WebEx meets Cisco for $3bn (and best geek hotels)

Next slide please. It's Friday's IT Blogwatch: in which Cisco continues its acquisition spree by swallowing up WebEx. Not to mention the best geek hotels around the world...

Marc "1" Ferranti reports: [you're fired -Ed.]

Cisco Systems Inc. announced today that it would acquire WebEx Communications Inc. for $3.2 billion ... Cisco said the company's network-based technology will help it extend its unified communications strategy, particularly for small and medium-size businesses ... [and that] WebEx's technology and services should complement Cisco's efforts.

...

WebEx offers technologies and services that allow companies to hold real-time and asynchronous data conferences over the Internet, as well as share Web-based documents and workspaces. The company's subscription-based services strategy is seen as a key to its success. Cisco said it plans to preserve that business model after the acquisition, which still needs government approval.

The deal is the third acquisition in recent weeks for Cisco ... marks another step in Cisco's effort to diversify from its core business of building switches and routers that control Internet data traffic.

Matt Marshall clarifies the price:

Cisco Systems, the giant networking company best known for building Internet routers, has agreed to buy WebEx, the video conference company, for a net $2.9 billion in cash ... You’ll see headlines elsewhere of a $3.2 billion purchase price, which includes WebEx’s $300 million in existing cash balance.

...

The deal is expected to close in the fourth quarter.

Eric Bangeman adds:

Perhaps best known as a provider of networking hardware, Cisco has been on a shopping spree over the past several years in an attempt to broaden its portfolio and expand its reach into new markets. Most of those moves passed under the radar, but in 2003, Cisco moved into the home with its acquisition of Linksys, which added one of the most-highly-recognized names in home networking to its portfolio.

Since that time, Cisco's acquisitions have become more diverse. Although many of the companies it has purchased have been players in one of its core businesses, others at first seem to be an odd fit for Cisco. Earlier this year, Cisco developed a sudden fascination with social networking. In February, it snapped up Five Across, which developed software that allowed businesses to create social networking spaces on their web sites. That acquisition was followed by the purchase of some of Utah Networks' technology assets a couple of weeks ago. Utah Networks is best known for launching and running Tribe.net, another social networking site.

The acquisitions point to a Cisco determined to become a major player in the online collaboration space ... With a full offering of collaboration tools and social networking sites, security products to keep the bad guys out, and the hardware to make sure it runs effectively, Cisco is positioning itself to offer businesses a one-stop, top-to-bottom, hardware and software collaboration solution.

Eric Ogren likes what he hears:

WebEx generated $380M in 2006 with 2100 employees and 28,000 customers. This is a change for Cisco -- acquiring a substantial company with customers, sales channels, etc. Usually Cisco looks for technology that can work its way into the switch after a few releases. In this case WebEx is positioned as a communications and collaboration technology with particular strengths in the small and medium business markets.

Cool move. Cisco keeps moving up the stack to deliver network-based services and online communities. Not only does Cisco sell the infrastructure to connect users with services, but they will also be selling subscription-based technology layered on top of the network. This is a good capability for Cisco to own and leverage over the coming years. This puts them firmly in competition with market leaders Citrix GoToMeeting and Microsoft LiveMeeting.

Joe Weisenthal thinks it's just like the old days:

During the last bubble, Cisco was famous for its furious acquisition strategy, and it got to the point that integrating small networking startups into its own product line became one of its core competencies. After the bubble burst, the pace of its acquisitions slowed down, in part because the company's stock, which it used as currency, became less valuable. Lately, however, the company's gotten back to its old ways, although a couple of its purchases are of a different nature.

...

[Cisco] already has similar offerings for large businesses, but WebEx is a hosted offering, which makes it well-suited for small- and medium-sized business, a group that almost every major tech company is gunning for right now. Along with its recent purchases, this acquisition makes it clear that Cisco sees its future growth not in selling actual equipment (although that will be its core business for a long time), but in selling services and software that make use of its equipment.

Nick Denton chuckles:

The acquisition -- by a hugely important but rather boring hardware maker, of a sexy web conferencing service -- is akin to Sony's acquisition of a Hollywood studio. The execs will talk endlessly about the synergies; magazines will devote cover stories to convergence; and the combination will look increasingly vainglorious over time.

We presume John Chambers, a chief exec who hasn't had much media profile recently, was encouraged by Dan Scheinman, head of Cisco's media solutions group. From Scheinman, the exec who led the acquisitions of Scientific Atlanta, Linksys and, most recently, Tribe, we can no doubt expect a strategic rationale as empty as the one behind Cisco's social network strategy: "so consumers can consume what they want online."

