The SD-WAN market is being hotly contested by a gang of fast-moving startups such as VeloCloud, Viptela, and CloudGenix, as well as incumbent vendors including Riverbed, SilverPeak—and Cisco. Cisco has its own SD-WAN product suite called IWAN.
So if Cisco already has its own product, why invest in a startup with a competing platform?
“Cisco does seem to be hedging its bets,” said Brad Casemore, Research Director, Datacenter Networks, at IDC, via email. “Even though it continues to fortify IWAN as an SD-WAN offering, Cisco has been monitoring the SD-WAN startups closely.”
“While Cisco’s IWAN might compete effectively against other SD-WAN offerings, and mitigate or eliminate the need for an acquisition, Cisco is probably inclined to put its strategic eggs into at least a couple baskets,” he said.
In my view, if Cisco’s own IWAN solution can’t compete, it can leverage this investment into a full-blown acquisition.
VeloCloud declined to say how much of the $27 million came from Cisco Investments, but it did confirm that Cisco will have a minority stake in the company. However, it wouldn’t say whether Cisco’s minority stake gives it right of first refusal or any other influence over a third-party acquisition bid.
Place Your Bets
There are good reasons for Cisco to hedge when it comes to SD-WAN. For one, there’s significant growth potential: Gartner estimates that within the next three years, 30 percent of enterprises will have SD-WAN deployments, up from just 1 percent in 2015.
For another, SD-WAN could eat away at Cisco’s branch router business. While many SD-WAN vendors can work with branch routers that customers already have in place, they’ll also happily sell you hardware or software that lets you ditch those routers entirely.
This Series C round brings VeloCloud’s total investment to $49 million. The startup says it has more than 100 customers in production.
If you want more on VeloCloud, you can listen to a Packet Pushers podcast that VeloCloud sponsored. And there are a lot of details on Cisco IWAN in these videos from a 2015 Network Field Day presentation.