Cisco buying WebEx for $3.2 billion

Blockbuster deal gives Cisco popular hosted collaboration service provider

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.

WebEx and Cisco said the acquisition will expand each company's move into new markets — Cisco into small and mid-size collaboration, and WebEx into the large enterprise. The combination of WebEx and Cisco technologies could also produce converged voice, video and data collaboration services in the future.

"From a distribution perspective, we have presence in small and medium business, but our enterprise presence is only 20% and our global presence is under 20%," said WebEx CEO Subrah Iyar "With Cisco's strong distribution capabilities, we can drive that more. We'll also be able to support some of Cisco's small and medium business customers with our channel."

(See Network World's Q&A with WebEx's Gary Griffiths on what WebEx brings to the table.)

"Technology synergies are a little bit farther out in time," between WebEx's services, and Cisco's IP voice, video and collaboration platforms, Giancarlo said. "We do think there are synergies for integrating voice and video into the WebEx offering to continue to improve the experience there," he said, but added that this kind of product integration with WebEx would be "medium- to long-term."

The acquisition of WebEx furthers Cisco's ambitions in the enterprise business collaboration market, as well as in the emerging markets for social networking and Web 2.0-style collaboration technology.

"Some of [our] more recent acquisitions in this area bring out two themes," said Giancarlo. "One is the entire concept of social networking which, as we move forward, is the ability of tech to allow people who are not physically located together to collaborate in the same medium and connect for similar purpose."

The deals Giancarlo refers to include the March 5 announcement to buy Utah Street Networks, a social networking company which runs Tribe.net — a free Web site that allows users to 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 allows enterprises to set up social networking features for a corporate Web site. (Terms of both deals were not disclosed.).

The other theme, Giancarlo said, is an overall trend in IT towards subscription-based services.

"That's a theme 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."

But don't interpret this as Cisco's plan to enter the router-and-switch rental business.

"I don’t think I can say at this point in time that it's going to drive an entirely new business model for Cisco," Giancarlo says. "I think we're far away from that."

Cisco's foray into social networking and collaboration, combined with its strengths in IP voice, video and data networking and security could produce an interesting cocktail for business of all sizes, as well as consumers, once all the ingredients are shaken together, analysts say.

"Acquisitions such as Five Across and Utah Street give Cisco a whole new experience to offer these anywhere-workers" or mobile end-users in enterprises, such as sales teams or executives," said the Yankee Group's Kerravala.

With the WebEx buy, Cisco indicated that future integration of its IP voice and telepresence technologies into the online collaboration offering were not much of a stretch. (See Network World's Q&A with Ned Hooper, Cisco's vice president of corporate business development.)

"It's not something that they've done before," the Yankee Group's Kerravala said of Cisco's providing software as a service, "but it’s a viable business model, as the success of WebEx has shown. It will be interesting to see what Cisco comes up with when they combine all this stuff."

Learn more about this topic

Cisco-WebEx: FULL COVERAGE

* Cisco to buy WebEx for $3.2 billion

* WebEx key to Cisco's transition into applications

* Cisco-Microsoft smackdown coming

* WebEx customers hoping for innovation

Q&A: Cisco: Our strategy

Q&A: WebEx: What we bring Cisco

PODCAST: Billion with a B

ALSO SEE:

Cisco's 8 acquisitions in 2006

Cisco Subnet: The independent voice of Cisco customers

Join the Network World communities on Facebook and LinkedIn to comment on topics that are top of mind.

Copyright © 2007 IDG Communications, Inc.