It’s rare in the world of technology that we see a company successfully managing two very different businesses under one roof—high-touch corporate customers and price-sensitive consumers. It’s usually management hubris that takes companies down this path—only to realize the blunder a few years later.
The latest victim is Cisco Systems, the largest maker of gear for computer networks. For most of its 28-year history, Cisco was one of the hottest stocks on Wall Street, fueled by what seemed like insatiable demand from major corporations around the world for its communications gear.
Unfortunately the company decided a few years ago that those skills could be applied to the retail business, so it set out to expand into consumer electronics through a few acquisitions. Bad move.
Bloomberg News is reporting that the company has hired Barclays to find someone to take Linksys—a maker of routers for home wireless access—off its hands. Cisco paid just under $500 million for the company in 2003.
Cisco’s only consumer blunder, it wasn’t. Remember the Flip camera? It was popular for about a nanosecond—okay, maybe a little longer—just long enough to attract Cisco. Turns out, Flip cameras were quickly supplanted by smartphones, and when Cisco decided to get out of that business, it didn’t even bother trying to find a buyer for a company it paid $590 million for in 2009. Cisco simply shuttered the business.
When tech companies that have been successful supplying enterprise customers with all manner of digital gear decide to go consumer, they usually hype the potential synergies, such as using components that go into both sets of products. Trouble is, those synergies rarely materialize, or are not enough to offset other problems. You see, consumer electronics businesses operate on razor-thin margins, yet still require an investment in R&D as well as heaps of marketing dollars. You need to sell humongous volumes through retail just to make the effort pay off. What’s more, you can’t cut back on the investments needed in research, sales, or service skills to keep your bread-and-butter corporate customers happy. Oh, and the skills required to manage both businesses do not easily cross-pollinate.
IBM realized that years ago when it pulled out of the PC business, selling to Lenovo. Big Blue had the engineering and research smarts to supply the technology that helped put a man on the moon. It just had trouble putting a personal computer into a retail outlet.
Hewlett-Packard is currently grappling with the same management problem—how to be a successful enterprise supplier and a company that sells PCs, smartphones, and tablets through retail. It’s not doing either one very well. When will tech companies learn?
Maybe HP should call up Barclays. Maybe there’s a buyer interested in a package deal?