March 15, 2007 2:54 PM PDT

Cisco makes big bet on Web conferencing

Cisco Systems is spending billions to prove it can do more than sell routers.

On Thursday it announced it would spend $3.2 billion in cash to acquire WebEx, the No. 1 Web conferencing company.

The WebEx acquisition is part of a much larger strategy. With roughly 70 to 90 percent market share in its core businesses of switching and routing, Cisco needs to find new markets for growth. And while the company may say there is still lots of money to be made from upgrading infrastructure at large companies, Wall Street investors need to see Cisco making aggressive moves to spur future growth.

"(CEO) John Chambers does not want to leave Cisco a $25-a-share company," said Zeus Kerravala, an analyst with Yankee Group.

This quest for growth has been the impetus behind several Cisco acquisitions, both large and small, over the past few years. It's why Cisco is moving into markets such as consumer electronics and even social networking and online entertainment.

"This acquisition speaks to Cisco's willingness to pay a premium for companies that allow it to enter a new market and hit the ground running."
--Chris Silva, analyst, Forrester Research

In February it bought Five Across, an 11-person company based in San Francisco that has developed software that allows large companies to easily add social-networking features to their Web sites without needing to hire a team of engineers. Using this tool, companies will be able to create communities in which users can share audio, video and photos, as well as post blogs, podcasts and profiles. And earlier this month Cisco bought social-networking technology from privately held Utah Street Networks, the operator of the social-networking site Tribe.net.

"For the past 20 years, we have been on a mission to make networking and communications products that change people's lives," said Charles Giancarlo, Cisco's chief development officer. "When you have the same mission statement for that long, it's not a fad. We really believe that we are changing the world."

A decade ago, Cisco wouldn't have even considered buying WebEx, a 2,200-person, publicly traded company with $380 million in yearly revenue. For most of its existence Cisco has focused on buying small start-ups just before they are ready to bring their technology to market.

Bigger fish, established markets
But in the last few years Cisco has adapted its acquisition tactics to also include purchasing large, name-brand companies that already have significant market share, even though finding start-ups with cutting-edge technology is still at the heart of Cisco's acquisition strategy. In 2003, it bought home-networking leader Linksys for $500 million to kick off its own retail brand in that category. Last year, Cisco spent $6.9 billion on Scientific-Atlanta to build out its video and cable offering.

"Our preference, if we are going to acquire, is to buy a smaller company," Giancarlo said. "But if we feel we can digest a larger company and the technology and everything else fits, then that's what we will do."

With a total of 119 announced acquisitions since 1993 under its belt, there is no question Cisco knows how to make acquisitions work. And now the successes of its Linksys and Scientific-Atlanta purchases have likely given Cisco's management team the confidence to spend even more money to grow the company's revenue, not just with cool new technology from start-ups, but also with real products that already garner substantial market share from established, publicly traded companies.

"This acquisition speaks to Cisco's willingness to pay a premium for companies that allow it to enter a new market and hit the ground running," said Chris Silva, an analyst with Forrester Research. "They seem much more willing to bring on mature companies to help them grow, which is a bit of a departure from their traditional strategy of picking up smaller companies."

Indeed, Cisco had other options in the Web conferencing market. The company could have easily bought a smaller start-up for a fraction of the WebEx price. But then it would have had to battle three well-established players--WebEx, Microsoft and Citrix Systems--to gain significant market share.

See more CNET content tagged:
Cisco Systems Inc., acquisition, WebEx Communications Inc., Web conferencing, market share

7 comments

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Money pit
I don't think Cisco realizes that they've just spent billions on a money pit. I had a dismal experience today trying to use WebEx to demonstrate a software service to a group of highly qualified prospects.

After 20 minutes, only half the attendees could access the session. Another 15 minutes on hold with WebEx tech support yielded nothing more useful than an apology from a call center in India for WebEx' "latency" due to a "general outage".

If Cisco wanted to buy a position in the software-as-a-service industry, they should have bought a company that doesn't give SaaS a bad name.

