The brewing competition between Cisco and Silver Spring Networks just lost its subtlety.

The networking giant today bought Arch Rock, a privately held company that specializes in standards-based mesh networking technology for monitoring data centers and, more importantly, for connecting different assets on the grid (namely, AMI networking solutions). Yesterday, Cisco cut an alliance with Itron, the smart meter maker, that will lead to Cisco complementing Itron's meter offerings with AMI networking hardware and software.

With these two deals, Cisco has created the foundation of a communications platform for remote meter reading and, some day, for demand management and possibly home automation. That's the same basic strategy Silver Spring has been following for the last several years. Silver Spring is debatably the undisputed leader in the AMI networking space, as it's out in front of the market with some of the industry's largest AMI networking deployments.

Cisco has money, time and expertise. Silver Spring has signed contracts. It has also been trying to prepare for an IPO, according to sources. Who will win? It's hard to say at this point. The real challenge for both companies, though, is that the customer base in this space is small indeed. There are only around 3,100 utilities in North America. By contrast, Cisco sells IT networking equipment to millions of different customers. With that said, there is opportunity for growth beyond AMI applications, including distribution automation, networked charging infrastructure for EVs, etc.

These utilities will likely create their networks with technology from one or two vendors. Many of the smaller utilities will base their decisions on the test results from the larger ones. Thus, the fate of manufacturers will hang by a few contracts. Silver Spring's track record helps it. Then again, it has been embroiled in controversy in California. An independent consultant will deliver a report today to the CPUC on PGE's smart meters, which include networking software and components from Silver Spring.

"This acquisition makes a lot of sense to me. Albeit later to market than Silver Spring Networks, Trilliant and others, Arch Rock, in my eyes, is the most interesting startup in the AMI Networking space," said Rick Thompson, president and co-founder of Greentech Media. "This acquisition provides Cisco with the targeted technology solution it needs to move its partnership with Itron from a marketing message to a market reality."

Also  interesting to note is that Arch Rock CEO Roland Acra has a long-time relationship with Cisco that spans years. Prior to taking the helm at failed core router startup Procket Networks (which sold its IP and assets to Cisco for $89 million in 2002), Mr. Acra was a 13-year veteran and senior VP at Cisco.

Cisco, however, has less extensive field experience. On the other hand, the company has a history of successfully absorbing acquisitions. Last year, it bought Richards-Zeta Building Intelligence for controlling AC and other appliances in buildings. If the company can weave all of these technologies together and absorb some more, it could become one of the first large companies to offer a comprehensive network for controlling and monitoring power consumption.

Arch Rock is in a way a double-whammy for Cisco. The company first came to prominence by offering tools for monitoring and controlling power in data centers, an increasingly lucrative market. Although data centers only account for around 2 percent of the electricity consumed in the U.S., the total is growing and corporations have shown a willingness to invest in data center improvements. Arch Rock competitors include SynapSense, Sentilla and Power Assure. Hewlett-Packard resells SynapSense's technology.

Cisco, of course, already has several data center clients. Potentially, this will give Cisco an easy, early route to monetize Arch Rock's technology. Over the long haul, it can then try to take the Arch Rock technology into building control and the grid. SynapSense, in fact, is already pursuing a similar strategy. Will Silver Spring try to get into data centers? That could be tough considering how crowded the field has already become, but you can't rule it out, either. The company, according to sources, has been trying to broaden its customer base.

"GTM Research plans to release the definitive U.S.-based smart grid market forecast in September. In that forecast, we look specifically at AMI Networking (smart meters and AMI network communications infrastructure) as a sub-segment of the larger smart-grid market," Thompson added. "We see the AMI market in the United States reaching its peak of $3.5 billion in the 2012-2013 timeframe and tapering off slightly through 2015."