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 | August 21, 2017 |


Cisco to Acquire Springpath

Cisco to Acquire Springpath The acquisition of hyperconverged software vendor Springpath is strategic and important to the next wave of growth for Cisco’s Data Center business unit.

The acquisition of hyperconverged software vendor Springpath is strategic and important to the next wave of growth for Cisco’s Data Center business unit.

Cisco acquisitions can be hard to predict, as no one really knows what new markets Chuck Robbins and team are eyeing. Also, there are foreign cash and repatriation issues that can swing the pendulum towards foreign companies, further complicating the prognostication capabilities of Cisco watchers.

One that was easy to predict for me, however, was Cisco acquiring Springpath, which I mentioned in this NetworkWorld post from December of 2016 that explored moves Cisco might make in 2017.

Cisco made it official this morning when it announced its intention to acquire Springpath for $320 million in cash, equity awards, and additional retention-based incentives. The acquisition is expected to close within this fiscal quarter for Cisco (Q1FY18). This may seem fast, but all of Cisco's recent acquisitions seem to close at lightning speed -- and this will be no different.

A Springpath purchase was easy to predict, as Cisco has been OEMing the product under the brand name of Cisco HyperFlex since early 2016. Further, Cisco has been working together with Springpath since its founding in 2012..

The company was founded by a number of storage engineers from VMware, and has its own software-defined storage technology called the HX Data Platform that currently runs on Cisco's Unified Computing System (UCS) servers. The product competes in the red hot hyperconverged infrastructure (HCI) market with the likes of Nutanix, HP-SimpliVity and Dell VxRack and VxRail. It has been well received, with both Cisco customers and channel partners alike telling me they want Cisco to acquire the startup.

At last count, Cisco had just over 1,800 HyperFlex customers. Given the massive size of its customer base, 2,000 isn't lighting the world on fire, but certainly is a strong number given it's a relatively new market for Cisco.

I have chatted with a handful of customers and partners that were at the most recent Cisco Live conference in June and was told the HCI sessions were packed, some standing room only, so there's clearly demand coming from the field. Over the past year, Cisco has included HyperFlex in its channel incentive programs, like OIP (opportunity incentive program) and VIP (value incentive program) as well as a number of the certification programs.

I've asked a number of Cisco execs about when they might purchase Springpath, including Liz Centoni, SVP and GM of Cisco Computing Systems product group, and found their reason for keeping Springpath at an arms length to be a refreshing dose of self-awareness (see also her blog post on the acquisition) When Cisco started working with Springpath, the HCI industry was in its infancy and moving very fast. Getting Springpath to make changes to the product and develop new features was actually easier to do with it being a separate company rather than inside of the walls of the Cisco machine. Being a large company certainly has its benefits but can sometimes bog down the gears of innovation when things need to be done quickly. The way Cisco approached its relationship with Springpath isn't significantly different than the way it handles internal Alpha Projects or the "spin-ins" it used to do.

Now that the HCI market has matured and is seeing adoption for things other than VDI, like unified communications (see my recent blog post on this), it's time to bring Springpath into the Cisco fold. The HCI market is an important one for Cisco's Data Center business. For years that business unit was carried by its UCS server, but has seen a recent slowdown as the demand for converged infrastructure has shifted to HCI. In Cisco's last earnings release, the UCS/Data Center business showed a decline of 4%, and Springpath should give it a much needed shot in the arm. IDC has the HCI market pegged at reaching $6 billion by 2020, a significant increase from the about $1.5 billion that it sits at today.

It's also important to understand that while HCI solutions are delivered as an appliance, the innovation is in the software. This market is an important one as Cisco continues its march towards a software-centric, cloud-oriented business. Additionally, as SD-WAN continues to grow in popularity, customers will be looking for alternative form factors to run network services on. The remote and branch office market is a nascent one for HCI and largely untapped.

Lastly, HCI solutions are engineered to be fast and easy to deploy. In a recent discussion with CEO Chuck Robbins, he told me that this was something that's paramount to Cisco. The complicated products that take months of engineering time will be a thing of the past for Cisco; look for the company to build products that shorten deployment cycles and allow its customers to leverage them faster. Cisco's recently launched Spark Board and Meraki are good examples of that.

The acquisition of Springpath is strategic and important to the next wave of growth for Cisco's Data Center business unit. The 1,800+ customers are a great start, but I expect to see that number ramp up sharply as the company gets integrated into many of Cisco's larger go-to-market initiatives.

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