Is Cisco Going to the M&A Cloud…Again?

Cisco is certainly giving all of us a lot to think about (probably more than a lot for its competitors).  The prevailing view here is that Cisco bought a mid-market WiFi company.  If that’s true then they need their collective heads examined.  The price is too high for what Meraki brings to Cisco’s WiFi, incrementally.  I think there’s more to it—a lot more.  Their purchase of Meraki has even more potential dimensions than its previous Cloupia deal, in fact.  The combination definitely makes me wonder whether Cisco is getting ready to be a major cloud player.

One of my points on the Cloupia deal was that Cisco would likely be faced with a decision on becoming a cloud provider if it wants to be a serious cloud player.  Arch-rival HP is both a provider of cloud tools and a provider of cloud services, and Cisco either needs to accept it’s not competing with HP in the cloud or it has to offer a cloud service.  With Meraki it potentially has just that capability.

What’s the beef that justifies the price here?  I think the Meraki site explains it; it’s cloud-based control of the edge, including security and DPI.  The notion of having the cloud control the edge via telemetry is congruent with the operators’ Network Functions Virtualization (NFV) initiatives.  NFV explicitly calls for having DPI-based services like firewalls implemented using a simple device at the edge and cloud-hosted smarts.  Sounds a lot like what Meraki offers, right?

Even for SDN (something Cisco really doesn’t want to do in the “normal” way but may have to do in SOME way), Meraki could be a real value.  SDN needs a mechanism for software to control the network, and the best way to do that is at the edge and from the cloud.  Which Meraki can do.  If Cisco adds Meraki telemetry to other devices in its product line, it could be taking a major step toward SDN either by following the standards like OpenFlow (over the telemetry tunnel) or by ignoring them and implementing a better and richer form of software control.

You could also start sticking UCS servers in the Meraki data centers, expanding the capacity, adding management features from Cloupia, and the next thing you know you have a real cloud service infrastructure.  Cisco could resell management services to operators, field its own services, host IaaS through SaaS clouds, you name it.  All this, and NFV and SDN too.

I think Cisco realizes that differentiation at the device level can come only by coupling the devices to a strong higher-layer story.  Right now, market needs for cloud computing, service-layer intelligence, and lower-cost networking overall are compelling enough that operators will overlook lack of standards.  In any case, if the past is an indication of the future, we’re looking at three or more years of development to get a useful standard in SDN, NFV, and the service layer out there.  Nobody will wait that long.

But…as I said with the Cloupia deal, there’s always the chance that Cisco’s motives were less lofty than the potential would suggest.  I do have to say that chance is growing smaller with each acquisition that seems to play more directly to the cloud scene.

So what do competitors do?  I think we can presume there will be more cloud-driven M&A involving boutique startups and major firms.  That’s because while most of the Cisco competitors have some software position, none of them has any compelling cloud position.  Alcatel-Lucent is the closest to having the internal collateral it needs, as I’ve noted before.  HP has a good cloud story but it’s not as strong tying it to their network products, and the company’s recent faux pas in the Autonomy buy may make it gun-shy in gathering further software assets.  Ericsson and NSN have software elements but nothing I’d call a cohesive software STRATEGY.  Juniper has promoted its Junos-universality position and had at one time an aggressive higher-layer position with Space, but it’s recently backed away from that in favor of simple operations missions.  For the latter three players, I think it’s M&A or the highway, so to speak.


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