Cisco Systems's $3.2 billion purchase of Web-conferencing leader WebEx was more than just another deal for the acquisition-mad networking giant. In shelling out so much for an established Web-services firm, Cisco made it clear that it intends to move beyond its base in networking hardware and take on rival Microsoft in the nascent "unified messaging" market. That could lead to more innovation and lower prices for a range of customers, from the small and midsize businesses that drove WebEx's early success to the large enterprises that are Cisco's primary domain.
Web conferencing is a service that allows multiple people to hold a conference from their respective desktops by logging in to a shared Web space and sharing documents, text messages, and other types of information, much as a teleconference allows multiple people to participate in a conversation.
The acquisition was unusual for Cisco, says analyst Roopam Jain of Frost & Sullivan, because it deviated from the company's usual strategy of paying relatively little for start-ups or firms with promising technologies. Instead, Cisco paid a premium for a market leader with a sizable customer base and an established distribution channel.
Jan Dawson, vice president of the U.S. Enterprise Practice at tech advisory firm Ovum, says this deal "will contribute to the growth of Web conferencing, especially in the large-business market and internationally, where Cisco has a strong presence." Cisco's director of business development, Charles Carmel, says the deal is also a major part of the company's overall strategy of combining E-mail, phones, text messaging, instant messaging, and Web conferencing into a single unified-messaging service.
The purchase was also seen as a shot across Microsoft's bow: Microsoft's Live Meeting platform plays number two to WebEx, but it leads in other portions of the unified-messaging market. "These two are gearing up for a big fight," says Dawson, adding that the true test for Cisco will lie in how fast it can integrate Web conferencing into its other platforms. Jain predicts the Web-conferencing market will triple, to $21 billion, by 2011 and expects Cisco to make other sizable acquisitions as it attempts to dominate the space.
Even as Cisco Systems moved to expand its unified-messaging product line, a major competitive threat emerged in the form of Google. In February, it announced a partnership with communications company Avaya that would combine Google's subscription-based E-mail, instant messaging, calendaring, and other collaboration offerings (known collectively as Google Apps Premier Edition) with Avaya's networking services. Aimed primarily at smaller companies, the integrated product line is expected to be rolled out later this year, and offers further evidence of the intense interest in combining various communications technologies into a single platform. — Scott Leibs