Cisco announced today that it would be “restructuring” its consumer business, dropping the Flip video line and focusing its home networking activities to gain better profits. The steps neither fix Cisco’s problems nor demonstrate with certainty that Cisco doesn’t know how to fix them, but they do seem to show that (dropping Flip notwithstanding) Cisco can’t quite let go of the “bits suck” mindset.
Over the years, we’ve seen many vendors who seem to believe that demand for something necessarily forces someone to meet the demand, regardless of profit levels. I’ve used the phrase “bits suck” in public talks to illustrate the view that somehow demand for capacity sucks dollars involuntarily out of provider pockets. Cisco’s play on the theory has been video; promote telepresence to replace voice calling, encourage teens to generate a ton of video to upload and view, and the demand will raise your total addressable market by driving up the capacity the network needs.
What’s killed this approach is usage pricing, and if there’s anyone left who doesn’t believe that’s now inevitable I’d like to sell them a bridge. Yes, this kills the original Cisco value proposition for Flip, but it also kills broad-based telepresence. You can’t replace voice with video unless the video bits cost the same (not per bit, but per call) as voice. That can’t happen at current equipment and operations cost price points, and Cisco as a provider of equipment and operations tools should see that.
There’s a way out for Cisco; the “service layer”. Maybe they see that, and maybe they’re working to address the opportunity there, and to pull through service-layer success into the network. Maybe someone else will do that, in which case we’ll finally see who “the next Cisco” really is.