Cisco: Customers drove us to block Microsoft/Skype

CEO Chambers says appeal is on behalf of users expecting interoperability

Cisco's appeal of the European Commission's approval of the $8.5 billion Microsoft/Skype union is customer driven, Cisco CEO John Chambers said this week.

Addressing a small group of reporters via TelePresence at Cisco facilities around North America, Chambers said customer desire for interoperability forced Cisco to appeal the EC ruling. Cisco issued its appeal last week, citing interoperability concerns between Microsoft/Skype and its own video offerings as well as those from other vendors.

BACKGROUND: Microsoft to acquire Skype for $8.5 billion

Cisco and Microsoft are fierce competitors in unified communications and collaboration, and the prospect of Microsoft adding Skype and its user base to the Microsoft Lync collaboration platform has Cisco scrambling to slow the deal and seek concessions.

"We have a tremendous amount of respect for Microsoft," Chambers said. "We are going to compete aggressively in collaboration, and partner in data center. Customers expect us to interoperate and work together. Microsoft does not see that as importantly as I do. But it's what we are hearing from customers. They don't only want you to interoperate but expect you to."

Cisco had to release its own TelePresence Interoperability Protocol (TIP) as a condition for closing on its multibillion dollar acquisition of Tandberg, which made Cisco the market leader in videoconferencing. Many in the industry believe Cisco is looking for Microsoft to do the same before it can proceed with Skype integration.

"We have always gone with open standards, it's the right thing to do on the video side," Chambers said.

Chambers says the new trend of employees bringing their own devices (BYOD) into the workplace to access corporate data and applications makes interoperability critical.

"With BYOD ... interoperability is at the forefront more now than ever," he says. "Microsoft thought interoperability was very important with TelePresence and Tandberg. I think it's in Microsoft's interest to interoperate in the long run. Each of us, if we miss market transitions, it will cost us over time. Service providers don't want this (incompatibility) either. They want any device to access any content. Is this really an important trend? I think it is. If you make the pie bigger, I'll take smaller slice but I'll increase my profits."

Cisco was rumored to be eyeing its own purchase of Skype last year before the Web video company went public. Chambers confirmed that Cisco did take a look at Skype but the company could not see a fit for its customers.

"We had a chance to make that acquisition a very long time ago," he said. "But it would be difficult for our service provider customers to benefit from. (Forgoing the acquisition) was the right decision then and the right one now. We bet on video six years ago. It'll be the next form of communications and IT. We're believing service providers will be a key differentiation."

Chambers discussed a range of issues with reporters, including reports this week that Cisco is looking to sell its Scientific-Atlanta set-top box business. Cisco acquired Scientific-Atlanta for $7 billion in 2005 but the consumer cable TV device is a low profit margin product, and Cisco is a margin-focused company.

Yet Chambers stressed that the set-top box is a vital component to Cisco's cloud-based video strategy - which the company calls Videoscape - and he adamantly denied that Cisco is looking to sell off the business.

"Do we believe (video IT) is going to occur? Yes," he said. "Can you imagine anyone believing us not being in the set-top box business? After growing 23% last quarter? Can you imagine what our service provider customers would do if we left that business? To move out of the market as a leader and the market's evolving as we hoped, it'd be (foolish) to leave that business.

"We have a lot of weaknesses and I have a lot of weaknesses as a leader," he continued. "Disinformation is occurring at a more frequent pace. We don't bluff. We don't say things we don't mean. If we think a trend is very key, we're going to make a statement. We will play it out for what we think is right for the industry. The movement would occur gradually. (Selling Scientific-Atlanta) is an issue that is not even discussed at all at Cisco. It's so strategic to our future direction, I'm surprised it keeps getting challenged. This is mainline for (some of our customers)."

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