Cisco's new acquisition talisman

Ned Hooper is the latest in a long line of executives at Cisco to head the company's mergers and acquisitions unit. But will he be able to keep the magic alive that has made Cisco such a successful acquirer?

As Cisco grows and enters into new markets, the deals seem to be getting larger and the stakes a bit higher. The challenge for the 39-year-old executive, now the company's senior vice president of corporate business development, will be to maintain that success rate.

Having served as the number-two man in Cisco's mergers and acquisitions (M&A) unit, Hooper has already worked on some key deals, most notably the $6.9bn (£3.5bn) acquisition of Scientific Atlanta and the $500m (£253m) acquisition of Linksys.

A few months into his new job, the executive has already pulled off one significant acquisition. In March, Cisco announced it would spend $3.2bn (£1.6bn) in cash to acquire WebEx, the number-one web conferencing company. The medium-sized, publicly traded company will help Cisco move into a new market and will also provide the company an entry into the web services business.

Q: Cisco has effectively used acquisitions to get into new markets. How do you decide what market to go after?
A: The way we think about acquisitions is to look for markets in transition. For example, the consumerisation of technology is a trend that's driving new markets. If you go back 15 years ago, a lot of technology moved from the office into the home. But in recent years it's been the opposite, where we want to take technology from [the] home and bring it to the office.

We're not comfortable pushing out products that are too expensive. The power of Linksys is its accessibility to the average consumer

Wi-Fi is a good example. People wanted to walk around the office and remain connected to the internet just like they could at home. So they started bringing Linksys routers into work and setting up Wi-Fi hotspots. But then the IT departments had this problem of rogue access points. So we acquired Airespace, a company that helped manage and provide security for corporate Wi-Fi networks.

Sometimes the transformation is happening through business model innovations and not just straight technology. Like with the WebEx acquisition. There is a trend towards more collaboration. So we are looking at this from a perspective of creating new business opportunities for our customers to create hosted services or other online collaboration tools.

Cisco has talked a lot about mobility as a trend. And the company seems to have focused on the enterprise, helping workers access applications from wireless devices.

What about opportunities for mobility in the consumer market?
In the consumer market it's all about access to media content. My wife just got a new car and it comes equipped with Bluetooth and an iPod docking station. And it makes you think, how many hard drives are we carrying around with us every day? Three, maybe four. Bluetooth is putting some of those devices wirelessly onto the network to deliver information to the vehicle. So why store data on a portable hard drive when the network is ubiquitous and can deliver that information to the vehicle? I think there is a big opportunity for a networking company like Cisco.

Two years ago, just before the Scientific Atlanta acquisition, Cisco bought a small European consumer electronics company called Kiss Technology. Why haven't we seen any products come out of that acquisition?
When you're building boxes for the consumer market, cost is an issue. That's very different from the enterprise, where the productivity improvements are so great when you build out a network. The pricing pressure is just a lot less, and the returns are huge.

Consumers are also much more bound by their wallets than large companies are. That is why I think we're still at the early stages of consumers leveraging the network, because we're still getting the price points on the components down to where we can sell products to the mass market.

If you're really wealthy, you can definitely do a lot of cool things with a home network today. Silicon Valley is famous for people with fully automated homes — or people who have HD TV streaming on 18 TVs or something. But that's not the average consumer. Price points still need to come down. And we're not comfortable pushing out products that are too expensive. The power of Linksys is its accessibility to the average consumer.

Do you think the industry is expecting people to pay too much for upgrading their home networks to do all the cool stuff Cisco and others are always talking about?
The share of consumer wallet spend is shifting. Money that used to be spent on buying records or CDs is now being spent on iPods and iTunes. People are investing in home entertainment instead of going to the movies. So that shift in spending on digital media increases the share of the wallet that Cisco can address. But the pricing still has to be right.

There are a lot of deals being done lately by private equity firms. For example, Avaya and Palm just got investments from private equity. How has this changed the M&A environment for Cisco?
Just like any market, mergers and acquisitions go through cycles. A couple of years ago, we were the sole buyers of a lot of companies. That gave us a lot of buying power. We could take our time…