Cisco Snaps Up WebEx for $3.2 Billion, Positions to Fend off Microsoft

By Tara Seals

Cisco Systems Inc. will acquire Internet conferencing market leader WebEx for $3.2 billion, it said Thursday. The deal will give Cisco an on-demand Web conferencing expertise to complement its ongoing unified communications rollout, particularly in the SMB segment. It also positions Cisco to fend off deepening competition from Microsoft Corp.

Cisco and Microsoft have both placed an almost laser-like focus on unified communications since 2006. After rolling out a deep, LAN-based portfolio of UC products, Cisco jumped into the conferencing market late last year with the launch of its telepresence video collaboration product, which can be hooked into its network-based unified communications offerings. Microsoft however has been touting its Web conferencing expertise it acquired main WebEx rival PlaceWare Inc. in 2003.

With WebEx, Cisco aims to not only match Microsofts capabilities by capturing the market leader WebEx has a 65 percent market share for Web meetings but will give it a play in the services game, a Microsoft stronghold. WebEx’s service portfolio includes Web conferencing and the ability to share Web-based documents, offered on a subscription basis. The services market is a new one for Cisco, and the vendor said Thursday it will preserve the MRC business model going forward.

Such tit-for-tat competitive matching may become more common as the stakes for UC continue to ramp. In fact, Microsoft said Wednesday it would acquire Tellme Networks Inc., the speech-enabled software specialist, to provide a deeper expertise in hosted speech applications that will be integrated into Microsofts unified communications applications. Speech-enablement and IVR has been a core competency for Cisco for some time.

The deal will also help Cisco strengthen its UC outlook by tapping the SMB market, some said following the announcement.

With this acquisition Cisco is trying to increase its SMB exposure, which has been a stable and high-growth market for Cisco, said Nikos Theodosopoulos, senior analyst foe communications equipment at Wall Street analyst firm UBS. At a later stage WebEx may expand into large enterprises. Note that 80 percent of WebEx sales are U.S.-based, therefore potential revenue synergies can also be driven via international expansion.

Following the close of the transaction, WebEx will become a part of Cisco’s Development Organization. The deal is expected to close in July, the fourth quarter of Cisco’s fiscal year 2007.

Cisco Systems Inc. www.cisco.com  

Microsoft Corp. www.microsoft.com  

WebEx www.webex.com