Cisco, Meraki Partners Anxious Over Acquisition's Impact2:10 PM EST Tue. Nov. 20, 2012
Cisco and Meraki partners interviewed by CRN this week said it's way too early to call Cisco's eye-popping $1.2 billion acquisition of Meraki a win for the channel, let alone for Cisco.
The move may give Cisco a new weapon in the fight for midmarket customers craving cloud-managed networking, but there's ample concern Cisco will botch the channel execution if it isn't clear on integration and partnering plans, they said.
"Cisco wants to be in the cloud business, but do they want to enable their partners to make money on that, too -- that's a question," said Jamie Aiello, director of operations and business development for Annese & Associates, a Herkimer, N.Y.-based solution provider. "We're very anxious to see what's going to happen here because Meraki is a competitive solution. Is it in direct competition to what we're doing with Cisco already?"
"We love Meraki: the products, direction, innovation, all of that," said Jim Watt, president and CEO of Dynamic Solutions Group, a Palm Harbor, Fla.-based solution provider and Meraki partner. "If they let it operate kind of like the way Linksys operates, it will be good. But if Meraki's innovation gets stifled or their selling motion gets lost in the complexities of Cisco, all bets are off."
Rob Soderbery, senior vice president and general manager of Cisco's Enterprise Networking Group, told CRN on Sunday and reiterated during an analyst call on Monday that the acquisition helps Cisco go after a $5 billion total addressable market (TAM) for midmarket customers craving these types of networking solutions. Meraki's cloud-managed networking solution -- a single-pane-of-glass management platform for wireless access points, Ethernet switches and security appliances -- also gives Cisco another inroad to cloud services, pegged by Gartner as a $177 billion global market by 2015.
Cisco's plan for the time being is to leave Meraki alone and let it operate with its current management structure, re-branded as Cisco's Cloud Networking Group and reporting into Sujai Hajela, vice president and general manager of Cisco's Wireless Networking Business unit. In an FAQ posted to Meraki's main site Monday, Meraki representatives said that current customer license and support agreements won't change, and Meraki customers won't have to do things like buy Cisco SMARTnet or be charged for updates and systems management tools that were already free.
"The great news is that Cisco loved Meraki the way it was, and we're all committed to preserving what made Meraki special and to delivering more of the products and services our customers love," wrote Meraki in the FAQ. "The Meraki team will continue to build and support our products, with a continued emphasis on customer experience and innovation."
Soderbery said that Cisco won't be taking bits and pieces of the Meraki platform for use with Cisco products, but Cisco will look to leverage some of Meraki's capabilities -- including its cloud-based management platform -- across its broader portfolio. The Meraki FAQ added that "after the acquisition closes, we will look into longer-term opportunities to broaden Meraki's cloud management technology."
Soon after the transaction was announced, however, several Meraki partners gave thumbs-down to the deal.
"As far as I'm concerned, this is very unfortunate," said the owner of a regional solution provider and Meraki partner, who asked that his name not be used. "Meraki is a best-in-class and low-cost option for a lot of the K-12 school districts and local businesses we've had for many years. They're just a better fit. We were a Cisco partner a long time ago and got out of our Cisco relationship for all the reasons Meraki is a good fit. I'm going to have to take a long look now at whether to preserve the good run we've had [with Meraki]."
NEXT: Cisco, Meraki Partners See Much Uncertainty
Annese & Associates is unique among Cisco wireless partners because it had already designed a multitenant wireless solution in concert with Cisco's wireless business unit.
"We saw that they had multitenancy for the wireless controllers on the road map, but we did that using some routing and other things before it was inherent in the operating system," Annese's Aiello explained. "One of the reasons we did that, quite frankly, was because we felt some pressure in the markets like K-12 from Meraki. We had customers coming to us and saying, 'Hey, Meraki is coming to me, and the cost per AP is about $30 and they have this cloud management, and I can't justify spending more on Cisco and SMARTnet and the licensing.'"
Aiello said Annese is concerned Cisco will now be competing with the service his company offers. He's also curious to know whether Cisco will sell Meraki similar to the way it markets other cloud-based platforms, like WebEx and Hosted Collaboration Solution (HCS).
"Would they create another cloud infrastructure type of partner level specific to wireless?" Aiello asked. "We need to hear pretty quickly how this is going to make sense for Cisco partners. When they acquired WebEx, it was a long time -- 18 months, I think -- before it got on the Global Price List and you knew who to deal with inside Cisco. So this is going to take some time."