Cisco's chief development officer Charlie Giancarlo has a "blog":

We feel strongly that network-based collaboration is a large part of our future ... Whether for students using the web to collaborate on research projects or for medical specialists to work together to make the best medical decisions, collaborative technologies are growing in sophistication and use because people want to work or play with other people regardless of physical proximity.

Many pundits are trying to define Web 2.0 or even predict Web 3.0. What Web 2.0 means to me is straightforward: Web 2.0 technologies allow users to collaborate directly over the open platform of the Internet … Web 2.0 is perhaps most evident in the consumer marketplace with social networking sites, mash-ups and video sharing services. This is the “play” part of Web 2.0.

...

The philosophy at the core of our innovation strategy is to use the “network as a platform” for the next explosion in business and consumer applications. WebEx fits this philosophy exactly.

But Michael Arrington yawns:

Webex is ... expensive and bulky. And if you aren’t on a newish Windows PC, there’s a good chance it isn’t going to work properly. WebEx is exactly the kind of a company that is being disrupted by new web startups, who are creating cheaper and better alternatives to older web applications.

A bunch of startups have launched over the last year to provide cheaper and more flexible alternatives, including open source “clones” of WebEx functionality. Teamslide, DimDim (open source), 1videoconference (open source), Vyew, Live Meeting and SlideShare are all competitive with WebEx in one way or another, and all are better at cross platform collaboration.

Steve Borsch thinks there's more to this than meets the eye:

1)  Unified messaging is the buzzphrase that every enterprise vendor in the game is pitching and/or striving to offer ... buying the Web conferencing leader (87% market share) instantly positions Cisco as an infrastructure-centric player

2) Scalable delivery. WebEx early on built their proprietary MediaTone network. In my view, that network alone is worth the price Cisco will pay. When you examine the revenue picture of Akamai, Limelight and others -- without even knowing what's on the WebEx roadmap for future services -- this makes even more strategic sense.

3) Lastly, think about the future of collaboration. Will it be a two dimensional, flat-file world? Nope. It will first be a social networking, collaborative place -- bringing together project/task management, file management, calendaring and more -- but will absolutely require incredibly rich communications to be an integral part of these offerings.

Web 2.0 hosted offerings are amazing and the energy, effort and enthusiasm ... are still ones that most CIO's wouldn't dream of betting their businesses upon ... leaders need to be pretty certain that their vendor will back 'em up and be there with performance when needed.

Om Malik has another angle:

For the price of two YouTubes, Cisco just bought a company that had sales of $380 million, and a net income of around $47 million. The move, a smart one, is actually part of a bigger chess game the company is playing against Microsoft. Microsoft with its communications efforts is increasingly competing with Cisco in the VoIP business. The two companies will continue to butt heads as the worlds of computing and communication collide and become COMMputing.

...

WebEx which started out as a simple web conferencing company has started to take on some of the qualities [of SharePoint]. Shared workspaces, email and even office type apps are part of WebEx’s extended offerings ... WebEx has about two million customers, many in the small to medium sized businesses - an area of focus for Cisco in recent years. With the Linksys business unit’s special focus on SMB, this deal has very little downside, unless Cisco manages to mess things up.

Microsoft's Alex Barnett despairs of his Redmond overlords:

I personally can't help thinking that Microsoft has missed out big-time in capitalizing on the early opportunities in this space and the learning that goes with it. When I joined Microsoft nearly five years ago, I'd show colleagues the power and magic of the [WebEx WebOffice] solution and asking why we weren't doing this - and got I reactions like 'cool', but we...just can't do that. That view is changing, but it's taking awfully long time to turn the ship. SaaS. Really - it's a no-brainer.

Oh, and Alice Hill? We've got to stop meeting like this:

Anyone remember when drag queen Ru Paul was the WebEx spokesperson back before the crash? Things have certainly changed.

Buffer overflow:

Around the Net Around Computerworld Previously in IT Blogwatch

And finally... Best geek hotels [no, your humble blogwatcher's Luxor hotel didn't make it in]

Richi Jennings is an independent technology and marketing consultant, specializing in email, blogging, Linux, and computer security. A 20 year, cross-functional IT veteran, he is also an analyst at Ferris Research. Contact Richi at blogwatch@richi.co.uk.

Copyright © 2007 IDG Communications, Inc.

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