On October 1, Cisco dipped into its sizeable piggy bank and dropped $3B on video specialist Tandberg.  Just under two weeks later on October 13, Cisco spent almost the same about, $2.9B, to acquire mobile infrastructure provider Starent Networks.  That’s a grand total of just under $6B but that still leaves Cisco just shy of $30B to play around with if they choose to move in other areas.

Both moves are significant for different reasons and both accomplish the same goal.  Put more traffic on the network allowing Cisco to stimulate sales of routers and switches, the cash cow and engine that makes Cisco go.

Tandberg fills an interesting void for Cisco.  Cisco has almost single handedly evangelized the Telepresence and video markets taking them it from relative obscurity to a market that almost everyone knows about and is interested in.  However, with price points in the six figure range and the need for nailed up bandwidth, Telepresence isn’t for everyone.  I’ve talked to many customers and resellers that have told me that while many buyers like Telepresence, the steep price point has acted as deterrent and caused many of them to look at solutions that are a step down, such as the HD solutions available from Polycom or Tandberg.  So Cisco evangelizes the market and then others reap the rewards, not exactly the Cisco style.  The fact is, Cisco had nothing to offer customers at the level below Telepresence, but Tandberg gives the company a broad line of video products that includes desktop, room based, HD and fully immersive video.  The best thing about Tandberg is that all the solutions run on a common data network creating network traffic like no other application in the enterprise.

Tandberg also fits nicely into Cisco’s overall UC strategy and makes them the only UC vendor to offer a broad based video solution.  Microsoft has Roundtable, a conference room system (that’s actually very cool), Mitel has their own Telepresence system but most of the other vendors choose to go to market through partnership. Cisco has chosen to do it themselves, which again is consistent with their historical go-to-market approaches.  We’re expecting video to continue its double digit growth in enterprise over the next several years giving Cisco an early lead here but leaving Polycom out there as another acquisition candidate for the likes of HP.

While Tandberg was a strategic acquisition that will help with growing their enterprise penetration, Starent solved a different problem for Cisco.  There’s no question that the biggest opportunity in layer 2/3 networking today lies in the opportunity to sell into wireless ecosystems.  Many of Cisco’s competitors, Ericsson, Huawei, Alcatel-Lucent and Nokia Siemens have been going to market with combined wired-wireless offerings.  While Cisco could talk the talk, they really couldn’t back it up with product.  It’s not surprising that Cisco would pay such a hefty premium given Starent’s strength in the mobile data market, which we are expecting to demand 29 times capacity expansion over the next six years.

So this purchase has the obvious impact that it allows Cisco to compete better with the larger equipment vendors that can offer wired and wireless solutions.  However, this has a secondary impact in that it puts router rival, Juniper, in a very tough position.  Industry rumors had indicated that one of the global operators had pushed Juniper into partnering with Starent to deliver a combined wired (Juniper) and wireless (Starent) offering.  In fact, many other industry people I’ve talked with had expected that Juniper would be the company pulling the string and buying Starent, so the news that Cisco had acquired Starent came as somewhat of a surprise.

Juniper finds itself in somewhat of an awkward spot in that it’s too small to be a significant acquirer to grow its portfolio rapidly and it’s a little too big to be an acquisition company for most companies that might need them.  This raises the question of how a router pure play can continue to compete for business in the carrier market when so much of the growth and demand is coming from the wireless ecosystem.

Cisco’s made their play in these two areas now it’s up to the competitive market to respond.

*** Phil Marshall, YG Senior Research Fellow, contributed to this blog.