Cisco has been rather acquisitive in recent years buying 19 companies since 2015, and today it announced it was acquiring cloud-based SD-WAN vendor Viptela for $610 million in cash.
Viptela was founded in 2012 and had raised over $108 million, including its most recent $75 million round just last May. The $610 million price tag appears to be a nice return for investors.
The company is a venture-backed startup, based in San Jose, California, which makes an SD-WAN solution, which means a software-defined wide area network. That refers to a software-based network that enables companies to connect the networks of geographically dispersed offices.
Viptela is supposed to simplify all of this, making it easier to deploy and manage a process that has been traditionally fraught with complexity. “Viptela’s technology is cloud-first, with a focus on simplicity and ease of deployment while simultaneously providing a rich set of capabilities and scale. These principles are what today’s customers demand,” Scott Harrell, senior vice president of product management for the Cisco Enterprise Networking Group said in a statement.
It certainly is a company that makes sense for Cisco, which has been buying cloud companies like nobody’s business for the last several years. You may recall earlier this year it purchased AppDynamics, which actually isn’t a pure cloud company for the tidy price of $3.7 billion. Last year, the company bought Jasper Technologies, a cloud-based Internet of Things platform for $1.4 billion.
This company fits more neatly with the traditional networking business, giving it a modern software-defined solution in the cloud, which is where this market is going. In recent years, Cisco has fallen firmly on the buy side in the ‘build versus buy’ equation, and why not. It has over $70 billion in cash on hand, making the $610 million purchase price pocket change.
It also fits with the service-oriented focus of its recent purchases, enabling the company to switch from a pure network hardware business, which has been its bread and butter to a services revenue based on the subscription model to the extent possible.
While Cisco offers both an on-prem and cloud SD-WAN product, Rob Salvagno, Cisco’s VP of corporate business development wrote in a blog post, that this purchase gives them a more modern alternative to what they are offering in-house while also offering the lure of subscription revenue. “Together, Cisco and Viptela will be able to deliver next generation SD-WAN solutions to best serve all size and scale of customer needs, while accelerating Cisco’s transition to a recurring, software-based business model,” Salvagno
That transition is underway as subscriptions represented almost a quarter of the company’s $11.6 billion in quarterly revenue in its most recent report in February. “We also drove 51% growth in our product deferred revenue related to our recurring software and subscriptions which now stands at $4 billion,” CEO Chuck Robbins said during the earnings call.
The purchase of Viptela is consistent with the desire to keep that momentum going by purchasing additional services it can use to offset the shrinking hardware business over time, while continuing the transition to a cloud-based subscription business.
When the deal closes, which is expected some time in the second half of the year, the Viptela team will join Cisco’s Enterprise Routing team within the Networking and Security Business.