Cisco announced their intention to buy wireless sensor maker Arch Rock. With this acquisition comes Arch Rock’s technology, a spin out from UC Berkeley. The technology is around mesh networking, where every device can talk to each other and work collaboratively “bucket brigade style” to deliver data to far away places. While the technology is very cool (and complicated… I used to work on it at UCB), Arch Rock was never able to find a business niche.
While Arch Rock had great technology, the business model was never formalized — Arch Rock routelinely messaged the “Internet of Things“, a vague concept where every device is connected to the Internet. In contrast, Silver Spring focused hard (think “crossing the chasm“) and aimed to be the network platform provider to the smart grid. They established firm OEM partnerships and secured early adopter utility companies. Arch Rock, on the other hand, was still wading through a variety of market verticals and never got the chance to focus on the smart grid sector. It was a classic case of a technology in search of a solution.
Here comes Cisco to the rescue, who takes an interest in Arch Rock’s networking technology to enable the smart grid. This is not a coincidence — Arch Rock had boasted Roland Acra (CEO) who sold Procket Networks to Cisco in 2004 after previously working at Cisco for 11 years, and Judy Estrin (external board of directors member) who formerly was CTO at Cisco. The price of the acquisition was not announced, which is not surprising, since Cisco would be unlikely to pay much simply for technology in today’s economy.
Arch Rock spent an incredible amount of time in trying to establish 6lowpan as an international standard at the IETF (Silver Spring only peripherally participates, and that’s a recent change). This was one of Arch Rock’s fatal flaws — adoption by customers in all of these verticals was not dependent on a new standard existing. Instead of spending each hard-earned dollar on new business, the money was spent on standards and technology, which leads to the difference in success between Arch Rock and Silver Spring. A business vision and customer validation led to $255 million raised by Silver Spring on good terms to build an industry; Arch Rock raised $15 million to test a technology.
Fast forward to today. Silver Spring has a multi-hundred million dollar backlog of orders, and has been able to branch out beyond the “network card for smart meters” that they used to get a foothold. They are addressing security and application frameworks in the smart grid, demand response programs, smart home initiatives, and even intelligence in electric vehicles. They have a strategy that is light years ahead of both Cisco and Arch Rock when it comes to understanding the market and predicting where it will end up. This acquisition is good news for Silver Spring — it validates their business, shows they are the market leader, and will further drive up their valuation beyond the $3b it is estimated at today! Congratulations Silver Spring!
- Silver Spring has raised $255mm in investment from the top names like KPCB, Arch Rock raised $15mm.
- Silver Spring has approximately $800mm in order backlogs. Arch Rock has $0.
- Silver Spring is technology independent (WiFi, GSM, Zigbee, 6lowpan). Arch Rock is 6lowpan only.
- GE, Itron, Landis+Gyr, and others are all making meters with Silver Spring technology. Cisco has only been able to land Itron so far (just announced this week!) and Arch Rock didn’t have any smart grid partners.
- The brain trust behind Arch Rock, Professor David Culler, won’t stick around and instead is driving smart grid innovation at UC Berkeley’s LoCal project.
What we can tell is that Cisco wants to play in the smart grid space, but they realize they need to do a lot of catch up. Arch Rock is just one step in a process that will undoubtably take years to establish partnerships, technology, and product. Cisco is infamous for pre-announcing products as if they exist to drive market vision, only to find they won’t ship for another 9-12 months.
There’s a few lessons to be learned here for startups:
- Great technology doesn’t make great companies. You need business leadership.
- Focus on a market vertical and make that one successful first.
- Identify all of the partners (VARs, OEMs, influencers, etc), sign them up, and lock everyone else out.
- Sell investors on the big vision — “this one vertical is just the beginning”.