I think it will take Cisco's best engineering resources and a big chunk of their treasury to make this flakey, overrated service work. I know I've used it for the last time.
Posted by dlwhite46 (4 comments )
Reply Link Flag
Dirty little secret Cisco won't tell you.
Want to know the truth about Cisco and streaming? They charge
an arm and a leg for something you can get for free. Cisco uses
(Apples) Darwin Streaming Server software on their Cisco
streamiing solution (content manger and content engines) along
with others. Darwin is FREE software that can be downloaded
and put on about any server and you can stream and do live
video broadcasting for free. So, Cisco spending millions so they
can lock you into a prioriety sytem, no way.
Unfortunately IT department rarely understand this technology
and get sold a bill of goods from Cisco reps to purchase their
hardware. I know because this what I do and unfortunately our
IT staff purchased Cisco solution for 90K just because Cisco sold
it. When we starting configuring the system, we found out that it
uses either MS software, Real software or Darwiin to stream.
They will tell you all about MS and Real and how much it costs
per stream per month but unless you really push them they
don't usually tell you about streaming QuickTime. See you can
stream QuickTime for FREE with about as many streams as you
can push through their pipe. Of course they don't get a kick-
back that way.
So to make a long story shorter. You can download Darwin from
Apple's site and put it on any server/box and then stream
unlimited streams for FREE. But, if you want the best solution,
buy a Apple server (only because it makes configuring it easier)
for a couple grand and stream Quicktime. It's the best tool for
creating rich content. If you want live broadcasting? By a Mac
laptop for 1K and download the free broadcaster and your in
business.
No, I don't work for Apple or Quicktime. I just don't see the need
for spending money when it's not needed. Save the money for
your employees health care expenses.
Posted by istreamvids (1 comment )
Reply Link Flag
Making Money From OSS?
Whoda thunk it. I guess you feel that RedHat, SuSE, etc. are ripoffs, too?

-tom
Posted by ferricoxide (1125 comments )
Link Flag
They Can Be Spotty.....
But, overall, my experience has been decent. Our company has been able to host demonstrations (anywhere from 30-100 participants). However, what we use it for the most is providing support to customers. Sometimes, it's just a lot easier, when supporting someone 1000Mi away, to just take control over their desktop (or even just see what they're seeing).
Posted by ferricoxide (1125 comments )
Link Flag
Why! eAuditorium web conferencing is better & is free
Why would CISCO spend 3 Billion Dollars on Webex when Netdive's eAuditorium web conferencing is far better and it is free. You just pay for Support. So it is delivered on same business model as MySQL. That is you get the software for free and
just pay for support. eAuditorium is way better because it has the most user friendly interface and Voice conferencing & Application Sharing are
seamlessly integrated in. You can check it out
here for yourself:
<a class="jive-link-external" href="http://www.netdive.com/indexea.htm" target="_newWindow">http://www.netdive.com/indexea.htm</a>
Posted by Dean_Ansari (61 comments )
Reply Link Flag
I'll tell you why
Tell you what: use the one that I coded myself. It's also free.

Just kidding. But my point is, they bought WebEx because everyone knows WebEx and almost everyone uses it. I've never heard of eAuditorium, despite the fact that I spent quite a bit of time recently reviewing web conferencing solutions for a proposal. By buying an established market leader they don't have to spend the additional money to force their way into a well established field of competitors.

It's called "A Good Business Decision"
Posted by VTAlum (30 comments )
Reply Link Flag
tribe.net has been down solid for nearly a week...there is rumor it was back up Tuesday night for a while, but when I tired to get on again, the browser -any browser -cannot locate the servers. Why is Cisco buying new things when it can't even manage what it has acquired? What is going on? Does anyone inside tribe.net or the parent companies have any news for tribe.net community subscribers?

We were told in advance tribe would be down for 24 hours, that was set up for last Thursday. Due to frequent outages this year, I joked to my friend "that means they'll be up Sunday" . Sure enough, on the cute whale page that gave periodic time estimates of when tribe would be back, the date got pushed to Sunday. I'm not sure exactly when, but then any attempts to go to tribe.net resulted in either error messages/connection lost or "server not found". THEN we finally had tribe's normal outage page, orange on white, so that was a good sign or so we thought. They claimed to be "waiting on a part", with changing estimates of when it would be up again. I was at school Tuesday night when my friend in California emailed me privately to let me know that tribe.net was indeed up at last. I got the email this morning, but by then, we were back to (name your browser) cannot locate the server at tribe.net
sigh.....

Does anyone know anything? People keep asking if tribe.net is dead permanently. I keep telling them it is just growing pains....but is anyone behind the scenes actually doing anything? "HELLO-o-o-o-o, IS ANYBODY OUT THERE?" I fell like I'm in a Pink Floyd song....but not comfortably numb.

Better yet, does anyone want to hijack tribe.net's great social networking community to another site for adults that actually WORKS ??? No way are most of us going to Facebook or MySpace or other kiddie sites....we are a bunch of tribes without a home...not wandering but wondering....is anyone listening?
Posted by firebird22 (1 comment )
Reply Link Flag
 

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