5 reasons why Cisco bought Meraki for $ 1.2 billion

Original author: Larry Dignan
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Meraki’s purchase of Cisco Systems for $ 1.2 billion by Meraki was an expensive but necessary measure if the company was planning to enter the market for small and medium-sized businesses. Meanwhile, this purchase gives Cisco tools to deal with an increasingly strong competitor - Aruba Networks.

Aruba Networks is a private company with approximately 330 employees and its main customers are medium-sized businesses, including companies such as Applebee's and Starbucks, as well as several school districts and federal and regional government organizations.

In essence, Meraki’s technology is capable of providing Wi-Fi, switching, security, and mobile device management through a centralized cloud platform. Meraki attracts medium-sized enterprises in that, with its help, such enterprises do not have to expand the staff of the IT department to build their own networks.

If the solutions offered by Meraki sound familiar, it is because Aruba Networks already offers something similar.
During a conference call with analysts, Rob Soderbery, vice president of the Cisco group of companies, said that Meraki will form the basis of the "cloud" division of the company. Meraki products will also act as the main platform to meet the needs of medium-sized client companies. Soderberry said:

“This purchase brings us closer to a business model based on software and cloud technology. Midsize companies are growing faster than large corporations, and Cisco has a relatively small share in this market. In addition, Meraki's profit and economic growth, as well as its range of products and services, fit perfectly with Cisco's business model. While Meraki began its activity as a company with a rather narrow specialization, we were convinced that the solutions that she proposed were an offer that cannot be abandoned. We are inclined to position Meraki as the main cloud platform for solving the problems of medium-sized enterprises. ”

“This is not just a takeover to take possession of the product or human resources, we see Meraki as the new platform for creating Cisco cloud interfaces,” Soderberry emphasized.

Cisco executives said Meraki’s purchase price was satisfactory because the deal was strategic. The image shows Cisco plans for implementing Meraki solutions:

So, does the purchase really make sense? In general, analysts affirmatively answer this question. The following are five reasons why buying a Meraki makes sense.

Cisco needs to enter the midsize market.
Large enterprises simply develop more slowly. And companies like Meraki are able to take a low start and grow rapidly. “As long as WLAN devices continue to be the main Meraki product line, the company has entered the market for switches and security devices,” commented Stifel Nicolaus analyst Sanjiv Wadhwani. It was only a matter of time before Meraki encroached on Cisco.

Wadwani added:

“Cisco lacked uncontrolled products, and therefore, the company was not able to simply organize address space for the SME segment, which is one of the fastest growing markets in the WLAN segment.”

Meraki gives Cisco a cloud development strategy.
The idea behind Meraki solutions is that customers do not need professional IT specialists to solve problems. Such problems are solved with the help of cloud interfaces, and this fact is especially useful for companies with many branches, offices, an extensive sales network and large campuses. William Blair analyst Jason Ader said:

“We believe that cloud-based software from Meraki is a jewel in this transaction from Cisco’s point of view and can be used to create many cloud-based products already within the Cisco group of companies in the future. "

Cisco needs to protect gross margin.
Wedbush analyst Rohit Chopra said:

“Compared to Cisco, Meraki has shown the third most cost comparable system. In our opinion, Cisco simply could not afford to reduce the price so much in a rapidly growing segment of the market without prejudice to gross profit. It seems that Cisco is trying to reduce its costs and make the company more competitive in the SMB segment, simultaneously creating a platform from which a cloud service can be created. "

The Meraki platform is wider.
The solutions of this company are easy to use: from wireless technologies to managing mobile devices.

Cisco is able to defeat Aruba Networks in the battle for the market.
Meraki’s Cisco acquisition aims to conquer the local wireless network market. Aruba is fighting with Cisco for the enterprise market, although it is focused on the market for small and medium-sized companies with its Aruba Instant product line. With Meraki in its investment portfolio, Cisco can fight Aruba on two fronts at once.

Can you complete this five?

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