Cisco Buys Video-on-Demand Provider Arroyo

Cisco (Nasdaq: CSCO) sealed a deal this week to buy another consumer-oriented technology company, this time acquiring video-on-demand player Arroyo Video Solutions for US$92 million.

The Arroyo buy is representative of the dominant networking gear maker's overall effort to connect to homes the way it has to businesses, Yankee Group Senior Analyst Zeus Kerravala told TechNewsWorld.

"This is typical of their acquisition strategy -- small companies that fit very specific needs they have," he said. "[Cisco is] very clearly trying to be the de facto standard for all things in the home."

Consumer Networks

Cisco's cash purchase of privately held Arroyo, a deal set to close by October 31, will give it a scalable video-on-demand service to be integrated into the Cisco IP Next Generation Network (NGN).

Arroyo's technology and framework will help Cisco's carrier customers speed content creation and distribution of interactive media and advertising via NGN.

These networks will support a range of devices, including televisions, PCs, mobile handsets and other devices, Cisco said.

"The entertainment industry is going through a major shift while consumer desire for personalized, on-demand service is on the rise," said Cisco Senior Vice President and General Manager of the Routing and Service Provider Group Michelangelo Volpi.

With the acquisition of Arroyo, a 44-employee company founded in 2002, Cisco will take on part of its management team, including Drew Major, a Novell (Nasdaq: NOVL) co-founder and network operating system specialist, and Paul Sherer, a former 3Com (Nasdaq: COMS) CTO and networking patent holder.

Quad Play

Cisco's string of acquisitions -- which includes its buy of set-top box maker Scientific-Atlanta late last year -- is evidence of the firm's overall effort to deliver content, including video and interactive programming, to any device in the home. Kerravala called it a "quad-play everywhere" approach, referring to voice, video, Internet and wireless services.

As the firm sharpens its focus on the consumer and home market, it may be likely to acquire a player in the wireless arena next, said Kerravala. It is unclear whether the company will take a WiMAX, mesh wireless, or 3G WiFi approach at this point, however.

Contained by Customers

Cisco is basing its strategy on its next-gen networking system, which may help the firm win out over digital home competitors such as Microsoft (Nasdaq: MSFT) and Dell (Nasdaq: DELL). Despite its dominance in the enterprise networking space, however, Cisco's tremendous brand advantages may not necessarily transfer to customer share.

That's because Cisco will be limited by its carrier customers' ability to pass along the technology, content and services to users, Kerravala noted.

"This time, they're a supplier for other companies that need to create demand," he said. "The challenge is that they're limited to what their customers can do."