Analysts: Cisco looks to fight Microsoft with WebEx purchase

Software as a service is Cisco's objective in the deal

Cisco Systems Inc.'s planned $3.2 billion purchase of WebEx, announced this morning, goes well beyond an effort to gain access to Web collaboration tools; it puts Cisco in a better position to fight Microsoft Corp. in the promising software-as-a-service (SaaS) market, analysts said today.

"This is as much about Cisco competing against Microsoft as it is about [buying] the collaboration technology," Zeus Kerravala, an analyst at Yankee Group Inc. in Boston, said in an interview. "It's a huge deal. Cisco has never had a hosted online delivery business before."

In fact, Cisco has been late to enter the arena, he added. Microsoft already has a collaboration tool, LiveMeeting.

David Willis, an analyst at Gartner Inc. in Stamford, Conn., concurred. "This is Cisco's Google move," Willis said. "You don't just spend $3.2 billion on Web conferencing. This purchase is really about software as a service and Cisco's end run around Microsoft."

As such, Cisco and Microsoft are combatants in a battle, Willis said. "Microsoft has been marketing aggressively against Cisco, and just announced the Tellme acquisition, which is about technology that is core to Cisco's space. Increasingly, these two guys are no longer friends."

Cisco's willingness to spend $3.2 billion shows it is open to buying fully formed companies that have large market share, not just companies in their early stages, Willis added. "They're talking bold steps."

Last year, Cisco purchased Scientific-Atlanta, a video integration and TV set-top box maker, for $7 billion, he noted.

The Cisco and WebEx deal today is expected to close in Cisco's fourth fiscal quarter. Charles Giancarlo, chief development officer at Cisco, said in a teleconference that his company sees the move as important for long-term growth.

"Cisco is continuing to invest in intelligent network technology and innovation and to use the network as a platform for the next-generation explosion in business and consumer applications," he said. Giancarlo also noted that WebEx has 2 million registered subscribers, and said that Cisco plans to preserve the WebEx subscription model, a key differentiator for WebEx.

Cisco is likely to integrate WebEx with its other communications offerings, such as Cisco Telepresence, said Chris Silva, an analyst at Forrester Research Inc. in Cambridge, Mass. "The acquisition is logical, as Cisco is attempting to broaden its portfolio of services and products which rely on the network, and positioning the network as a strategic asset, not merely a conduit for traffic."

A possible next step for Cisco is to "marry social networking technology with the WebEx platform to potentially create a new category of business communications," said Bill Lesieur, an analyst at Technology Business Research in Hampton, N.H. "In the end, Cisco needs to create platforms and hosted services that seamlessly cross the PC, mobile and IPTV environments."

Willis said one possible downside could result from the acquisition. "This purchase will cause some confusion with enterprise customers, since it means Cisco will have [several] different collaborative clients" such as Sametime -- an instant messaging and Web conferencing tool that Cisco is providing with IBM -- and MeetingPlace, Willis said.

WebEx had been making plans for providing its technology as a SaaS platform for small businesses. SaaS is going to be popular, since it is easily available via a Web browser, and users are not charged per client, but by usage, Willis said.

"It is software rental, where there's lower risk with less capital."

Copyright © 2007 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon