The real reason that Viptela was sold to Cisco, below market price, is that they were burning cash too quickly and their management team and investors got nervous and cashed out early while there was still a significant upside. Cisco was able to grab a new competitor and take them off the map at a bargain price.
Viptela was one of the top two SD-WAN companies, with VeloCloud being the other large player, in a very competitive and high growth market. Viptela will be “hamstrung” by being acquired by Cisco in the following ways:
- High Pricing – Cisco’s requires high margins on all its products. Those business units that cannot meet the high margin requirement fade away, such as Linksys. Cisco is run by their sales teams to make quota, and the margins on I-WAN are a lot better. It will take a long time to train the Cisco sales team on how to sell Viptela, and the motivation to do so will be low.
- Slower Innovation – The SD-WAN market is evolving quickly, and the pure software players can add new features in weeks. Viptela has a hardware platform and anchor. Plus, over half of the talent in Viptela will leave in the next 18 months. Cisco buys innovation and the ex-Cisco employees who help found Viptela made more than if they would have stayed. They know this.
- Dis-Aggregated Security – Merging security and routing together is part of what is driving the SD-WAN market. Cisco will continue to have a bunch of different security products and will not be able to combine routing and security into the same software stack. In a world where users and applications are on different networks, routing and security must work together, not be diametrically opposed.
- Tactical – Viptela is just another overlay, tunnel approach to wide area networks. This approach adds a 25% CPU and bandwidth tax, does not scale well, and is a tactical approach to improve network routing and security. Architecturally, Viptela is the same as Cisco I-WAN, they just mask the underlying complexity, with a better management orchestration layer.
Viptela’s customer base is traditional enterprises looking to incorporate Internet connections into their WAN strategy in a simple, cost effective, and secure way. While Viptela succeeded in delivering the basics in this market, they are a point solution. What good is your SD-WAN if it is not integrated with the data center and cloud networks. Viptela uses a proprietary overlay and they only work when they are on both sides of the network connections and there is not a firewall boundary in the middle.
Meraki causes lots of internal conflict within Cisco and there is not room for a 3rd. In the SD-WAN market, Cisco leads with Meraki in the SMB market where the technical requirements are light, and the desire for a simple, cloud based solution, at a lower price point makes sense. I-WAN is for the large enterprise and squeezing in Viptela between the two will be difficult.
So, I congratulate the Viptela team on their success to date and Cisco on acquiring yet another potential long term competitor, early. But like many marriages, I do not give this one high odds.