Cisco Thursday announced plans to acquire WebEx for $3.2 billion, giving the network equipment giant a leading position in the hosted collaboration-services market.

WebEx gives Cisco access to more than 2 million mostly small and midsize companies that use hosted online collaboration software, instead of buying their own systems. The move also puts Cisco in competition with Microsoft's Live Meeting and Citrix's GoToMeeting collaboration service.

The deal, expected to close in the fourth quarter of Cisco's 2007 fiscal year, is Cisco's largest since its acquisition of cable-TV equipment maker Scientific-Atlanta in 2005, for $6.9 billion.

"With the acquisition of WebEx, Cisco is continuing to invest in intelligent network technology and innovation and to use the network as a platform for the next-generation explosion of business and consumer applications," said Cisco Chief Development Officer Charlie Giancarlo during a conference call with investors, analysts and media Thursday morning.

"[WebEx's] network-based technology is a natural extension of Cisco's vision for unified communications and collaboration."

Buying WebEx now makes Cisco a hosted-applications service provider for the first time. Cisco offers similar functionality to WebEx through its MeetingPlace and Unified Communications products, but these offerings are geared to large corporations who can afford to build internal collaboration systems.

"It's about time" Cisco made this kind of move, says Zeus Kerravala, an analyst with the Yankee Group. "This is huge for Cisco. . . . Collaboration needs to be delivered in a number of ways. Not everyone wants to buy their own hardware and software to do it. If you want to sell collaboration applications to the small and midsize market, it's much easier to do in a hosted model."

Because WebEx is a Web-based service, it lets users set up meetings more easily with outside parties, which is harder to do with internally built collaboration systems, Kerravala says.

WebEx, based in Santa Clara, Calif., has 2,200 employees. It was founded in 1995 and went public in July 2000. The company reported $380 million in revenue in 2006.

WebEx has more than 2.2 million registered users in 85 countries, the company says. WebEx CEO Subrah Iyar and the WebEx business will continue to operate normally, and will report directly to Cisco's Giancarlo.