Datto makes a play for the cloud networking managed services market, which it says is full of enterprise-focused offerings that have ill-served MSPs and aren’t well suited to the SMB market.

Cloud data protection vendor Datto has greatly expanded its networking services component with the acquisition of cloud networking solutions vendor Open Mesh. Portland-based Open Mesh will be operated as a subsidiary company. Terms of the deal were not disclosed.

Datto has had a networking component to its business for several years with its Datto Networking Appliance [DNA] an integrated network appliance with a network edge router, firewall, Wi-Fi, intrusion detection and prevention, and fully integrated 4G LTE failover. Datto has positioned it as a business continuity solution. The Open Mesh acquisition significantly ups Datto’s ante in networking however, and is aimed at making a play for the SMB part of the cloud managed networking services market.

“It is our goal to provide the first cloud networking solution that is both custom-built for MSPs, and for SMBs,” said Matt Richards, Product Marketing Manager at Datto. “It is designed for MSPs to efficiently manage networks for their SMB customers.”

Richards said that there are strong parallels between today’s cloud networking market and the BDR [backup and disaster recovery] market of several years ago, as well as how Datto is responding to both.

“In the early days of the BDR market, it was very disparate with a lot of solutions, and a lot of manual and custom work,” Richards said. “We created a single integrated product line for business continuity, fully integrated with backup. We made it simple to manage and easy to deploy. There’s a parallel to what we are doing here with networking. Network continuity is a natural extension of business continuity. This was not always the case, but it is today. You lose your network, and you lose your business.”

Richards said while there is lots of choice in the cloud networking market, for both SMBs and MSPs, the choices tend to be unsatisfactory.

“Many of the offerings are enterprise products being applied to SMBs, with a good chunk of the features going unused,” he said. “There’s a lot of complexity, a lot of command line interfaces. MSPs who want to manage a customer network have to cobble things together. What they want is simple, fully featured networking for MSPs.”

The Datto Networking line of products created through the acquisition will be available to Datto partners using the same business model Datto has used.

“The networking suite is based on small upfront hardware costs and a small MRR [monthly recurring revenue] component,” Richards said. “We are encouraging Datto MSPs to bundle the networking into an offering they can take out to SMBs.”

Open Mesh will be run as a subsidiary, so as not to interfere with the totality of its business model.

“It’s a successful networking business, and we want to allow that to continue to thrive – not disrupt it,” Richards said. “They did not have a managed service component. Their products were sold at a competitive up-front cost and the cloud management software was free of cost. That model will continue. We will leave it exactly as it is. Open Mesh has about 90,000 networks deployed and 300,000 access points in operation. They just announced new Open Mesh access points yesterday. All that continues to exist. Their partners can choose to offer Datto Networking Appliances alongside it. They can choose the MRR model, or they can stick with access points and switches from Open Mesh. The replacement cycle on network hardware is 3 years, and with customers moving to 802.11ac, partners are finding that it’s a great time to refresh.”

The same philosophy will guide the handling of the Open Mesh channel.

“In the short term, we will leave the Open Mesh channel exactly as it is. We will be absorbing Open Mesh’s technology into the Datto offerings, but their structure and their channel won’t be changed.”

Richards expects that most legacy Datto MSPs will add the Open Mesh solutions to their roster.

“The network is vital, and the vast majority of our partners are already offering a networking solution today,” he said. “However, our feedback from our partners is that while they have existing investments in other technologies around networking, there is no reason not to add this because there is room in the market for a solution like this at this price point.”

Richards said that keeping Open Mesh as a separate subsidiary allows Datto to keep its focus squarely on its core business.

“Running Open Mesh as a standalone business enables us to not lose sight of what we do,” he stated. “We are doubling down on BDR. This acquisition doesn’t make it less important.”

The long-term potential of cloud networking is massive, however.

“In terms of revenue potential, the addressable market for this is in the billions,” Richards said. “It’s a massive market. The BDR market is also large, but this is at least equal. This market looks a lot like BDR did way back when. There are a lot of solutions, and it appears busy, but it’s relatively new in terms of products specifically built for MSPs. That also means that from the MSPs perspective, it’s not commoditized.”

Richards also noted that while the Data Networking Appliance has not been available in Canada, that will change.

“DNA is a Verizon contract, so it’s US only today, but we plan to make it available in Canada later this year,” he said.