Zeus Kerravala
Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his...
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Zeus Kerravala | November 19, 2012 |


Cisco Buys Meraki for WiFi Today and Cloud Tomorrow

Cisco Buys Meraki for WiFi Today and Cloud Tomorrow Much of the media focus will be on the WiFi solution, but I think the cloud management software holds a tremendous amount of long-term value for Cisco.

Much of the media focus will be on the WiFi solution, but I think the cloud management software holds a tremendous amount of long-term value for Cisco.

Over the weekend, the news of Cisco's $1.2 billion acquisition of Meraki appears to have leaked to the press. Apparently on Sunday morning there were a number of Twitter posts speculating the rumor of a Cisco acquisition. The story became widely reported by the media and then confirmed by Cisco's SVP, Rob Soderbery.

The acquisition is a massive amount of cash for the 330-employee, San Francisco-based company with an estimated $100 million in bookings run-rate. Meraki was founded by three computer scientists from MIT and had collected $80 million in funding since they launched in 2006. The $1.2 billion in cash represents a whopping $3.6 million per employee, which explains why Meraki, which had earlier stated its desire to go public, was willing to become part of Cisco. There will certainly be a number of people with big smiles on the Cisco campus now.

For those that don't know Meraki, the company actually sits at the nexus of two hot markets: Cloud and wireless LAN. Meraki is best known as a cloud managed alternative to the tried and true wireless LAN deployment model of access points and switches--Meraki offers a cloud managed WiFi service.

With this model, customers deploy access points but instead of buying a physical controller, they access that functionality out of the cloud. However, Meraki should be thought of as a cloud management vendor that has a WiFi offering. The company also offers cloud managed access switches, security and application optimization appliances for services such as WAN optimization, content filtering, application firewalls and aggregation.

Regarding the WiFi service, it's becoming very clear that the traditional access point/controller model for WiFi isn't for everyone. As popular as this model has been over the years, it's expensive and not optimal for small business or highly distributed organizations with a number of branches with small employee counts.

For these types of companies, a controller-less solution makes more sense and is the reason why start ups like Meraki and Aerohive have been so hot over the past couple of years. On its most recent earnings call, Aruba Networks discussed how its controller-less "Instant" product has been one of its best performing over the past couple of quarters. So this trend isn't just something that start-ups have focused on, and having one of the market leaders show good momentum certainly legitimizes it.

Cisco can use the Meraki offering to complement its current, more traditional offering. I can see the Meraki cloud managed solution being appealing to smaller organizations or within larger companies in a hybrid deployment model for smaller locations.

Cisco has had tremendous success with its current wireless solutions which, I believe, have been the second fastest growing product at Cisco behind only the red hot Unified Computing System (UCS). The two combined offerings give Cisco a competitive offering for traditional deployments and then a great alternative for customers that want an alternative, controller-less solution.

I'm sure much of the media focus will be on the WiFi solution, but I think the cloud management software holds a tremendous amount of long-term value for Cisco. I think it's pretty safe to say now that the world is moving to the cloud. We have apps, voice, video, social media, entertainment and really anything you want in the cloud. You name it, it's in the cloud.

Well, almost everything, as we really don't have networking in the cloud today. The reason is that networking is hard. I'm not talking about just basic connectivity but more advanced networking that is secure, reliable and resilient enough to support the most mission critical of applications. The easiest way of building this type of network was to utilize network infrastructure that had the necessary control built into the device itself.

However, over the past few years, Cisco, Brocade, Extreme and really all of the leading network vendors have been building better network software that allows the decoupling of control from the data plane. The purpose of this initially has been to fulfill the vision of software defined networks.

So if the industry is moving to SDNs, why not have some of that software in the cloud? While large organizations with many network engineers will likely adopt SDNs internally, companies with smaller IT departments are more apt to use a cloud service instead of tackling the complexity internally. Cisco has the back-end infrastructure with One PK and now it potentially has the front end with Meraki. Cisco obviously felt this was valuable enough to drop $1.2 billion of US cash (most of the company's cash is overseas).

Back to the subject of WiFi, with Meraki off the table, this leaves Aerohive as the most attractive take out candidate. Who might acquire? Well how about Dell, who should be embarrassed about its non-existent WiFi story? The company has dropped billions in acquisitions but still hasn't pulled the trigger on one of the hottest segments in IT. Expect more in both the cloud networking and mobility segments over the next couple of years.


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