It is rare for a new entrant in the CE world to be of Cisco’s ilk. With a well known and respected reputation in its primary business the firm is now making a push into the wild world of consumer electronics. The plans, laid over the last few years with the purchase of Linksys, Scientific Atlanta, a handful were laid bare at CES when the company introduced a slate of CE products (wireless home audio player and media hub) dubbed Linksys by Cisco.

The acquisitions, the new products, and the push into CE represent an inflection point for Cisco. Now is the time for Cisco to ask itself a very important question. Who does it want to be? The decision for the media hub and the wireless home audio systems has already been decided. Cisco opted to position itself as a premium brand, competing with the likes of Sonos in a niche market instead of Squeezebox at a more mass market price point. Cisco determined that providing an all encompassing experience, even if it came at the behest of a low price was necessary to adequately position itself in these emerging markets.

These decisions are what counfound me about today’s announcement. Today, Cisco launched Home Network Defender, an innovative technology that provides easy to use customizable network-wide security. This type of router level security and parental controls that protects all devices on a network, including mobile phones is the type of product differentiator those selling routers have long waited for. It truly differentiates a product from the rest. However, Home Network Defender will cost users $59.99 per year. And the pricing decision, not the product are what lead to my concerns.

First, Linksys is not a low end brand that must compete on price. In a Yankee Group Survey fielded in January of 2008, respondents who had purchased a router spent on average 20% more (more than $12) on Linksys routers than competitive products. The industrial design improvements made in 2008 combined with its reputation allowed Linksys to excel. Thus, selling high end routers for a premium is not out of the question for Linksys, especially wireless N routers where Home Network Defender will reside.

Second, the attach rate for Home Network Defender will be very low. Surveys have repeatedly shown consumer’s lack of desire to pay as little as $5 for home network management or parental controls. Charging for Home Network Defender will disable the greatest features of the router and eliminate a major point of differentiation for buyers. If a buyer already subscribes to anti-virus service the likelihood they will switch is small. Those that do not pay for protection either they have a free solution they are satisfied with (28% with anti-virus use software pre-bundled on their PC according to Yankee Group’s 2008 Web/Data survey) or they simply will not pay for anti-virus (or parental controls for that matter). Either way, trying to wean existing customers from their current providers or convince the reticent that they finally need anti-virus and parental controls is an uphill, unwinnable battle.

Finally, the decision to charge for the service is diametrically opposed to Cisco’s decision on wireless home audio and changes the company’s overall image. If Cisco wants to sell premium products that offer an experience that is great. There is most certainly a position in the market for those products. But you cannot sell an experience if it is not included in the device. This will hamstring the companies branding efforts and prevent them from truly differentiating their products from the competitors. With all the effort Cisco has put in to providing a top tier experience the company must leverage it. These innovations are what will define Cisco in the minds of CE buyers, but only if they are included.

Home Network Defender is a technology that will most certainly differentiate Linksys products from the competitors and provides a substantial improvement over existing technology, a reason for users to upgrade to wireless N. Retailers can demonstrate Linksys Easy Link Advisor (known as LELA the GUI on Linksys routers) and Home Network Defender on endcaps to entice buyers, but not if consumers have to pay more for Home Network Defender.

With the inflection point near, Cisco must decide on what it wants its reputation to be. Will it be the company that provides high end premium products bundled with unmatchable experiences or will it be just another box on the shelf?