Why Silver Spring Should Be Worried About Cisco

When you’re a networking giant, it’s probably a good idea to develop a strategy for participating in the biggest network build-out of the decade. This morning, Cisco is doing just that, with an announcement of its game plan for becoming a major player in the smart grid, with technology for everything from the utility data center to energy management for the light switches in your home and the VoIP phones in your office.

Cisco estimates that the smart grid communications market represents a $20 billion a year opportunity as the systems are built out over the next five years, and the company is angling to seize a substantial portion of that value. For now, Cisco’s smart grid plan lacks a lot of specific detail, but it demonstrates that the company is making aggressive movement into the space — and signals to some startups that there’s a powerful new competitor (or partner) on the scene. One company in particular should be concerned: Silver Spring Networks. Despite the recent rosy glow surrounding Silver Spring, Cisco’s size and networking experience could put a few clouds on the startup’s horizon.

In typical Cisco fashion, the five-point plan hinges on new opportunities for existing business lines: networking solutions for smart grid communications, energy management for the home and enterprise, security for the smart grid, and gear for the coming utility data center build-out.

Data Center and Networking Expertise

Cisco predicts a massive build-out of utility data centers and communications infrastructure over the next decade, and it sees that as a major opportunity for its Unified Computing System, announced earlier this year. While Cisco competes for traditional data center customers with numerous competitors that have legacy relationships, the utility market is relatively small to date and Cisco could have a compelling pitch. The company says it has 40 percent market share in the network security market — a major issue for utilities — and its broad offering could be compelling to companies building out networks in a hurry.

Smart grid communications is the area in which Cisco is most likely to shine. Routing data over complex networks is Cisco’s forte, and as electricity will increasingly come from a complicated network of renewable energy sources with variable supply and more distributed resources and is consumed in increasingly intelligent end-use scenarios (such as smart appliances or consumers taking advantage of time-of-use pricing), Cisco says it can play a critical role in helping automate how electrons move from supply to demand.

Silver Springs Should Be Wary

Ruggedized routers and switches are one piece of the puzzle, but Cisco says it also plans to announce partnerships with smart meter makers in the months ahead to extend its communications network all the way to the edge of the network. “We’re looking to build out a common communications infrastructure,” says Marie Hattar, VP of marketing for Cisco’s networking solutions. Silver Spring Networks scored several key utility relationships with its meter-to-grid communications networks, but Hattar says Cisco’s global footprint and reach into the deeper ranges of the network will give Cisco an advantage as utilities seek more comprehensive solutions.

The two companies are both partners on the recently announced Smart Grid Miami project, and while Cisco says it will continue to follow its “build, buy, partner” approach to new business lines, Hattar was clear that networking startups aren’t on the potential acquisition or partner list. In other words, Silver Spring Networks had best watch its back.

Opportunities for Other Startups

But not all startups should be shaking in their boots. The energy management market is a new one for Cisco, and the company’s business is largely built on the back of some key acquisitions and partnerships. The EnergyWise system, released earlier this year, leveraged Cisco’s acquisition of Richards-Zeta, and later this year, Cisco says it will announce a partnership with PC energy-management startup Verdiem that will extend its EnergyWise protocol to IT devices.

Similarly, Hattar confirmed that Cisco’s home energy management play is likely to build upon its Linksys routers and set-top boxes — both businesses built through acquisitions. Hattar didn’t have further details about the company’s home energy management play, but she says the company is open to exploring relationships with startups and other vendors in some of the newer areas. Maybe Cisco is the boost some startups need to get ahead in the increasingly crowded home energy management space.

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