Cisco Spends $1.2 billion in Meraki Takeover

20 Nov 2012

In November 2012, Cisco Systems bought Meraki, a cloud controlled WiFi, security and routing enterprise at a cost of $1.2 billion. Though the purchase has been criticized by some industry experts for being pricey, many others deem is necessary if Cisco intends to take a lead in wireless networking within the small-to-midsize company market. The takeover also boosts Cisco's strength against the field's new contender - Aruba Networks.

Meraki is a privately held company that employs around 330 members of staff, and has acquired midmarket clients that were previously inaccessible to Cisco. A sampling of Meraki's clients includes Starbucks, Applebee's, several school districts and clients within local government.

Meraki provides mobile device management, security, switching and Wi-Fi from a centralized cloud platform. Midmarket customers are attracted to Meraki because the company allows them to build out their networks without having to employ more staff.

According to Rob Soderbery, senior vice president of Cisco's enterprise networking group, Meraki will be Cisco's primary networking liaison for midmarket clients.

"The purchase moves us further towards the software and cloud-based business model. The midmarket is growing faster than large enterprises and Cisco has a relatively low share. Additionally the margin and growth economics of the Meraki business and the mix of product and services fit well into the Cisco financial model. While Meraki started as a pure play wireless portfolio, we became convinced that the Meraki solution was a compelling offer," said Soderbery.

He added that the company intends to place the Meraki cloud platforms foremost for providing networking solutions to midmarket customers.

Cisco executives have justified the high expenditure on Meraki by saying it was a strategic move intended to merge Cisco's market leading networking solutions with Meraki's networking capabilities and strength in the midmarket.

The midmarket is important to Cisco because it's a faster growth business than large enterprise.

"Cisco needs the midmarket. Large enterprise is simply a slower growth business. A company like Meraki could start low and move upstream. While WLAN gear continues to be Meraki's main product line, the company has branched into the security appliance and the switching market. It was only a matter of time before Meraki snuck up on Cisco. Cisco lacked a controllerless product and consequently was not able to easily address the small- and mid-sized segment, which is one of the fastest growing markets in the WLAN segment," said Stifel Nicolaus analyst Sanjiv Wadhwani. (CU) Link