Cisco, Acano and the Trouble With Declaring the Future Settled

A new edition of the Simon Dudley archive, pairing an original article with a present-day follow-up.

Then: Cisco buys Acano for $700m

Originally published on LinkedIn on 2015-11-20. The historical text below is preserved as written, including its contemporary claims and author information.

Very interesting news this morning that

Cisco is purchasing Acano for $700m.

Few things to think about on this one.

Reports of the death of Hardware are greatly exaggerated

A number of people have been stating that hardware is dead and the future of Video Conferencing is all Cloud based at an infrastructure level. This deal seems to prove there is still life in hardware. Of course Acano produces devices brilliantly suited for a world of SaaS. After all the talk about Cloud, the actual compute has to be done somewhere. Acano are obviously right at the front of that.

Cisco has money, lots and lots of money

Cisco are a huge and highly successful company, and the typically buy new technology rather than build it themselves. It’s hard to argue with that model and it certainly works well for them. The Codian platform is now very long in the tooth so Acano was an obvious choice.

Cisco can’t bring money back to the USA, so spends it abroad

Cisco has a huge war chest of cash off shore and can’t bring it back to the US without paying cash. So it make slots of sense for them to buy a UK based company.

There’s more to life than SaaS

Dr Blake and his team have proven that there is more to life than a single minded rush to SaaS. One does have to wonder if the CEO’s who destroyed their own infrastructure business still think it a wise decision, or will have any difficult questions asked by their investors about their strategy.

Anyone who’s read my stuff recently knows I’ve been a SaaS fan, and certainly a low cost device in the meeting room advocate, but this deal shows there’s still money in Hardware at an infrastructure level.

What’s next?

Cisco acquisitions are often the catalysts for consolidation in the market. I don’t believe it’s any coincidence that the Cisco Tandberg deal, the Lifesize Logitech one and the Avaya Radvision deal all happened in short order. It will be interesting to see who gets “merged” next.

What about the resellers?

Many Cisco resellers have been selling the Acano product line for a while. Resellers show the most value to clients when putting disparate systems together and the Acano technology worked very well for many clients. Cisco will now not only own the solution, but will also regain the most important thing for them, Cisco account control. It will also lower the margins for resellers significantly. I suspect there are some glum faces in the major Video Conferencing resellers this morning.

What about Pexip?

All this is probably a mixed blessing for Pexip. It gives them a sense of a valuation, and it shows the space matters. Equally the ABC (Anything But Cisco) crowd now have one supplier not two. But on a negative side the number of potential suitors is low and the sales machine Acano technology are about to unleash formidable.

Polycom?

Polycom have been lagging in the infrastructure game for a while. They have no Cloud offering (how is that even possible in 2015!?!?), and their Hardware infrastructure is uncompetitive. It seems obvious to me they must buy Pexip. It would be a strange negotiation. Both need each other, and no one else needs either of them. Just how does one price that?

Cloud providers?

It's possible that a few of the Cloud infrastructure providers would have liked the idea of getting under the Cisco wing. I think it's safe to say those hopes, if they ever existed, are well and truly dead.

Congratulations

$700m is a great deal of money even to Cisco, and makes this one of the biggest deals ever in the Video Conferencing industry. For a company a little over 4 years old to produce a valuation like this is remarkable and I warmly congratulate them.

Conclusions

There is an old Chinese curse that states “May you live in interesting times”

The Video Conferencing industry has just hit some exceedingly interesting times.

View the original LinkedIn article

Now: the follow-up

In November 2015, Cisco announced its intention to buy Acano in a deal it described as $700 million in cash and assumed equity awards, with additional retention incentives. I wrote about it on the day. The video conferencing industry was busy arguing about the future, which was helpful, because arguing about the future was considerably easier than getting everyone into the same meeting. [1]

The fashionable argument was that everything would move to the cloud. Infrastructure would become somebody else’s problem. Hardware was yesterday’s story.

My reaction was that Acano complicated that rather tidy picture.

Looking back, I still think that was the useful observation. Some of the other things I wrote deserve a little less confidence.

What the acquisition actually established

Cisco completed the acquisition on January 29, 2016. In August that year, its announcement of Cisco Meeting Server explicitly connected the product’s scalability and interoperability to technology acquired with Acano. It also described integration with the wider Cisco collaboration portfolio. [2][3]

That is a reasonably concrete outcome. A technology Cisco bought became part of the platform it sold.

It also exposes a weakness in my original framing. I leaned heavily on the idea that the deal demonstrated there was still money in hardware. Acano’s value was broader: software, interoperability and the ability to connect different collaboration environments mattered too. [1][3]

The distinction matters. If you diagnose a software and interoperability acquisition primarily as a vote for hardware, you risk learning the wrong lesson from a real event.

The buyer’s problem survives the industry slogan

A supplier can announce a new architecture in the morning. The customer still has the equipment, contracts, users and operational responsibilities it had the night before.

That gap creates a practical question: how does the organisation get from its current environment to the one it wants?

Interoperability has value because customers often need a transition, rather than a religious conversion. As a commercial interpretation, that is what makes this acquisition interesting to revisit. Cisco’s contemporary explanation placed considerable emphasis on bringing different systems and users together. [1]

For a buyer, the useful questions concern what can connect, what can be retained, how the service operates and who takes responsibility when it fails.

“The future is cloud” does not answer those questions. Neither does “on premises is safer.” Both statements require a customer, a requirement and some evidence before they become useful advice.

My forecasts were still forecasts

The original article also speculated about reseller margins, Cisco’s control of customer accounts and what Pexip and Polycom ought to do next.

Those passages belong in the historical record as my expectations in November 2015. The acquisition announcement did not establish those outcomes, and the evidence cited here does not measure them. I would need subsequent financial, channel and company evidence before claiming a successful prediction.

That is the discipline this archive should impose on me. Preserve what I wrote, then compare it with what can actually be demonstrated.

There is very little educational value in discovering that, after several careful edits, I was right all along.

A better way to assess the next acquisition

For the next collaboration deal, I would start with four questions.

1. Which customer problem becomes easier to solve?
2. Which capability is being acquired: technology, distribution, talent, customer access, or a combination?
3. How will that capability fit the buyer’s existing platform and commercial model?
4. Which predicted benefits can we check later?

The fourth question is particularly inconvenient. It prevents a confident announcement from quietly becoming an unquestioned success story.

Acano provides a useful example because there is a visible line from the acquisition to Cisco Meeting Server. It gives us something concrete to examine alongside the broader industry narrative. [3]

That is the point of B4Obvious: return to the choices people faced before the outcome, preserve their uncertainty, and examine what those choices taught us.

What do you remember about the Acano acquisition? Which practical problem mattered most to you at the time?

Sources

• Original: Cisco buys Acano for $700m, November 20, 2015.
• [1] Cisco announces intent to acquire Acano, November 20, 2015. The $700m figure refers to the announced terms, not a reconstruction of acquisition accounting.
• [2] Acano joins Cisco: it’s official, January 29, 2016.
• [3] Meetings for everyone with Cisco Meeting Server, August 24, 2016.