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Cisco's recent investment in VeloCloud Networks is an indication that the company is considering cloud-based networking services for IWAN, Cisco's software-defined WAN product.
VeloCloud reported last week that Cisco was among the "strategic investors" in the startup's latest round of funding. The $27 million in Series C financing brought VeloCloud's total funding to $49 million.
Enterprises deploy VeloCloud and IWAN when building software-defined wide area networks (SD-WANs). VeloCloud, however, addresses a growing demand in the market for cloud-based networking services, such as WAN monitoring and packet-by-packet traffic steering. IWAN has no cloud services.
"I think Cisco sees this startup as a potential partner or perhaps an acquisition target," said Shamus McGillicuddy, an analyst at Enterprise Management Associates (EMA), based in Boulder, Colo.
In an EMA survey of 150 enterprise IT professionals, 45% picked cloud-based networking and security services as the most important characteristic of an SD-WAN. The second most important feature had a single control point to push out configuration changes to routers. Those modifications are needed when adding networks or making changes to a WAN.
Cisco hedges bet with VeloCloud
Rohit Mehra, an analyst at IDC, said he believes Cisco is hedging its bets with the VeloCloud investment. If IWAN gains market share on its own, then there won't be a need for VeloCloud. But "if alternate [cloud] architectures start to take hold, then Cisco will have an acquisition option in its pocket."
Delivering more services through software and the cloud is a major focus of Cisco, as it adapts to an industry moving away from hardware-centric networking -- the largest portion of the company's business.
Cisco's Application Centric Infrastructure (ACI), introduced in late 2013, is the company's framework for SDN. Cisco's major push in cloud-based networking started in 2012 with the $1.2 billion acquisition of Meraki, which provides online software for managing wireless networks.
More recently, Cisco significantly increased its footprint in the cloud-based security market with the June 2015 acquisition of OpenDNS. Cisco paid $635 million in cash for the company.
Last November, Cisco reported progress in the company's shift toward software and cloud services. Cisco said deferred revenue from subscriptions to those products rose 36% in the quarter ended in October. VeloCloud sells its technology through a subscription model, making the company's business a good fit for Cisco's long-term goals.
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