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Cisco's WebEx buy: A big software bet

By Network World Staff , Network World , 03/19/2007
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Cisco's acquisition of WebEx is perhaps its most aggressive move yet - and likely not the last - to transform the company from network hardware vendor to applications and software provider.

The $3.2 billion deal, announced last week, puts Cisco in Microsoft's face, as well as other software companies, and positions the company for a fight in the battle to supply corporations with unified communications tools and services, analysts say. And as the market for routers and switches matures - and Cisco's growth prospects dwindle - it behooves the vendor to move into markets that are expanding at a much faster clip than network hardware.

To maintain its ambitious 10% to 15% annual growth targets, Cisco has sought to push into higher-margin software markets, such as unified communications and high-end IP video systems. The last several acquisition moves by Cisco show the network vendor's appetite for Web 2.0 and collaboration-related software.

"Some of [our] more recent acquisitions in this area bring out two themes," said Chief Development Officer Charles Giancarlo, in a conference call last week. One is the entire concept of social networking. In March Cisco bought Utah Street Networks, a social-networking company that runs Tribe.net - a free Web site that lets users set online communities around topics, post job openings or other activities. Almost a month before that, Cisco announced plans to acquire Five Across, a maker of software that lets companies set up social-networking features for a corporate Web site. (Terms of both deals were not disclosed.)

The other theme, Giancarlo said, is the WebEx deal as it addresses a move toward subscription-based services. "That's starting to penetrate more businesses - whether it's software businesses or subscription-based services," Giancarlo said. "Potentially, even some hardware-based businesses [could adopt this model], where they may [adopt] a more pay-by-the-drink model, rather than selling a piece of iron and getting one price at that point in time."

Frank Dzubeck, president of consultancy Communications Network Architects, says Cisco's software ambitions could also be seen as a survival tactic.

"It's the whole concept of 'get out of the hardware business'," Dzubeck says. "Basically, the only thing you can do [with hardware] is make it better or repackage it and make a platform out of it. So what do you do? You go into the software business."

Those already established in the corporate software business probably won't be supportive of Cisco's choice of midlife career change.

"This deal puts Cisco aggressively in the face of Microsoft," says Mike Gotta, an analyst with the Burton Group. "Cisco has become a multiheaded beast all of a sudden . . . [with] some assets in play. It might not know how to play them, but it puts them right in Microsoft's face."

Beyond Web conferencing, those assets include WebEx MediaTone Network (MTN), a global network and platform specifically designed for secure delivery of on-demand applications. Microsoft is trying to build the same thing with its collection of services under its Live brand.

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How far does Cisco take collaboration?By NetworkWorld Community on March 15, 2007, 10:43 amAnother example of Cisco moving into collaboration. Re: Cisco to buy WebEx for $3.2 billion. But how far will it go? Does it begin to assemble all these...

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What the blogosphere is saying about the Cisco-WebEx dealBy Cisconet on March 15, 2007, 3:55 pmBloggers are devouring the $3.2 billion Cisco-WebEx deal. First up is a blog by Charlie Giancarlo, Cisco's chief development officer and Linksys president. He...

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WebEx move is smartBy Tom on March 16, 2007, 1:39 pmA smart move by Cisco! We see the acquisition of WebEx as a sign that even a powerhouse like Cisco had not solved the problem of how people can best share and...

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What the blogosphere is saying, Part 2By Cisconet on March 16, 2007, 7:36 pmThe blogosphere Friday is still abuzz with Cisco's surprise $3.2 billion bid for WebEx, with conferencing rivals, industry analysts and tech observers offering...

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Any worries that Cisco will use this for evil purposes?By Anonymous on March 19, 2007, 11:04 amNo doubt that a good percentage of Cisco's "competitors" use WebEx to host their online meetings. Conceivably Cisco could know exactly with whom its competitors...

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Not to worry....By MrCarpenterTech on March 20, 2007, 6:10 pmI find it extremely hard to get excited about a company who has traditionally provided vastly over priced proprietary hardware, based on a stolen operating system,...

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