Cisco's Couch-Potato Future

The Spanish word "arroyo" refers to a dry creek that occasionally fills with water from torrential rains. It also makes a clever name for a video-on-demand (VOD) specialist -- think video data instead of water, and you get the metaphor. Arroyo Video Solutions has developed a distributed VOD server that lets networked commodity systems act as a single, central server that offers up video content on user request.

Networking giant Cisco (Nasdaq: CSCO  ) apparently thinks that model meshes very well with its main strengths. It decided to shell out $92 million to acquire the cheeky start-up. That's a drop in the bucket for a company that routinely presents more than $1.5 billion of quarterly free cash flow, but the investment could pay huge dividends.

You see, Cisco isn't just buying an interesting set of technologies; it will also retain all 44 of Arroyo's employees. That represents a veritable brain drain from competitor 3Com (Nasdaq: COMS  ) , since several key management operatives worked for 3Com before joining Arroyo. As an added bonus, Arroyo VP of Operations Tony George used to run IT operations for Cisco's 20,000 California-based employees. And Drew Major, Arroyo's chief scientist, is a Computer Science Hall of Fame inductee thanks to his involvement in Netware, back when Novell's (Nasdaq: NOVL  ) flagship operating system mattered.

Taken together with the Scientific-Atlanta acquisition last year, the Arroyo deal is further proof of Cisco's ambition to run your living room. In announcing the deal, a senior executive noted that the entertainment industry is shifting to personalized anything-on-demand with "any content delivered to any end device." I agree with that assessment, and I believe that Cisco is doing the smart thing in positioning itself for leadership in that space.

The tie-in shouldn't be horribly difficult, partly thanks to a few relationships that the two parties already have in common. Comcast (Nasdaq: CMCSA  ) and Time Warner (NYSE: TWX  ) are major investors in Arroyo, and both already provide their customers with Scientific-Atlanta set-top boxes. Fill our dry riverbeds, Cisco -- it's hurricane season already.

Further Foolishness:

• Fellow Fool Tim Beyers has seen Cisco's entertainment ambitions, too.
• Read up on VOD and what it means to Cisco.
• CEO John Chambers is a true-blue Fool himself.

Time Warner is a Motley Fool Stock Advisor recommendation. To find out what Tom and David Gardner like about the media behemoth, try a free 30-day subscription.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure is a healthy part of this complete breakfast.