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Cisco’s social networking adventure
March 9, 2007
For the past few years, Cisco Systems has been trying to diversify its revenue stream by moving away from the internet backbone - where it dominates - and closer to end users. By doing so, Cisco hopes to caputure more of the value of the data that flows through its swtiches and routers and into homes and businesses.
This strategy has won plaudits in Silicon Valley and on Wall Street. But even the Cisco’s biggest fans may be scratching their heads over the company’s latest move to build a portfolio in social networking.
On Monday, Cisco announced that it had agreed to a partial acquisition of Utah Street Networks, the company behind the social networking site tribe.net. The announcement followed news last month that Cisco had agreed to buy Five Across, a company that lets customers add user-generated communities and other social networking features to their websites.
Most of Cisco’s recent excursions into adjacent markets - such as its booming IP telephony business - have enjoyed clear synergies with the company’s core networking business. It is harder to see where social networking fits in.
Read more after the jump.
Most Cisco businesses that involve content creation - such as its high-definition ‘Telepresence’ video conferencing service - are as much about moving data as they are about capturing it. But for today, at least, social networking is more about content creation and advertising than it is about moving content across networks.
The values of the Utah Street and Five Across deals were not disclosed, but we can assume they were fairly small. One could argue that Cisco does not have much to lose. In fact, it’s probably healthy for a company as big as Cisco to try new things. At its present size, Cisco needs to find billions of dollars in new business each year to maintain its current growth rate.
In order for social networking to be anything more than a curiosity to Cisco, social networking sites need to make the transition from the low-fi, short form video and other lightweight content that currently dominate the medium to high-definition, long-form video and other bandwidth-hogging files that lead to demand for network upgrades.
This may already be happening, judging by the early interest in Joost, the Internet ‘TV-killer’ launched earlier this year by the founders of Skype. The site, which has partnered with several stuidos to serve up high-quality longer-form content, also offers some social networking features.
Even if social networking audiences move towards higher-bandwidth content, it is unclear whether buying social networking assets would be the best way for Cisco to benefit. For the time being, Cisco’s social networking adventure still seems a bit of a stretch.
