Last week’s dealmaking in the software-defined networking (SDN) space has put an interesting twist in the market: Boise, Idaho-based Cradlepoint, a provider of wireless access networking hardware and service, has now emerged as one of the leaders in the SD-WAN space — and perhaps a leading IPO candidate.
Last week, Cradlepoint acquired SD-WAN player Pertino Networks, based in Los Gatos, Calif. Cradlepoint sells WiFi and LTE access points and also provides network support services. Pertino was one of the early startups in the SD-WAN movement, offering a cloud-based virtual private network (VPN). The spirit of the merger is to integrate Pertino’s SD-WAN with Cradlepoint’s wireless infrastructure, producing a scaleable, global, SDN-powered, WiFi access network.
Cradlepoint’s wireless network includes branch routers that handle LTE connections as well as broadband and MPLS connections. It expanded from market-specialized wireless access devices to providing network services and support. Pertino, which was founded in 2011, markets the Cloud Networking Engine, a virtual gateway that builds a secure IP overlay network for networked devices.
“We think this could be disruptive,” said George Mulhern, CEO and chairman of Cradlepoint. “We are in 50 percent of the Fortune 100 as well as thousands of SMBs [small and mid-sized businesses]”
Neither Cradlepoint nor Pertino will divulge financial details of the deal, but Cradlepoint officials said on a call last week that the company has the revenue scale and growth trajectory to prepare for an IPO in the near future. That generally means a company has tens of millions of dollars in revenue and a path to profitability (unless you are, say, Groupon or Zynga).
Meanwhile, SD-WAN startups have been multiplying like Teslas on the Facebook campus. Pertino was at risk of being outgunned by a host of well funded companies in the market, including Aryaka, Cloudgenix, VeloCloud, and Viptela. To put it in context, more than $600 million has been invested in the SD-WAN space. Valley sources say that Pertino was not profitable and was running low on cash — it needed to either raise a lot more cash or pivot by revamping its SD-WAN story.
Pertino’s sale makes a lot of sense. The company is a lot smaller than Cradlepoint. Pertino has about 25 employees and Cradlepoint has 450 employees, according to company officials. All Pertino employees are moving over to Cradlepoint in the deal. The Pertino board and investors obviously chose to hitch its lot with a larger company with IPO potential while at the same time preserving the SD-WAN technology it had built. Pertino has a well respected engineering team that could help optimize Cradlepoint’s core network and allow it to offer new services.
Todd Krautkremer, chief marketing officer with Pertino, points out that adding Pertino’s SD-WAN network to Cradlepoint’s wireless access network creates an end-to-end network that can be managed via the cloud.
Combining wireless access networks with SD-WAN makes sense. It could offer the best of both worlds for enterprises looking to move to cloud-based WAN connectivity. In compiling the research for SDxCentral’s recent 2015 Virtual Edge report, we discovered that flexible, open, SDN-based networks were identified as attractive solutions for enterprises looking to scale their networks in a secure way. At the same time, demand for specialized secure wireless access is growing. Enterprise and service customers have told us the future is flexible, secure networks built with software overlays.
In addition to targeting enterprises, both companies say they would like to package their solutions to service providers. Cradlepoint and Pertino officials both said they are in discussions with several “major service providers.”
According to CEO Mulhern, Cradlepoint’s original market-sized assessment for specialized LTE-based wireless access for Fortune 500 companies and SMBs was at least $1.5 billion. He says that expands markedly if you include potential applications for VPNs and Internet of Things (IoT) devices. Our SD-WAN research points out that the market for a variety of SD-WAN applications, including VPNs, is in the tens of billions.
The end result? Cradlepoint’s has instantly become a credible player in the SD-WAN area, by virtue of its customer base and wireless spin. Most of the other SD-WAN companies are focused on wired cable, Internet broadband connectivity, and MPLS replacement — very few come with a wireless story.
It just goes to show you: Sometimes you can expect the unexpected. Hundreds of millions have been pumped into SD-WAN startups in Silicon Valley, and now the first SD-WAN IPO could potentially emerge from the Idaho mountains.
Some fun Boise, Idaho facts:
- Elevation: 2,700 feet
- Home to Boise State University (the Broncos, who play football on blue turf)
- Part of an area called Treasure Valley
- Area was called Boise before the establishment of Fort Boise
- Estimated population: 225,000
- Home to several major companies, including Micron Technology, Albertson’s, and Boise Cascade