12 to 18 months; too many firms are offering free or low-cost storage with little differentiation. Symform at least has the advantage of a different infrastructure and business model.
* Of course, we’re not strictly comparing like with like here; the 2 Tb Synology set-up is offering RAID redundancy, and it could be configured as a 4 Tb storage option