In one respect, Cisco’s decision to acquire Arroyo could be seen as an inevitable reaction to Motorola’s acquisition earlier this summer of Broadbus Technologies, which competed against Arroyo in the video on demand (VoD) server marketplace. Both Motorola and Cisco, through its $6.9-billion acquisition last year of Scientific Atlanta, provide digital set-top boxes that deliver television and video programming into the homes of consumers who subscribe to video services from cable MSOs and telecommunications carriers.
After Motorola took the plunge in acquiring Broadbus, Cisco was thought to be close behind in snapping up Arroyo. Cisco and Arroyo had been talking prior to Motorola’s acquisition of Broadbus, but it’s reasonable to assume that the acquisition of a leading VoD-server player by its top rival in set-top boxes might have greased the decision-making skids within Cisco, which is not as quick on the acquisitive draw as it used to be.
Both Cisco and Motorola, before their respective VoD-server acquisitions, had apprehended the need to assemble a full video- and content-on-demand solution set. Now both companies own the server infrastructure and the delivery points inside consumers’ homes, making them attractive technology partners for MSOs, carriers, or others looking for a technological foundation to enable content to be delivered as and when needed into content-hungry residences.
There is no question, however, that Cisco now can provide a more extensive range of enabling technologies, as part of its content-on-demand offerings, than can Motorola. That’s because Cisco also owns the routing, switching, and content-optimization network infrastructure that customers require. Motorola, for its part, still must partner with Cisco competitors, including Juniper Networks, to fill out those pieces of its solution set in the VoD and CoD spaces.
Both Juniper and Motorola stand to lose business because of Cisco’s capacity to offer a more complete solution, encompassing not only the necessary network infrastructure but also the content–on-demand servers and endpoints.
With content on demand becoming a seemingly unstoppable wave of the future, the business logic that would drive a potential merger between Juniper and Motorola becomes more compelling. It might not play out right away, but speculation about such a pairing is sure to grow.
Cisco clearly believes it knows where the market is heading, and it has a content-on-demand vision that it is attempting to realize. As Mike Volpi, head of Cisco’s router and service provider technology group, explained:
The industry is quickly evolving from pure video on demand to anything on demand with any content delivered to any device.
With the Arroyo acquisition, Volpi reasoned, Cisco put itself into position to allow content and service providers to , ”serve content how, when, and where consumers want it.”
That means Cisco will be looking not only to help fulfill the content-delivery aspirations of MSOs and carriers, but also of other service providers, wireless operators, and, conceivably, content providers that want to circumvent that rigid command-and-control mindsets of the telecommunications-industry titans.
Cisco, as a provider of enabling content-delivery infrastructure, really doesn’t care who wins that battle. Cisco is like a referee at a sporting match, who gets paid no matter who wins, saying, “May the best business model win.”
An interesting aspect of the Arroyo technology is that it will allow advertisers to insert commercial pitches that can be targeted to the viewer’s demographics. I am sure that tidbit will grab the attention of Google and Microsoft, which each has its own master plan for dominance of video advertising.
Google, though — at the moment, at least — is an avowed adversary of the telecommunications establishment, whereas Cisco and, to a lesser extent, Microsoft, are viewed with less suspicion by those ensconced in the comfortable wing-back leather chairs in the mahogany- and oak-paneled boardrooms of the telecommunications establishment.
No matter how you look at it, though, Cisco holds a lot of great cards. It now owns practically all the pieces of a content-on-demand infrastructure that can deliver as-wanted video (or anything else, including music) all the way from a data center of clustered, load-balancing content servers to the homes of viewers or interactive participants. It can deliver contextually and demographically relevant advertisements with that content, too.
Not one of its competitors can do the same thing on its own. That means they’ll be forced to partner effectively and extensively, or — if the market demand is seen to be as big as many believe it to be — they will have to begin merging to match Cisco stride for stride. As the history of technology markets amply demonstrates, however, big mergers are fraught with risk, and the time it takes to integrate them successfully gives your competitor a large opening to consolidate market gains.
Whatever happens, the stellar technology team Cisco has acquired from Arrroyo is seen as providing a critical puzzle piece that allows it to authoritatively answer Motorola’s purchase of Broadbus while adding to the breadth and depth of a solution set that cannot be matched by any other vendor.
This acquisition cost Cisco just $92 million in cash, but it could have major ramifications across the industry at large.