Today: Cisco makes another move to bolster its security offerings, buying San Francisco-based OpenDNS for $635 million as data breaches continue to spur moves in the sector. Also: Apple launches Apple Music and loses e-books appeal.
The Lead: Cisco buys OpenDNS for $635 million
Cisco Systems added to its burgeoning security offerings Tuesday with a purchase of a cloud-focused San Francisco startup, as large tech players seek to step up offerings meant to protect against data breaches and other online attacks.
The San Jose networking giant agreed to pay $635 million for OpenDNS, along with undisclosed future inducements to keep the company’s employees. OpenDNS is a nine-year-old security company that claims to help secure 65 million people as they connect on mobile devices, using software delivered online.
“This is a testament to the outstanding team we have assembled, the rapidly scaling business we have created, and the advanced security solutions we have developed,” OpenDNS CEO and founder David Ulevitch wrote in an email to employees Tuesday.
The software-as-a-service, or SaaS, model for security is expected to grow as employees continue to connect to corporate networks through mobile devices and remote computers, providing potential entry points for nefarious actions. Cloud software can be updated rapidly to fend off new attack methods, and IDC predicts that 15 percent of security software will be delivered via the cloud by the end of this year, growing to 33 percent by the end of 2018.
“With an estimated 50 billion devices being connected by 2020, enterprise customers will face greater challenges in protecting their ever-expanding networks,” Cisco’s business development chief, Hilton Romanski, wrote in a blog post on the deal Tuesday.
Cisco claims to be the top security provider, thanks to its earlier $2.7 billion acquisition of Sourcefire and related acquisitions such as ThreatGrid. However, outgoing CEO John Chambers said last month that Cisco leads only because the market is so fractured, with the company commanding 7.5 percent of the security market. And Cisco’s lead is perpetually being threatened by a new wave of security companies in Silicon Valley and beyond.
Other large tech companies are also expected to take shots at Cisco’s leadership in the field through acquisitions. Hewlett-Packard, which plans to create a new enterprise-focused company in a corporate split, bought Cupertino’s Voltage Security earlier this year, and FBR Capital Markets analyst Daniel Ives expects that IBM, EMC, Microsoft and other rivals could make similar moves.
“This move is another indicator that Cisco, as well as other tech bellwethers, need to focus on security through M&A given the importance in cyber security in the next generation data center,” Ives said in an email Tuesday. “We expect the larger tech players to show more aggression getting into the security sector, as we saw with Cisco’s acquisition.”
OpenDNS’s more than 300 workers are expected to join Cisco’s security team after the deal closes, which Ulevitch said is expected to occur in six to eight weeks. The OpenDNS CEO disclosed that his firm has averaged revenue growth of more than 20 percent in each of the past 10 quarters and is closing $1 million worth of recurring revenue deals annually.
Ulevitch also said that he had denied previous acquisition attempts and expected to say no to Cisco, but decided to sell after being wooed by the San Jose company.
“We didn’t decide to sell OpenDNS. We decided to sell OpenDNS to Cisco,” the CEO wrote. “That’s an important distinction.”
Cisco stock dropped 0.3 percent to $27.46 Tuesday, while security rivals seemed to get a boost: FireEye added 2.4 percent to $48.91, Fortinet gained 1.8 percent to $41.33, and Palo Alto Networks increased 1.7 percent to $174.70.
SV150 market report: Apple loses e-books appeal, launches Apple Music
Wall Street bounced back Tuesday from the previous day’s deep declines, as Apple gained slightly on the first day of its new streaming-music service.
Apple increased 0.7 percent to $125.43 after losing its appeal in an antitrust case focused on its e-books pricing and launching the Apple Music service. The e-books ruling by a divided federal appeals court upholds a ruling that found Apple conspired with publishers to artificially inflate the price of electronic books from low costs established by Amazon. Apple said in a statement that it is “assessing next steps,” which could include an appeal to the Supreme Court. The Cupertino company’s move into the streaming music business, which has already attracted similar antitrust inquiries, began with the Apple Music launch, which is reportedly very similar to the Beats Music streaming app.
Twitter added 5.9 percent to $36.24, the second best daily gain in the SV150, on the last day before CEO Dick Costolo hands the reins to Twitter co-founder Jack Dorsey. HP added 0.1 percent to $29.99 after losing Bill Veghte, an executive who had helped lead the company’s enterprise efforts. Google lost the default search-engine spot in AOL and saw Uber acquire some more mapping technology, and the Mountain View search giant’s stock fell 0.2 percent to $520.51.
Up: Twitter, AMD, Tesla, FireEye, Fortinet, Netflix, Palo Alto Networks, LinkedIn, eBay, Yelp, Gilead
Down: SanDisk, SunPower, GoPro, Zynga, Juniper, Salesforce
The SV150 index of Silicon Valley’s largest tech companies: Up 15.55, or 0.83 percent, to 1,891.23
The tech-heavy Nasdaq composite index: Up 28.4, or 0.57 percent, to 4,986.87
The blue chip Dow Jones industrial average: Up 23.16, or 0.13 percent, to 17,619.51
And the widely watched Standard & Poor’s 500 index: Up 5.47, or 0.27 percent, to 2,063.11
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