Cisco Systems Inc has made a major foray into software as a service and web conferencing with the $3.2bn acquisition of WebEx Communications Inc.
The acquisitive San Jose, California-based networking vendor normally spends around $100m a month on picking up start-ups with technology that it can fold into its own portfolio.
However, as VP of corporate business development Ned Hooper said, it has also broken with that tradition on occasion over the last couple of years, the first being the $6.9bn purchase of Scientific-Atlanta in November 2005.
WebEx is the next big one and, like the acquisition of the set-top box heavyweight, Cisco is buying partners, channel and market presence in this case. Santa Clara, California-based WebEx is the market leader in web conferencing, with revenue of $380m in 2006. The number two player there is Microsoft with its LiveMeeting service, the result of its 2003 acquisition of WebEx competitor PlaceWare, but it is a distant second and has never really put a lot of effort into the SaaS model for conferencing.
Charlie Giancarlo, Cisco’s chief development officer, highlighted the fact that WebEx offers conferencing and collaboration as services for events, support, sales and workspaces, in real-time and asynchronous mode, adding that Cisco intends to preserve all aspects of WebEx’s subscription-based model, for which there are already 2.2 million registered users.
In other words, Cisco likes and wants to maintain the SMB-focused subscription service where WebEx made its name, not least because Cisco itself has been stepping up its SMB focus on the product side for over a year, so having services to address that same target audience is clearly of interest.
Meanwhile Subrah Iyar, CEO of WebEx, said the Cisco connection should enable WebEx to get into departmental market within enterprise, though one suspects that this may be a taller order, not least because that market is targeted intensely by vendors of on-premises conferencing and collaboration platforms, Microsoft OCS and IBM Sametime through to Cisco’s own Unified Communications platform. Indeed, the proliferation of these products in recent years is doubtless one of the factors that has nudged WebEx into the arms of Cisco.
Aware that conferencing and collaboration per se are set to become ever more competitive markets, WebEx has been diversifying into other, albeit contiguous markets of late. In 2005 it got into the market for technology enabling remote access to PCs with its PCNow service, competing with Citrrix’s GoToMyPC. In January 2006 it partnered with specialist developer Everdream to launch an online systems management offering, and with AOL last year it launched first a free client (AIM Pro Individual Professional), then a paid-for upgrade for the prosumer (AIM Pro Business Edition).
Still, it was undeniable that WebEx faced challenges to grow its overall business and diversify while it remained a midsize company (it has 2,600 employees) with its current revenue. As part of Cisco, on the other hand, it has the potential to get a lot bigger, particularly as Cisco pays increasing attention to SMB.
It will be interesting to see to what extent the newer ventures by WebEx such as systems management and the tie-up with AOL continue under Cisco. Hooper spoke of a thoughtful integration of WebEx into Cisco, and in as much as all WebEx’s services drive more traffic across networks, Cisco will probably be interested in maintaining them. The AOL alliance, since it is designed to go from consumer through prosumer to SMB, may actually fit rather well with Cisco’s own growing interest in that end of the market.