Editor’s note: Tuesday’s news that networking giant Cisco is acquiring security firm OpenDNS for a whopping $665 million is the latest reflection of the strategic play it is making in security, writes Technology Business Research’s Jane Wright.

HAMPTON N.H. – Cisco Systems (Nasdaq: CSCO) is continuing its aggressive strategy of acquiring security technologies to quickly shift an increasing portion of its formidable resources and influence into the security market. Cisco will acquire privately held network security vendor OpenDNS for $635 million in the first quarter of 2016.

Although Cisco commands the vast majority of the networking market, including network infrastructure, wireless networks and unified communications, the security market promises better opportunities for growth. According to TBR’s Enterprise Network Vendor Benchmark and Enterprise Security Benchmark, the network market grew just 5.5% year-to-year in 2H14, while the security market grew 21% year-to-year in 4Q14. TBR estimates security accounted for about 5% of Cisco’s revenue in 4Q14, with Cisco’s enterprise security revenue growing 8% in the quarter.

But the OpenDNS acquisition combined with Cisco’s earlier acquisitions of Cognitive Security, Sourcefire and ThreatGrid positions the vendor for faster growth. Cisco is assembling a security portfolio that will augment its network offerings and grow its wallet share from attached security products and services in its install network customer base.

OpenDNS provides a cloud-based service called Umbrella that processes users’ requests to access a Web address, inspecting the request to protect users from unwanted redirects, content downloads and other malicious results. (Despite its name, OpenDNS does not provide open-source solutions.) TBR believes Cisco will use the acquired OpenDNS technologies to add more subscription service options to its on-premises network security products.

For example, Cisco is likely to integrate Umbrella services with the Cisco Web Security Appliance, adding Web filtering capabilities and expanding threat intelligence to increase the effectiveness of the appliance.

With its extensive account presence from its large network install base and its combined internal and acquired security expertise, Cisco is becoming a more formidable competitor in the enterprise security market. The OpenDNS acquisition will compel a competitive response from other networking and security vendors in early 2016.

Networking vendors such as Brocade, Huawei and Citrix will evaluate acquisitions of competing DNS security services vendors such as Neustar and Dyn. With Umbrella integrated in Cisco products, security vendors such as Blue Coat and Intel (McAfee) will be increasingly challenged to demonstrate the efficacy of their Web proxy solutions.


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