Cloud services provider Meraki was acquired last week by Cisco for a cool $1.2 billion. Meraki’s core business is in providing cloud-managed Wireless LANs for small and medium enterprises, but it also offers other enterprise services such as switching, security and MDM. Coming just a few months after Nicira was acquired by VMware (with Cisco apparently losing out in the bidding), the Meraki news suggests an upswing in M&A activity in the networking / infrastructure space.

The Meraki acquisition is interesting on three fronts. First, it might be a good case study in understanding team, market attractiveness and revenue traction as value components for the entrepreneurial venture. Like Nicira, Meraki seems to have a strong management team. However, while Nicira had no significant revenues, Meraki has an annual revenue run-rate of close to $100 million. A billion+ dollars is an excellent outcome for both, however on a relative basis the key inference is that Meraki was able to offset Nicira’s perceived stronger IP/thought leadership position and more attractive addressable market through solid top-line execution in getting to a similar exit valuation. Second, Meraki’s acquisition underlines the growing acceptance of the ‘enterprise services through the cloud’ trend. The days of full-featured, computation-heavy apps installed on campus are probably numbered, with potentially the only issue preventing cloud service providers from complete dominance – limited last-mile connectivity – being addressed by multiple companies including Opus portfolio company SpiderCloud Wireless. Finally, Meraki is proving that lower infrastructure, provisioning and customer acquisition costs now make it feasible to target the huge SMB segment for cloud managed services and Cisco has clearly recognized this trend.

Another billion dollar acquisition in the technology space is in the books – a fascinating outcome for a team that experimented with a host of go-to-market strategies including ad-supported Wi-Fi, retail and the developing world before settling into its current strategy. Hopefully Cisco now holds good on its plan of letting Meraki continue as an independently operating subsidiary.