Cisco’s ability to successfully acquire and integrate innovative companies is an industry gold standard. Today, this acquisition engine has achieved a major milestone with the announcement of Cisco’s 200th acquisition. Acquisitions help extend market leadership in our key domains, as well as position us to enter into new, growth markets. Acquisitions drive value and benefit for all of our stakeholders—shareholders, customers, partners and employees– because they give us a powerful, strategic tool to execute our company strategy.
Acquisitions are one of our five pillars to drive strategic growth through innovation for the company: build, buy, partner, invest, co-develop. Acquisitions have a significant impact on Cisco’s current success. Our acquisitions drive growth for Cisco by accelerating key aspects of our business model evolution, including recurring revenue. Acquisitions have also helped position Cisco as a market leader in key domains such as Security, where Cisco is the #1 vendor with the broadest portfolio of products and services. Acquisitions such as Sourcefire, OpenDNS, and Neohapsis have helped to establish and extend our market position in this important market.
Other recent acquisitions have helped us learn and evolve Cisco’s business model while helping to scale and enhance the value proposition of our Core business. Teams like Meraki have enabled us both to learn from a new market approach and to scale our business differently. The Meraki business model taught us valuable lessons around extending the value of cloud management to our customers as they deploy infrastructure in their environments, enabling continuous customer value. At the time of acquisition, Meraki generated less than $100 million in annual bookings. Fewer than five years later, it now generates well over $1 billion. It also helped influence exciting new market offers like Cisco DNA Center and the 9300 in our recent launch of the Network Intuitive. Meraki is an excellent example of something that worked very well both in the marketplace and here at Cisco, allowing us to extend that learning into other parts of the company.
Our Acquisition Approach
Cisco believes the next billion dollar idea can come from anywhere, which is why we maintain awareness of market disruptions by cultivating great ideas internally and looking externally at companies that can fulfill our vision. Yet how do we decide when to acquire a company? It all starts with our strategy. As Rob Salvagno, vice president of Cisco Corporate Development and Cisco Investments states, “We start every conversation with what the strategy for the business is. Acquisitions become a primary route when they have an ability to provide a capability, acceleration potential or earlier market entry compared to partnering or developing in-house. Focusing on strategy first is what allows us to move at such speed once we do zone in on a specific acquisition target.”
Our approach to acquisitions is unique because we have a dedicated team, with an ability to invest and acquire, focused around Cisco’s key priorities and geographies. Investments allow our teams to track emerging technologies, companies and business models which may shape future markets we care about over the next 3, 5 or 10 years. As a result, investments provide us with deep market learning that help inform the overall strategy for the business and our future thoughts around M&A. The focus on priority areas and insight from investments are what places us in a great position to determine both ways to accelerate existing businesses such as networking, data center and security as well as identifying new areas to enter for Cisco such as application intelligence and AI. In fact, over the past 12 months we have made acquisitions in all these categories including Viptela (networking), Springpath (datacenter), Cloudlock (security), AppDynamics (application intelligence) and Mindmeld (AI).
A Talent Refresh Engine
Acquisitions allow us to constantly refresh and complement the innovation that’s already occurring inside the company. The talented people who join Cisco through acquisitions are an important part of our DNA, accounting for 20 percent of the whole company and 20 percent of the leadership – meaning one in 5 Cisco employees today are from an acquisition. What’s more, about 80 percent of acquired team members continue to be part of the Cisco team three years after joining.
And once talent finds its way to Cisco, it doesn’t stop innovating. Take the work we’ve done in the security space. Since entering the space through acquisition, we have continued to innovate through further acquisitions and internal development. Our acquisitions of Sourcefire and later OpenDNS reestablished our market leadership in security such that we’re now the No. 1 cloud security vendor in the world.
The leadership teams of these companies are core to internally developing the next generation of security technologies that are leading the market. Today, OpenDNS founder David Ulevitch is the leader of Cisco’s security business. David along with Sourcefire founder Martin Roesch are great examples of the innovation that was brought to Cisco through their startups and of continued innovation with their teams as they’ve stayed at Cisco. Overall, 87 percent of key employees of an acquired company—usually the founders and critical leaders—continue with Cisco after two years of joining the company. And about 20 percent of Cisco’s director and above leadership team came from acquisitions.
When I joined Cisco 17 years ago, our acquisitions model was already a finely tuned machine. In fact, acquisitions have been a key approach and part of Cisco’s DNA since our very first one in 1993. After nearly 10 years in the routing market, the acquisition of Crescendo opened the door for us to the switching market – an area Cisco has led ever since. Today—as we hit the 200th acquisition milestone—we recognize the importance of strengthening our position in current domains, and also constantly evolving our business model to capitalize on entering new ones in the future.
The number 200 is symbolic in more ways than one. It represents our willingness to engage, time and time again, with the broader market, with the broader set of innovators, entrepreneurs, leaders and talent outside the company in order to bring the best possible capabilities into Cisco. It also represents a market-leading approach to openness and a lack of technology religion that puts the customers and partners first. This enables us to always adapt to changing market conditions and bring the best to our customers and their everyday business needs.
Here’s to 200 more!