Yesterday Cisco announced that it was paying USD1.4 billion to acquire Jasper Technologies.
The fact that Jasper would be looking for some form of exit has been the worst kept secret in Silicon Valley (i.e. not a secret at all). The favoured option had always seemed like being IPO, so an exit through an acquisition indicates that Jasper’s growth prospects as a standalone player are more uncertain than was expected, say, in 2014, when its Series F famously valued the company at USD1 billion. On the strategical level this acquisition makes a lot of sense and certainly strengthens Cisco’s IoT hand.
Machina Research has noted in the past that the addition of Jasper’s Control Center connectivity management capability would fill a gap in the Cisco portfolio. Cisco has always had a strong message for enterprises, various vertical sectors, network infrastructure and hardware. However, it lacked the cellular connectivity capabilities to have a truly compelling IoT message for Service Providers. This acquisition bolsters that offering substantially, and is a vote of confidence for the SP business at Cisco. We have always assumed that the price tag in excess of USD1 billion would put off any would-be suitor. It seems that Cisco has been sufficiently convinced of the opportunities in the sector to accept that level of spending. On an analyst call that was held immediately after the announcement, Cisco highlighted that it considers Jasper a key part in a vision it has for multi-technology connectivity – that is, enterprises connecting their assets with a heterogeneous set of network technologies. Cisco wants to bring all relevant pieces under one solution roof, and in this vision Jasper represents the cellular piece. Machina Research has long been of the view that platforms need to be multi-technology, rather than just cellular. This technology agnosticism formed one of our Predictions for IoT in 2016.
Cisco is paying somewhere around 7-8 times revenue for Jasper. In the context of recent acquisitions that seems pretty low, compared to the 20x PTC paid for ThingWorx (see article “Are sky-high valuations in M2M/IoT good news for the industry?”, May 2015, for more discussion on M&A in IoT). However, Jasper is a relatively mature company. It has taken a dominant position in its core market and has sold to most of the potential customers of its core product. As such it had a few strategic options.
The first option was to keep running as a successful, profitable, niche company focused on a particular bit of IoT software and spend its whole time defending a dominant position in a rapidly changing market with some aggressive competitors. This would certainly have been compatible with an IPO strategy. The second was to start moving into the enterprise space, moving away from its core business and effectively re-entering the MVNO role it left a decade ago. That would mean competing with the Communications Service Provider customers who are its bread and butter. It is worth mentioning that Jasper’s brand is strong and the company has had a steady stream of corporate customers approaching them asking for solutions, which it has, until now, pushed in the direction of its channel partners. Neither of those two options were particularly palatable and had significant risks.
The third option was to ‘find a home’. Machina Research has always been of the belief that software platform companies such as Jasper needed to find a home. Existing as a stand-alone product will work for a limited period of time but ultimately the long-term competitive differentiators for software are nil. Someone else can always replicate. However, would-be acquirers will see proven software platforms as a way to short-cut the development cycle and bake immediate additional capability into a wider offering. PTC did this with ThingWorx and ColdLight, Amazon with 2lemetry, Telit with ILS, the list goes on. There the value is realised by using the software capability as a feature to help sell a wider offering. The most pertinent question is: what does this mean for Cisco’s new alliance with Ericsson. Jasper’s Control Center and Ericsson’s DCP fulfil almost identical purposes, and represent the two leading propositions of their type in the market. If the nascent alliance is to thrive in this area Cisco and Ericsson will need to find different focuses for the two products.
On balance we think it’s an excellent deal for Jasper, for whom other options presented challenges, and it’s a good deal for Cisco which wanted to strengthen its SP offering. However the deal does sit strangely with the collaboration with Ericsson over DCP. We will watch with interest how the two organisations square this obvious overlap in offerings. We also see this acquisition as a marker of the maturing of this particular element of the IoT market.