Cisco Lowers Umi Price as Margins Become a Bigger Concern

Analysis of Cisco’s strategy from consumer to enterprise, servers and switches

Its pretty simple really, if you are getting something which is pretty good and its free, you aren’t likely to pay a lot for something better. I pointed out as much when I wrote about the 10 reasons why Cisco Umi telepresence would fail. This is why the number one reason on my list was Skype… Spending $599 for Umi equipment and then $24.99 per month makes great sense if Skype wasn’t free or better yet didn’t exist.

This is why when TMCnet reported that Cisco has slashed the price on this solution, it could only be seen as good news and a validation of what I considered to be an obvious marketing and pricing challenge. The new cost is $499 for the equipment and $99 per year – a $200 decrease in annual service costs for unlimited calling.

Even better for the price conscious, this summer, a less expensive solution which displays 720p instead of 1080p will be rolled out at a cost of $399 with the same $99 service cost required.

In another post I asked if Skype put a stake through the heart of Umi telepresence with its enhanced relationship with TV vendors and it seems obvious that this is the case as the decrease in the service cost is quite dramatic.

Recently I had a discussion with Michael Wolf VP of Research at GigaOm regarding Cisco’s poor performance in the consumer electronics spcae. He mentioned that entering the consumer space is a difficult task and Cisco is very good at making expensive enterprise equipment – but their organic consumer progress has not been tremendous. He further explained how the company is one of the few able to do well in the high-margin enterprise business.

The challenge for Cisco is they awakened a sleeping giant at H-P who with the 3COM acquisition is focusing like a laser on providing network equipment at reasonable prices. They turned H-P from a partner into a competitor in the quest for growth when they decided to get into the server space. The challenge is the server business is low margin and the networking space is becoming more so every day as a result of increased H-P competition.

The good news is distributors like Westcon sing the praises of Cisco servers as you may remember from my recent video interview with George Fandos the VP of Global Data Center at the company.

But blockbuster consumer electronics products are being released by companies other than Apple and Google’s Android which may not make a lot of money for the search giant is certainly one of these. Moreover, one of my favorite products of last year – the one that made me go head-over heals is the Microsoft Kinect – a record setting new product with 10 million units sold and rumored to be getting even better later this year. Incidentally, Kinect was number 5 on my list of why Umi would fail.

So Cisco has its work cut out for it. It has invested hundreds of millions into the consumer space but it doesn’t have a blockbuster. Its margins are fading slowly in the enterprise and it needs to become a household name with popular products in the living room.

John Chambers is one of the best business leaders out there – I have called him the Jack Welch of tech in the past. His ability to run a giant company which rapidly assimilates new technologies is legendary but the above issues are certainly a major concern and I am sure his team is looking for solutions.

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