For a while now, I have been questioning the slow pace that many large technology companies have been showing in their efforts to increase their presence in the field of M2M / IoE.  While companies like IBM and SAP have made some good strides, their primary focus has been more from the standpoint of doing great things with the data that comes from an M2M solution (they call it Big Data) as opposed to the overall solution itself.

Cisco is a different animal altogether, however.  While they have been making great strides in expanding their offering to include more services, Cisco is still primarily a hardware company.  According to their 2013 earnings report, 78% of their revenue came from selling products, while just under 22% is from selling services.  So, while their goal may be to be the next IBM, they aren’t there yet.  For this reason, I can’t figure out why they have moved so slowly into IoT.

Sure….their ads about the Internet of Everything are cool … they have had the HWIC product for a while for LAN backup…..they have had products like IP cameras for a long time and the SRP series product ventured into cellular wireless for many customers.  However, they aren’t nearly in it as much as they should be.  In fact, IoE / IoT is not even referenced on their main products page.  It is referenced in a ton of fluffy white papers and blog posts by them, however.

Why do I bring this up?  Well, it appears that Cisco is in need of some immediate short to mid-term sales growth.  In the most recently released quarterly earnings report, Cisco revealed that it is in some short-term trouble.  Their latest numbers were not ones that reflect a company that is in growth mode anymore.

The scary part of Cisco’s numbers, however, was not so much the actual numbers that they put up in the latest quarter.  While they were not great (flat to little top-line growth, slight shrinkage in the bottom line), it was the guidance that sent their shares into a tailspin this week.  Quite simply, Cisco is having a lot of issues in their traditional business for a variety of reasons……and it is for that reason that Cisco needs to step up its play in the M2M space.

Why the rush?

Falling behind Netgear….at least publicly

Netgear’s purchase of the Mobile Broadband portfolio from Sierra Wireless was likely a very smart move for both companies.  While it allowed Sierra to focus more of its attention on its M2M business, it provided Netgear with an instant boost in two ways.  First, it helped them obtain some valuable knowledge / products for the world of cellular wireless, which will both generate revenue as well as allow them to better understand how to use cellular technology in future products.  Equally important, it increased their visibility and importance to the cellular carriers, which should help them better align for future negotiations and getting prime spots in certification queues.

One only has to wonder if Netgear’s next steps will be to grow their existing work in the field of Home / SOHO Automation and extend it to products in other areas where cellular technology is expanding.  I have always stated that this should be Cisco’s goal, and while it may be, it appears that Netgear has the lead at the moment, at least publicly.

No dominant leader in the IoT space….yet

Since they created the IoT/IoE marketing names, it would make sense that they would be the leader in this space.  However, they have yet to publicly launch any IoT services, at least not on their web page or in the press.  In a press release, Cisco talks about how they have been involved in the IoT space for almost 8 years, about how it will generate at least 600B USD in corporate profits this year and how it is the cornerstone of their future strategy…..but as of today, they are far from the leaders in even the hardware space for M2M-based connectivity.

Now, in Cisco’s defence, M2M / IoT is still in the early stages of its growth and they did recently announce the creation of a very large and specific IoT division.  However, now would be the time to see Cisco launch some solutions that encompass much more than hardware.  A Cisco led solution based around its platforms, where hardware is bundled with hosted cloud services and analytics is the way to go.  I haven’t seen any indication that Cisco is venturing beyond hardware with their upcoming IoT offerings in any meaningful way (their web site shows some IP-based services, but not many for IoT).  If they do not expand these offerings, they stand the risk of commoditization before they get started in what will no doubt be a crowded space.

Time is now for acquisitions

Ok, I will not go into speculation as to what companies they should look to buy.  However, most of the companies that Cisco would benefit from buying are not big companies, at least not by the standard of most of Cisco’s acquisitions as of late.  They could be bought for the same cost of a year or two of R&D (if the estimates as to Cisco’s R&D spending are correct), and this would allow them an instant foothold on more of the IoT / M2M market today.  If they wait much longer, these companies will either be snapped up by their competitors or will demand a much higher multiple of an increasingly growing level of earnings.  It makes sense to make these purchases in 2014.

Bottom line

No one is suggesting that Cisco is going out of business soon.  The company profits billions of dollars annually.  However, there is little doubt that its current business lines are facing significant headwinds and that these could be irreversible trends in some cases.  While they have made significant strides in our space, they need to accelerate the pace to get the maximum gain over the next few years.

