Q&A: Inside Cisco's $3.2 billion WebEx bet

Cisco exec says WebEx technology fits with Cisco's existing unified communications offerings.

Cisco's plan to acquire WebEx for $3.2 billion brings the router/switch vendor into a whole new market, and is indicative of the overall direction the company wants to take — towards software, collaboration and services. Ned Hooper, Cisco's vice president of corporate business development, spoke with Network World Senior Editor Phil Hochmuth about the deal, where WebEx fits into Cisco's collaboration strategy, as well as how the deal relates to its overall acquisition strategy going forward.

(Also see Network World's Q&A with WebEx's Gary Griffiths for WebEx's take.)

In acquiring WebEx, Cisco is entering the hosted applications business. What are the challenges in adopting this new business model?

That is being driven by our customers. We look at customers changing in their desire as how to buy and deploy different technologies and capabilities. As we look at the collaboration products that WebEx offers, interestingly, they have the hosted environment, which is what they are offering today. They also offer a premises-based system, where a customer can buy a fully contained system, but customers haven't bought it, because the power of that hosted model, when you talk about business-to-business communications, has been very strong for their customers.

Could customers expect to see a common brand or combined technology between WebEx and Cisco's premises-based collaboration products, such as MeetingPlace or Unified Communications Server?

We see the WebEx product and capability and our current unified communication products and capability to be very complementary. WebEx has built a leadership in data collaboration. We have leadership in voice and video technologies. Over time, we believe very much that there is a convergence of voice, video and data into online collaborative environments, which will be embraced by all of our customer segments. That's one of the long-term opportunities we are looking at as part of this acquisition.

Was Cisco a WebEx customer prior to the acquisition?

A small one.

Cisco is entering a new market - hosted services — but your top competitors here are familiar: Microsoft, with its Live Meeting, and Citrix's GoToMeeting. What will differentiate Cisco's hosted collaboration offering from other vendors' products?

What our customers have been asking for is to continue to build out the network as the platform. What that means is the network is the one pervasive element in services. It touches everything. By enabling that platform to provide applications across enterprises and [small-to-midsize businesses] and service provider customers, we enable our customers to do new things and expand capabilities.

WebEx is a platform. It is a communications/collaboration platform that is market leading in business-to-business communications. And it aligns and fits very well with our network-as-a-platform architectural strategy. They, like us, embrace partnerships from people who are developing specific applications, to be able to run on top of that platform. So it is a very clean fit for us and a very clean fit for what our customers have been asking us to do for them … We see the network and the build-out of the network as a platform certainly as a competitive advantage that Cisco possesses.

How does the WebEx acquisition fit into Cisco's recent mini-trend of acquiring social networking and Web 2.0 collaboration companies over the last month — Five Across and Utah Street, in particular?

What we see as one of the major trends today is that people are changing how they collaborate, socialize and interface. Consumers tend to lead this. Then we see it migrate its way into the enterprise and business community. We're very focused on building the next-generation of collaborative tools, which includes not just the WebEx type of capability, but enables us to build and integrate online communities into those collaboration tools. We're going to continue to work and get the different engineers and product teams together to develop the long-term product plan. But we see the change in the way people work, communicate and collaboration as a very important opportunity for our customers and ourselves.

So we're talking about a MySpace for the enterprise?

If you think about the instant collaboration capability, integrated with a social network, your ability to locate people that you want to be able to talk to, becomes more powerful. Once you've located them, your ability to communicate becomes more powerful. It could be a MySpace-like consumer community, but it could also be a business community. We're online constantly with our customers and our vendors, and we'll be able to communicate in a much more dynamic way than in the past.

How does your $3.2 billion acquisition of WebEx fit into Cisco's previously stated strategy to acquire smaller start-ups?

The core of our acquisition strategy is to bring in innovative technology and teams to extend our addressable market and to expand our leadership in providing products to our customers.

WebEx is a leader in online collaboration, and they are a leader in building business models to address the small/medium business marketplace. As we talked about growth over the past year, we emphasized how important unified communications and broadly, collaboration is, as well as an increasing push into what we call the commercial marketplace, which is the SMB, where our market share is lower than in other markets. So there's a huge opportunity there.

So when we looked at WebEx — their leadership is in two areas, where we see significant growth and significant market transitions over the next few years. It was a great fit into that strategy.

It sounds like you are using large acquisitions to gain new technology platforms, and smaller acquisitions to augment existing or established products and applications. Is that fair to say?

That's very fair. I would add another dimension to it: where the market is in its evolution. The earlier stage of the market, you can go in with smaller acquisitions and build them with the market over time. The more rapidly expanding the market is, the more valuable, quite frankly, a larger platform acquisition is.

Copyright © 2007 IDG Communications, Inc.

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