Cisco spends $635 million to buy OpenDNS to beef upsecurity

Cisco has announced the acquisition of OpenDNS, a ten-year-old Internet security company, for $635million.

To understand what OpenDNS does, it's first important to understand a fundamental part of how theinternet works:

When you type a website name (like businessinsider.com) into your Internet browser (like GoogleChrome or Microsoft Internet Explorer), that request goes back to your Internet service provider(ISP, like Comcast or Time Warner Cable), where it matches that name against a directory of IPaddresses, which is essentially a web server's home address. You can type "64.27.101.155" intobusiness security your browser's address bar to see this for yourself.

This is called the "Domain Name Service," or "DNS," and each ISP maintains their own directoryservers. But those servers can be slow or unreliable, meaning that even on a fast connection, yourweb pages will be slow to load.

YouTube/Kevin RoseOpenDNS investor Chris SaccaOpenDNS was founded by entrepreneur DavidUlevitch in 2005 as an alternative to those ISP-specific DNS services that could offer faster, morereliable service. It was offered for free to consumers (enterprises could pay for extra features), andsubsidized largely by advertising that would appear if you typed in a URL that didn't work.

Last year, OpenDNS reported that it had 50 million consumer customers and 10,000 payingenterprise customers.

Over time, and especially in the face of competition from Google, OpenDNS discontinued itsadvertising strategy and started shifting its focus towards making web security products forbusinesses -- a hot market in the wake of continued security breaches at the likes of Target, Sony,and Home Depot.

See, once your web traffic is traveling through OpenDNS servers anyway, there are all kinds ofadditional administrative powers it can give to IT departments on both computers and smartphones.

For instance, OpenDNS can be used to monitor employee web page usage and block offensivecontent. Plus, with its more advanced "Umbrella" product, it can detect unusual anomalies in trafficwithin the network to help security pros detect and deal with hack attacks, using artificialintelligence to guess where and when the next strike will hit.

OpenDNSOpenDNS CEO David Ulevitch

Ulevitch himself was famously fired from the company before returning in 2009, ahead of bringing inbusiness security new investors.

OpenDNS had raised $51.3 million over five rounds, including participation business security fromthe likes of Sequoia Capital, Greylock Ventures, and Lowercase Capital (plus a personal investmentfrom Lowercase's Chris Sacca).

For the acquisition-happy Cisco, this is a natural fit as it works to boost its security product line. Thedeal is for $635 million in cash, plus equity awards and retention bonuses for OpenDNS employeesmaking the transition.

"By providing comprehensive threat awareness and pervasive visibility, the combination of Cisco andOpenDNS will enhance advanced threat protection across the full attack continuum--before, duringand after an attack," says Cisco's press release.

Recently, outgoing Cisco CEO John Chambers squashed the rumor that it was going to buy FireEye,a hot security startup that partners with OpenDNS, for $8 billion.