​Cisco pays 20 times the going rate, but will $US1.4 billion Internet of Things acquisition pay off?

Chuck Robbins - CEO, Cisco

Cisco has moved to snap up privately-held Jasper Technologies with a proposed acquisition of $US1.4 billion, believed to be as much as 20 times the company’s annual revenue in 2015.

Describing the move as “a huge step forward” for Cisco, Rowan Trollope, senior VP IoT, claims the company can now offer a “more complete solution”.

In addition, Trollope believes the combination will reduce complexity for enterprises and allow them to migrate with confidence from product to service-based business models.

Jasper’s Control Center SaaS platform enables enterprises and communications service providers (CSPs) to provision cellular connectivity and manage IoT devices and services.

The company has built up market dominance over the last 10 years since starting out as MVNO in the earliest days of machine-to-machine (M2M).

Having grown in parallel with the burgeoning market, the company productised its platform and developed the scalability that has made it a market leader.

Today it boasts over 3,500 enterprise customers and connectivity partnerships with 27 operator groups, including AT&T, NTT, and Telefonica (which formerly part-owned Jasper), among others.

“Expecting to ride the coming wave of IoT growth, Jasper made no secret of its intension to launch an IPO last year,” observes Sheridan Nye, Digital Transformation Principal Analyst, Frost & Sullivan.

“In the end that never came - the value of a pure connectivity play was likely to have been less attractive to investors than other hot growth areas such as data analytics and machine learning.

“A sale to a vendor with end-to-end ambitions in IoT was therefore sure to deliver a higher return.”

Cisco claims it will fund the deal in cash and equity awards, with the addition of retention-based incentives and though Jasper's revenues were not disclosed, they are believed to be in the range of $70-$75 million in 2015.

“The price premium reflects the importance to Cisco of completing its IoT stack,” Nye adds.

“Its existing portfolio spans fixed and wireless protocol edge gateways, data management and analytics, but it lacked the mobile wireless connectivity piece.

“With the projected growth of IoT devices on the move - such as cars and wearables - Cisco’s lack of a cellular platform was a substantial gap that could only get bigger.”

Frost & Sullivan forecasts that by 2020 nearly 1.3 billion IoT devices will sit on cellular networks globally, generating $21 billion in connectivity-related revenue alone.

Furthermore, now that the 3GPP standards organisation has accelerated ratification of LTE-based options (NB-IoT and LTE-M), cellular connectivity looks less vulnerable to disruptors in Low Power WAN (LPWAN) such as Sigfox.

Operators in the back seat?

As a platform developer, Nye says Jasper Technologies has pursued distribution agreements with the world’s largest CSP groups that span over 100 countries.

“Operators benefit from the ability to provision and manage devices seamlessly across the footprint, as well as bill for services,” Nye adds.

“Jasper benefited from the operators’ channels to market and relationships with multinational enterprise customers.

“However, the operators now seem somewhat relegated to the back seat.”

Nye says Cisco brings many thousands of enterprise customers as well as the ability to extend and integrate the platform capabilities with other IoT solutions and back-end enterprise systems.

Following the deal, Cisco says it will continue to develop the Jasper platform, adding enterprise Wi-Fi, device security and advanced analytics for device management.

“Jasper’s SaaS model depends on basic per-device, per month fees, but the price of connectivity is falling,” Nye adds.

“A growing proportion of Jasper’s revenues are therefore believed to stem from consulting and integration.

“The potential to grow this high-end business is limited by the number of major operators and undermined by investments they choose to make in their own IoT platforms.”

With Cisco, in contrast, Nye believes Jasper’s addressable market opens up to many more customers.

Cisco’s global alliance with Ericsson revealed late last year, is also designed to bolster the company’s mobile wireless play, Nye claims.

“Though Ericsson has its own IoT connectivity platform, the customers are mainly tier-2 operators so competition with Jasper is partial,” Nye adds.

Cisco’s Trollope claimed news of the acquisition was well received by the Ericsson leadership and added, “This is a really big market and no one is going to address everything.”