Why Cisco needs SD-WAN vendor Viptela

Cisco, the acquisition machine, is at it again. It’s been about three months since the company plunked down $3.7 billion for AppDynamics, so I’m sure all that cash was burning a hole in Chuck Robbins pockets and making another acquisition seem long overdue. 

Well, speculation about who Cisco might buy next ended yesterday when the company announced its intent to acquire SD-WAN vendor Viptela for $610 million. The price tag seems fairly modest for a company that was valued at $875 million about a year ago. Even at the lower price, Viptela investors should be satisfied with the return, given the total investment in the company was about $110 million. 

+ Also on Network World: Cisco grabs up SD-WAN player Viptela for $610M +

At first glance, one might look at this acquisition and wonder why Cisco needs Viptela when it already has two existing SD-WAN solutions—Intelligent WAN (iWAN) and Meraki SD-WAN. The answer is it gives Cisco and its customers options. 

SD-WANs are a major transformation from a legacy WAN, and there are multiple ways of deploying the technology. Cisco’s iWAN is ideal for organizations that want to leverage the popular Cisco ISR 4000 router series in the branch office. And Meraki is ideally suited for customers that have installed Meraki security devices. Similar to other Meraki technology, the solution is managed from the cloud. 

How Viptela’s SD-WAN differs from Cisco’s SD-WANs

Viptela is different in that it’s a pure open, software-based solution that is flexible and easy to deploy. Customers can deploy it as an on-premises workload or in the cloud. To date, most of Viptela’s customers have chosen to deploy the solution as an Amazon Web Services workload and then use the Viptela console to manage the solution. Another interesting option is that the Viptela solution could be deployed and run on the Cisco ISR, giving customers a simpler, cloud-managed SD-WAN solution that leverages existing hardware. 

I don’t believe this is a case were Cisco felt it was behind and needed a solution to replace something it already has. The company has been committed to having solutions that are easier to deploy and easier to manage, and Viptela certainly fits that bill. However, Cisco’s install base of ISR routers and Meraki is obviously significant, so the existing solutions will still have broad appeal moving forward. Given Cisco’s sizable install base, choice and options will be key to the company getting to the dominant market share it has in other areas of networking. 

The acquisition does create a bit of a management challenge for customers that want to run a combination of Cisco technology. For example, a business that wants to run Meraki SD-WAN and Viptela would need to use two separate management consoles. Over time, Cisco should be bringing all of their management tools together and offering customers a single platform that can be used with any flavor of SD-WAN.

The acquisition of Viptela also fits Cisco’s push to recurring revenue. Viptela’s cloud-first, software-based pricing aligns with the transformation of Cisco’s business. In its last earnings call, Cisco reported that deferred revenue has grown 51 percent—driven largely by collaboration, security and networking through Cisco ONE—and Viptela will certainly be accretive to that.

Former Cisco employees return

The purchase will bring a number of ex-Cisco employees back to the mothership. Former Cisco engineers Amir Khan and Khalid Raza founded Viptela. Also, the company recently named Praveen Akkiraju as its CEO. Prior to taking the helm of Viptela, Akkiraju ran VCE. And before that, he led several networking business units at Cisco. I’ve known him for many years, and he is one of the smartest executives in networking, so Cisco gets some solid leadership and talent as part of the deal. 

One other interesting aspect of this deal is the implications to VeloCloud. Last year, Cisco was one of the lead investors in a $27 million round of funding for VeloCloud. The acquisition of Viptela in no way indicates that Cisco no longer believes in its investment. The VeloCloud funding was made by the group at Cisco that looks for strategic investments, whereas the acquisition of Viptela was executed by the security and networking team run by David Goeckeler. 

Viptela is a mature, open, software-based SD-WAN solution that gives Cisco and excellent alternative to its existing iWAN and Meraki based offerings. However, it’s the integration of Viptela into Cisco’s existing solutions that should provide the 1+1 = 3 effect for Cisco and its customers.