This post is at least 3 weeks late and you can blame it on my vacation in India (which I will talk about in another blog). Analysts have been praising how impactful the Acano acquisition is going to be from Cisco’s perspective and what great synergy exists between the respective collaboration portfolios of Acano and Cisco.
I had met with the Acano folks at Enterprise Connect a couple of years ago and was impressed by the team, their innovative approach to video infrastructure and more importantly, their enthusiasm and conviction that they had a winner in their product, coSpaces. They were already seeing the very initial impact of their disruptive approach to video collaboration in the market.
What struck me about all the analyst reports is that none talked about how Acano’s market impact is a direct result of gross miscalculation and poor people management on the part of Cisco. The key Acano executives are either ex-Cisco or ex-Tandberg men, branching off on their own in reaction to being sidelined by Cisco’s senior management. Acano CEO OJ Winge was the former SVP and GM of Cisco’s Collaboration Technology Group, having transitioned from Tandberg as EVP of products. Both Acano CTO Mark Blake and Vice President of Products Jan Nielsen are also former Cisco/Tandberg execs.
Exactly two years after launch, Acano’s standards- and platform-agnostic approach to video collaboration had gained enough mindshare among enterprises to become a very palpable, near-term threat to Cisco. Keep in mind Cisco’s huge investments in Tandberg and the sustained decline in its hardware-based MCU revenues over the past few years. Despite analyst claims that Cisco paid a revenue multiple of 14x to 16x for Acano, this could well be higher in reality according to publicly available information on Acano’s revenues.
The latest figures put Acano’s revenues at £11.5 million or $17.3 million, which means given the proposed acquisition price of $700 million, the revenue multiple is 40x and not the 14x to 16x that analysts claim.
So what are the implications for the market and customers? Surely, none of us believe that Cisco is planning to recover its investments on Acano anytime soon. Here is a simplistic calculation. With revenues of little over $17 million at the time of the acquisition, it will take Cisco about 16 years to recover this investment even if we assume a very optimistic 25% revenue growth year on year. So how would Cisco monetize Acano and recover its investments? Simple, it would do so by removing a competitor that was offering cost-effective video that works across multiple, disparate platforms, endpoints and standards. And the investment recovery would happen by pushing the more expensive, proprietary, hardware-based Cisco solutions to customers.