Cisco: CloudLock Deal Capitalizes On BYOD Trend

| About: Cisco Systems, (CSCO)

Summary

CSCO acquired cloud-based security provider CloudLock for $293 million in cash and equity.

The acquisition capitalizes on and provides a necessary solution for a secular trend in the workplace called BYOD.

We are bullish on the deal, and believe it again illustrates CSCO's commitment to leveraging a strong balance sheet to drive accelerated growth in high-demand markets.

Cisco (NASDAQ:CSCO) recently announced that it was purchasing cloud-based security provider CloudLock for $293 million in cash and equity. We are particularly bullish on the deal, noting that it capitalizes on and provides a necessary solution for a secular trend in the workplace called BYOD, or "Bring Your Own Device." It is yet another example of CSCO's commitment to leveraging a strong balance sheet to drive accelerated growth in high-demand markets that are supported by a secular shift to cloud-based technology.

CloudLock is a cloud-based security provider out of Waltham, Massachusetts. The acquisition allows CSCO to tap into the market for providing security to people who use their own, unsecured devices for work purposes. TechCrunch calls this trend the "consumerization" of IT, but this trend is more commonly known as BYOD, or Bring Your Own Device.

The concept of BYOD is quite simple. Allow employees to bring their own devices to work, thus cutting opex-related hardware and software costs while permitting greater freedom and flexibility to the employee. Employees can work freely on their own desktop, laptop, tablet, or smartphone, while employers do not burden the cost of providing hardware and software to their employees.

The traction the trend has gained since it launched in 2009 is quite astounding. According to Tech Pro Research, in 2012, 62% of organizations permitted or planned to permit BYOD. That figure grew to 74% by 2014, meaning nearly three-fourths of all organizations were adopting BYOD just 5 years after it formally became a trend. That number has surely grown since then, and we think it is safe to say upwards of 80% of organizations have embraced BYOD today.

Its popularity ties closely with a rise in popularity of the start-up culture. The Millennial generation is seemingly infatuated with entrepreneurship, as degrees in entrepreneurship-related studies have grown 572% between 1995 and 2013. A Bentley University study shows that two-thirds of Millennials want to start their own business, while almost 80% say that flexible work hours are a key to boosting productivity. This also ties closely with the rise of the gig economy, wherein services like Uber (Private:UBER) and Lyft (Private:LYFT) allow drivers to set their own hours.

BYOD fits in perfectly with all of these trends, and it also offers the benefit of reducing opex. This is likely why Tech Pro Research found that adoption of BYOD was stronger at small organizations because many small organizations (or start-ups) do not have the capital to provide a uniform hardware and software infrastructure.

While the trend is strong, there are problems. Tech Pro Research found that security concerns were the most common reason why BYOD was ruled out by respondent organizations, with IT support concerns being the second most common reason. BYOD relies on unsecured devices, and forces an additional burden on IT to maintain and secure these devices. This is where CloudLock enters the picture. The company provides an optimal, cloud-based solution that addresses the two biggest concerns with BYOD. The company isn't new to this either, as it is the "largest and most successful CASB vendor, having been deployed to over 700 organizations globally." Several of those organizations are quite notable and sizeable. As CSCO comments in its press release related to this acquisition:

...the increasingly decentralized way companies do business means that security has to evolve beyond an on-premise approach.

At the end of the day, we agree with Matt Straz of Entrepreneur that BYOD is an inevitable transition. As he outlines in his article, BYOD grants employees greater freedom over where and how they work, instills a greater sense of ownership to the employee, allows employers to attract and retain creative talent in a growingly start-up oriented world, and allows employers to drastically cut opex, a significant benefit for SMBs.

CloudLock gives CSCO a valuable asset to not only tap into this growing market, but provides a solution for the two biggest concerns in the growing market. CSCO only paid $293 million for CloudLock, but the acquisition presumably grows CSCO's cloud TAM by a few billion dollars. We like the deal, particularly because it capitalizes on a strong BYOD trend, and look forward to seeing how CSCO integrates the business within its greater cloud ecosystem.

Disclosure: I am/we are long CSCO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.