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Cisco Systems Just Spent $1.4 Billion to Expand Its Reach in the Internet of Things

By Chris Neiger - Feb 8, 2016 at 5:30PM

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The company is making a big bet on IoT software as a service.

Source: Cisco.

Cisco Systems (CSCO 2.00%) has always talked a lot about the Internet of Things (IoT). The company's made several big IoT predictions, including that there will 50 billion things connected to the Internet by 2020 and that the IoT segment could be worth up to $19 trillion in revenue and cost savings by 2025.

But the company is doing more than just guessing about what the IoT will become. Cisco is also systematically building out its own IoT offerings. The company made that even more clear this week when it said that it will purchase Jasper Technologies, an IoT platform company, for $1.4 billion.

Jasper provides enterprise customers and service providers a way to connect their IoT devices to the Internet, and then manage those connections through the company's software as a service (SaaS). Cisco says that Jasper's cloud solutions can manage anything from connected cars to pacemakers to jet engines. And already Jasper works with 3,500 companies in countries all over the world.

Jasper's already built out a very strong network of large business that use the company's cloud services. Starbucks, General Motors, Nissan, General Electric, Ford, and host of other companies rely on Jasper's device management technologies. But where does Jasper fit into Cisco's business?

The company said in a press release that "Cisco will continue to build upon the Jasper IoT service platform and add new IoT services such as enterprise Wi-Fi, security for connected devices, and advanced analytics to better manage device usage."

Cisco will integrate Jasper into the company under a new division called the IoT Software Business Unit, which will be run by Jasper's CEO Jahangir Mohammad.  

The main goal for the acquisition is to bring reoccurring IoT revenue into Cisco's coffers. Cisco diversifies its revenue streams with Jasper by adding IoT service revenue (through cloud services) to Cisco's enterprise hardware revenue. 

The company has had it's eye on the IoT's SaaS potential for the past few years. Cisco published a report back in 2014 showing that SaaS will account for 59% of all cloud usage by 2019, up from 45% in 2014. Cisco knows that future IoT devices are going to create massive amounts of data that will need to managed, and that about 86% of workloads will be processed by cloud data centers by 2019. With Jasper, Cisco now has a software solution for companies to track, analyze all of that data. 

Where Cisco goes from here
We may find out more about Cisco's IoT SaaS intentions on the company's earnings call next week. But I suspect that later this year we'll start to see Cisco's IoT software ambitions become a bit clearer. 

The Jasper acquisition should allow Cisco to supplement its hardware business with the growing IoT software segment. This will eventually give Cisco long tail revenue as it sells software services to manage enterprise IoT devices, instead of just selling the devices themselves. And the company will become an even bigger force in the IoT space if can execute that transition well. 

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