Cisco’s new home network

By Scott Moritz

Ned Hooper, head of Cisco’s (CSCO) consumer business has a big challenge: Find new sales for a technology that’s reached its limit.

As the top seller of home Wi-Fi routers – those Internet-connected boxes that broadcast wireless signals throughout your house – Cisco needs a big new innovation now that the market is saturated.

Hooper’s solution: A network application that will control the connections to a variety of hardware devices. The aim is to make home communications networks more manageable, and keep Cisco on the forefront of key trends like digital media delivery, and of course, social networking. Think: YouTube to your TV, iPod tunes to your in-home sound system, MySpace on your GPS device, etc.

As an executive on Cisco’s M&A strategy team, Hooper helped the company acquire Linksys, the No.1 home router maker, in 2003. Other notable acquisitions under his watch include set-top box maker Scientific-Atlanta and video teleconferencing specialist WebEx. In June, Cisco acquired Pure, a home networking software developer. That purchase has given Hooper more of the tools his team needs in its home networking management platform Cisco calls LELA, short for Linksys Easy Link Advisor, which will debut at the Consumer Electronics Show in January.

The shift by the San Jose networking hardware giant toward a software approach is a significant move toward “owning the engineering,” Hooper said during an interview Wednesday.

The LELA system requires electronics makers like Sony (SNE), Apple (AAPL), Samsung, Dell (DELL) and Hewlett-Packard (HPC) to install compatibile software so their devices can talk to the network. Hooper calls it a partnership process that would support free licensing of an open standard application. In theory, TV, laptop and phone makers will feel compelled to add the software to their products in hopes consumers will gravitate to the networked capabilities.

Hooper says stay tuned for some partnership announcements on this front.

The LELA system will also give owners a picture of all the devices connected to their network, including those that may not be authorized. And through a WebEX application, Cisco can offer live technical assistance if people need help with tasks like syncing their router to their PC.

Sounds huge, certainly, but will people buy it?

Probably not, says Telecom Pragmatics analyst Mark Lutkowitz.

“People don’t want to manage networks, they just want to flip a switch,” says Lutkowitz. “Multimedia home networking has yet to takeoff. That’s true not just for Cisco, but for others as well.”

To some degree, Cisco’s aim is to offer an elegant solution to a problem that may not require these high-level refinements. For example, there are simpler devices like Slingbox that send TV programs to PCs and phones. And Roku, for instance, transmits Netflix (NFLX) video from the Internet to your TV. Even more simple perhaps are HDMI cords that physically connect PCs to TVs for high-definition media viewing.

The demand for sophisticated new network management systems may not be enough to offset the inevitable slide in Cisco’s home router sales.

“The product line has reached the point where everyone has a box,” says David Gross, also with Telecom Pragmatics. “Cisco hopes the new applications will allow them to maintain the prices on these Linksys boxes. The problem,he says, is that the box has been upgraded to the point were it does everything people asked it to do – provide big bandwidth.”