Andrew Yacynowych, CEO of Genesis Solutions Group, a Toronto-based solution provider and Meraki integrator, said the ball is in Cisco's court to protect the Meraki partner base. A lot of Meraki partners will leave Cisco behind pretty quickly if there's any inclination that won't happen, he said.
"It'll make things easier from an exposure and market viability perspective," he said. "We don't have to explain the Meraki story; we can use the Cisco brand. But we are concerned that once that Cisco machine takes possession over Meraki, how will the distribution change and will there be co-marketing? I have no objection to the deal, but if it's going to be difficult to do business, we will have to find someone else."
Gary Berzack, COO and CTO of eTribeca, a New York-based solution provider, said Meraki offers Cisco some interesting new technology options.
"Meraki can work in the carrier market, for example," he said. "The only other player of significance there for the channel, if you take away other folks like Bel-Air, is Ruckus, and Ruckus has been building that division. So there's an opportunity to embed the Meraki technology into Cisco."
Berzack agreed, however, that Cisco has to quickly sort out which partners it wants attacking what markets with which SMB and midmarket networking options.
"Cisco has been struggling with the sub-$600 access point market for a while, and they've come out with so many different solutions that are not homogenous," Berzack said. "Is a Cisco/Meraki a serious player by 2014 in this market for cloud networking, which is definitely there? Yes. But boy, a bunch of people will be making hay until then. So is Cisco going to allow their partners to make a proper cloud play? They've got a real challenge about what to do with customers who say you want me to spend $100,000 on this wireless installation or $35,000 on that one. I don't want to have that conversation. It's unfair to us."
"The Meraki culture is so much different than Cisco's -- a very different energy," said Dynamic Solutions Group's Watt. "We've been able to get the access we need at Meraki, and as for customers, if they let us tell the story and hear about who Meraki's investors are, we have no problem selling it. When you sell other vendors, it's a hodgepodge of stuff. Meraki you can sell to a Girl Scout camp, or an apartment building, or a corporate office or a store chain, and say, you can manage it from a single pane of glass from anywhere. Those systems have been out there; they're just expensive, so what Meraki's done to bring that to the SMB market is so great."
As for the decision to sell to Cisco, Meraki got a great price, VARs agreed, and will also avoid the shaky IPO climate -- one that made for a disappointing debut for hotshot wireless company Ruckus last week.
"It was a brilliant move for them," said Genesis' Yacynowych. "I imagine they made them an offer they couldn't refuse. No one faults them on that."
NEXT: Cisco Analysts Weigh In On the Deal
Analyst assessment of Cisco's deal was decidedly mixed, though most agreed Cisco paid too much for the company. Some viewed Cisco's move as reactionary, particularly with companies like VMware -- which both partners and competes with Cisco -- snapping up cloud-centric companies like Nicira.
"We believe this deal is expensive and may have been influenced by Cisco missing out on acquiring Nicira for $1.26B," Ehud Gelblum, managing director at Morgan Stanley, wrote in a Tuesday research note. That move, said Gelblum, "put pressure on the company to acquire a cloud play in a bid to add future revenues."
"We also fear Cisco may be buying Meraki near the peak of the K-12 Wi-Fi market excitement," Gelblum wrote.
"We view Meraki as a high-quality participator in the some of the fastest-growing parts of the networking market, including WLAN, security and mobile device management," wrote Jayson Noland, senior analyst for IT systems and networking with Robert W. Baird & Co, in a research note. "However, we are somewhat perplexed by Cisco's proactive effort to acquire expensive assets with overlap to its current portfolio."
Others felt the move is consistent with Cisco's recent acquisition spree.
"The deal is consistent with Cisco's strategy to bolster its software and services offerings to drive greater recurring revenues at higher margins," wrote Amitabh Passi, an analyst at UBS, in a research note. "We believe Cisco approached Meraki a few weeks ago with the offer looking to bolster its cloud networking portfolio, while Meraki will benefit from Cisco's global reach."
John Slack, analyst at Caris & Co., described the deal as a "smart acquisition" and "the latest in a string of deals that bulk-up Cisco's cloud, virtualization and mobility product offerings."
Zacks Equity Research wrote in a note that the acquisition expands Cisco's lineup of midmarket-focused products and also strengthens Cisco's unified access platform, which is a series of products, services and frameworks Cisco's been hyping to simplify how devices and infrastructure are managed.
Sanjiv Wadhwani, an analyst with Stifel Nicolaus, said Cisco needed this piece of the midmarket opportunity to solidify its offering.
"Cisco lacked a controllerless product and consequently was not able to easily address the small and midsized-segment," Wadhwani said. "[That's] one of the fastest growing markets in the WLAN segment."
PUBLISHED NOV. 20, 2012