Microsoft and Metaswitch – Why and What Next?

Let us start with the most obvious reason that MicroSoft (MS) acquired MetaSwitch (MS) – abbreviations. It seems clear that if Microsoft want to expand into a new market, the first step is to acquire whatever MS is already in that space so there is no abbreviation confusion. Metaswitch were not going to change their name, so this is the only sensible option.

Moving beyond that, lets look at the real reasons for this acquisition – people, experience, and networks. Many other people are going to focus on the financials of this deal, revenue, how Metaswitch had to pay a lot of money in legal fees and likely needed to be purchased. However, that creates a discussion about why Metaswitch needed to be bought, rather than why Microsoft wanted to buy them – a good price and an opportunity is not the only reason.

Let us focus instead on the current networking landscape, and where this acquisition combined with the recent purchase of Affirmed Networks places Microsoft, near the heart of telecoms. To broaden the picture, Microsoft has been at the heart of the business computing world for years, but there has always been a gap at the edge where Microsoft ceded control of the ecosystem to the network players. Now, with the emphasis on visibility and network control in the functioning of applications that we are seeing with SD-WAN and other trends, how applications interact with networks and how networks are controlled and managed is becoming more and more relevant.

For those of you who know more about Microsoft than Metaswitch, Meta is a player that provides a lot of background services that enable voice communications, mobile networks, and core network functions. They are one of those companies that you have probably used at some point without knowing because they were powering the network you were using your mobile phone on, or the network of the person you called. Affirmed Networks were similar, they also did NFV (Network Function Virtualisation), which is taking the operations that networks need to run and making them more digital/intelligent.

By acquiring both companies, Microsoft has obtained this window to access the telecoms space in a direct and innovative way. However, this deal goes beyond the current offerings of both companies. It’s important to understand that networking landscapes are currently in flux, there is the rise of 5G, and the questions about what that extra bandwidth will be used for by businesses, there are the capacity problems and the rise of SD-WAN to solve them, and there are security challenges and mobility challenges that kickstarted the whole SASE (Secure Access Service Edge) discussion.

In the next, 3-5 years, we will see companies answering these questions, we will see a rise in Edge computing where much of the processing power currently managed by clouds is moved more locally, we will see 5G secure its place in homes and businesses, and automation will become an even more important part than it currently is.

Microsoft must be looking at this as an opportunity they have never had before to be at the forefront of Telecoms and gain a new market share. This brings us back to the core reason for these acquisitions – people. If you review Metaswitch’s key facts. You will see that of their 840 employees, 329 of them are involved in R&D, that is over 20% of the organisation. In acquiring Metaswitch and Affirmed, Microsoft have bought themselves a large amount of network expertise, and R&D capability to build the solution for “What’s Next in Networking”, if they want to.

The real question is what comes next, I would not be surprised if MetaSwitch’s legacy products are put on the backburner. I imagine they will be maintained and continued, but mostly to keep the goodwill of customers who would be unhappy if they were suddenly abandoned in a restructure, after all part of this deal is to gain telecoms contacts, credibility and customers. For this reason, maintaining and supporting Metaswitch’s current customer base will be important until they naturally churn away.

It is critical that this process is handled correctly, just because you have acquired a company in a space, it does not follow that the reputation and expertise from that company transfers to yours. Care must be taken to keep key talent, retain customers and integrate Metaswitch’s reputation into Microsoft’s.

After this Microsoft will have a decision to make, they may want to integrate Metaswitch’s technology into their own portfolio.  This may be already half-done as one of my points from the recent webinar that Cavell did on this topic (Link below), was that Microsoft knew what they were buying having already worked with Metaswitch to make several products Azure-compatible.

However, they may not want to spend too much energy and time on that, instead choosing to take this new engineering knowledge they have acquired and focus on it on solving future network problems. They may decide to do both.

From the outside looking in we will be able to tell what their choices are, if we see a big integration and sales push in the next year, then clearly, they have opted for full integration and support. If we do not hear much activity following these acquisitions bar some consolidation, then we can expect a big push in 2-3 years’ time when the new technology all these R&D staff are working on gets unveiled. Part of this will also depend on how much Metaswitch is integrated into Microsoft, or whether they are treated as a smaller agile part with less corporate hierarchy and structure imposed on them. I would not be surprised if we saw Metaswitch and Affirmed consolidated into a smaller agile R&D division to work on future networks.

At this point there is plenty to speculate on, but we will see how things unfold. One thing is certain, after sitting on the edge of it for so long, Microsoft has entered the telecoms space for good now and many companies who weren’t their competition before are now, so it will definitely be an interesting time for the telecoms industry.

You can also read my colleague Patrick Watson’s recent thoughts on Why We Should Have Seen This Coming.  

For more detail and background on Microsoft’s acquisition of Metaswitch you can watch a recording of Cavell Group’s webinar: The Impact of Microsoft’s Acquisition of Metaswitch.

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