Today, Michael Wolf asks at GigaOM how “Cisco can compete for the new digital livingroom.”

What Cisco needs to do is carefully balance its legacy customer sets while creating innovative new service platforms that harness the power of a new generation of software developers. This requires investing in software beyond simple UI and consumer experience (competencies acquired through the purchase of Pure Digital/Flip), and instead, taking a platform-centric approach that would conceivably unleash a set of creative forces beyond Cisco’s own in-house developers.

The answer is in the acquisitions. Nearly every expansion of Cisco’s consumer footprint comes from acquisition, which is how they choose to innovate. Last week during the VMworld, Cisco bought ExtendMedia for $80 million with very little fanfare or notice.

It has been a long-running Silicon Valley rumor that Cisco plans on rolling out a set-top box any day now. We were getting strong messaging just before their March press event this year that indicate thusly, but of all the anonymous tips we got, it turned out to be one of the only unsubstantiated news tip in the bunch:

Three out of my five predictions were correct. Two big missing pieces from my report: No killer AppleTV style set top box and no content delivery offering with telepresence. Not sure if they got pulled from the announcement given how underwhelming the actual presentation was from the hype.

I guess my idea of changing the Internet forever was different than what was announced by Cisco.

I don’t expect Cisco to make a play direct to consumers in the way Boxee, Roku, Google and Apple are. It simply isn’t their style. The deal to acquire ExtendMedia makes much more sense – it’s a low risk solution to acquire the technology already in place with DVR’s controlled by CableCos and Telcos, and given trends in operator-owned IPTV, the fundamental network differences between their solutions and ones offered by more well known brands are slim, and will make very little difference to the consumer.

For those looking to see what Cisco’s play in this market, stop watching for a consumer facing device, and look to see how aggressively they utilize the tech and market position from the ExtendMedia purchase.