B-to-B Networking Giant Spies New Revenue Stream in Consumer Products

By Rita Chang

SAN FRANCISCO (AdAge.com) — For an advertiser that doesn’t sell anything directly to consumers, Intel has made a name for itself among them. Now another tech titan, Cisco Systems, is hoping to follow in its footsteps.

While it’s not hurting for market share — it owns more than 70% of the business-to-business networking-equipment market — Cisco’s mature equipment business is hitting a wall, and the slowing corporate-IT spending isn’t helping. So the company felt the time was right to tap a new revenue stream.

“We like to enter new markets when there’s a transition going on … because it’s easier to take market share,” said Ken Wirt, Cisco’s senior VP-consumer marketing. “If there isn’t some kind of transition going on, then you just battle the established players, and there’s trench warfare.” Mr. Wirt said the current transition Cisco is hoping to cash in on is consumers seeking to connect the entire home rather than having silos for each piece of technology.

Consumer technology has been a plank in Cisco’s strategy since it acquired home-networking company Linksys in 2003. As part of its bid to cross over into consumer electronics, Cisco in March acquired Pure Digital, maker of the popular Flip camcorder, for $590 million.

Cisco wants to be in the consumer space, Mr. Wirt said, because a lot of innovations driving networks are coming from consumers. Moreover, he said, the company has the reach to market Flip globally.

But some wonder what Cisco will gain by associating itself with the Flip products.

Beyond networking

“If consumers know Cisco, they only know it as a networking company, which has no relevance to someone looking at a video camera,” said Jay Jurisich, creative director at Igor International [now Founder / Creative Director of Zinzin], which advised Cisco earlier this decade. “Capturing the memories of your life and family coupled with the small form factor of the Flip — that’s where it resonates emotionally. If you pair it with ‘brought to you by the people who bring you routers’ — that’s going to fall with a thud.”

But the company’s ambition to become a household name is nothing short of a bid to own the network inside the home that ties together electronic devices from the TV to the PC. As consumers increasingly download videos and games to their TVs and cellphones, Cisco is counting on these bandwidth-hungry applications to fuel greater demand for the equipment that process them.

Whereas Intel is needling shoppers to demand Intel-powered PCs from computer makers, Cisco will have to go beyond the soft-sell, if it wants to reach its stated goal of quintupling its consumer business within three to five years. Though Cisco’s consumer business generates far less than 5% of total revenue, analysts expect Cisco to further beef up its electronics portfolio, which also includes set-top boxes.

Cisco plans to brand its consumer products using a “master-brand strategy,” said Marilyn Mersereau, Cisco’s senior VP-corporate marketing, taking a page from General Electric, whose “Imagination at Work” sits above all its products. The Cisco nameplate would figure most prominently on the physical product itself, though the company would go to market with names consumers are familiar with like Linksys or Flip, she said.

Room for Cisco?

But is there space for another player in the crowded, low-margin consumer-electronics space that would pit Cisco against the likes of Sony and Apple?

“The question you could ask is: Does Cisco have to own this?” Jason Ader, an analyst at William Blair & Co., said. “Even if they advertise the hell out of [Flip], will it drive adoption at a faster pace? It’s pretty viral. I’m not sure if anything Cisco does will accelerate [the adoption].”

Cisco’s agency of record is Ogilvy. The company spent $46 million in measured media last year, down 37% from the prior year, according to TNS Media Intelligence.

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Cross-over hits …

INTEL

The “Intel Inside” campaign put the microprocessor maker on the map, spurring consumers to ask for it by name.

SEAGATE TECHNOLOGY

The disk-drive maker made a deep dive into the consumer space by launching devices that store digital media, giving them friendly names like Barracuda, Pipeline and FreeAgent.

MICROSOFT

Being the top PC-operating-systems vendor gave the software behemoth a huge leg up into the consumer market when it bundled its spreadsheet and word-processor applications with little competition, eventually giving rise to Microsoft Office.

NOKIA

Once a conglomerate that made everything from rubber and telephony cables, it eventually focused on the telecommunications business. Today it’s is the world’s biggest mobile-handset maker.

PHILIPS

Taking on Sony successfully in the home-electronics space cemented Philips as a consumer brand. Many also know Philips for its electric toothbrushes and lighting products.

… and misses

IBM

When Big Blue marketed its ThinkPad PCs, it moved from mainframes to mainstream. It returned to its roots after selling its unprofitable PC business to Chinese computer maker Lenovo in late 2004.

INTEL

Intel didn’t hit a home run with consumers all the time. Through the late 1990s and early 2000s, it tried to extend its name into selling everything from wireless computer mice to digital cameras. It also marketed wireles-home-networking cards and WiFi systems under the moniker “AnyPoint.” Ultimately, the company decided it was most at home with microchips and shuttered the line.

MICROSOFT

Launched in the mid-’90s, Microsoft’s WebTV had a promising proposition: connect to the Internet via the TV. The service never paid off, thanks partly to expensive customer service problems.

DUPONT

DuPont hoped shoe shoppers would ask for its synthetic leather substitute, branded “Corfam,” by name when it was introduced in the ’60s. But consumers didn’t buy it, and leather manufacturers began to drop their prices and increase quality.

BIG PHARMA

For an industry that employs armies of salespeople to trawl the halls of hospitals and doctors offices, Big Pharma is not exactly on the cutting edge when it comes to pitching directly to consumers; but more drug marketers are moving in that direction. They’re dogged by a perpetual image problem, however: criticisms over high prices, safety concerns and lack of trust. Still, the U.S. remains one of the few countries that allows drug makers to market prescription medications directly to consumers.

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