Why Cisco paid $3.2B for WebEx?

51 Comments

webexlogo.pngCisco Systems announced this morning that it is buying web conferencing company, WebEx for $3.2 billion – another sign of the router maker’s ongoing software makeover. 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. Mark Jo Foley, in an excellent post outlines the growing importance of Sharepoint for Microsoft.

“SharePoint is the definitive OS or platform for the middle tier,” Ballmer explained. It is the “missing link” (my words, not his) between personal productivity and line-of-business applications

Bing! WebEx which started out as a simple web conferencing company has started to take on some of the qualities Microsoft’s Steve Ballmer (via Foley) outlines. Shared workspaces, email and even office type apps are part of WebEx’s extended offerings.

Here is what Cisco’s Chief Development Officer, Charlie Giancarlo has to say:

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. But this collaborative technology will make huge advances in the business effectiveness with online collaborative tools like WebEx’s. WebEx was one of the early leaders in this market and remains a leader 10 years later, making intercompany collaboration accessible and easy for their customers.

Bing! Bing!

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.

51 Comments

JK Singh

I landed on this, very cool and interesting project for desktop sharing. WebEx seems over rated looking at some thing free and open.
Just quoting from the site directly.

What is ShowMyPC.com?
This is an open source Remote PC access project, an alternative to subscription
based sites like WebEx or Gotomypc.
ShowMyPC uses SSH port forwarding mechanism using Open Source SSH client plink
and VNC Remote access software. Users can use there own middle SSH server.
No registration, no logins, all open and free. Read More.

rob

the latitude product is alive and breathing as meeting space.

cisco does over meeting space as a hosted platform but not to the same degree that webex does – it more of a “one off” for larger enterprise customers.

Dean Collins

Lol – yep while Cisco may be buying a trusted ‘brand’ in Webex it still doesn’t make any sense the way it’s been explained by a lot of people.

It initially sounded like the old dot com buybble strategy of “Synergies”

I even have a joke theory – The acquisition strategy is being driven by the Treasury Department in Cisco who have so much cash in the bank just sitting there they decided the ROI on the acquisition was higher than the T bills they are currently invested in (and less work to manage as you said it’s already a stable and trusted brand).

BTW I have another theory as well but for that you’ll need to go to my blog and search on ‘Orative’ for those of you too lazy to do so wait until Cisco’s next announcement about them buying an IM platform and you’ll get why they bought Webex.

It’s just the extension of any form of communication, any time anywhere.

Cheers,
Dean Collins
http://www.collins.net.pr/blog

Harvitpal

Cisco is not only going to be head to head with MSFT. They will also be up against, Google! Then lets not forget Skype will follow down this path as will in some form. And it only gets better! Adobe is following down this path as well.
Bad move CSCO…looks like they are running out of ideas!

AllSaidAndDone

Yeah Herb and I am confident that I can gather a team for 1 million that can BYA. I love the way WebEx work.. I just dont understand why many people here are cribbing about it. Is it something else beside technology .. something that now a days consumes many of our northern brethens…something political ..he he ?

anonymous

What happens to the Latitude Communications product that Cisco acquired?

Pfff!!! gone in smoke…..

Cisco has spent years integrating Latitude into its Unified Communications products.

I guess the latitude stuff can’t hold up as a Hosted product – thats where Webex comes in.

Herb

I understand making acquisitions when Cisco’s stock is overvalued but I still do not understand buying versus building when the buy price is 3.2 Billion. I am confident I could build a team that could make a better product than Webex for 1 billion. I would then have 2.2 billion to market my new tool.

AllSaidAndDone

WebEx is definitely the best product .. I have been involved in hundreds of instances where tech support simply send me a webex link and after clicking it it initializes , launches the app and the desktop is shared within 20 seconds. Till to day I have never experienced any issues with WebEx. In any case they were the pioneer (at least in the windoze world) and if you forget great free software like RealVNC. Of course Windoze sucks in any case.. a OS like creature that evolved into a monster with remote connectivity slowly built into it (as opposed to open systems and Unix where ssh / telnet or other kinds of remote connectivity was the norm from the 60s). Microsoft windows is a backward Operating System and everyday even from a desktop perspective the gap between windoze and Linux is coming down. Linux adoption will only grow in the days to come and with Microsoft’s stubborn approach of not playing nice with anyone else will only accelerate its eventual demise.

brindey

I host windows and do not have a problem running PC Remote Access, as well as many other windows of firefox, itunes, Word, and Excel- all at the same time. That said, I think the issue is that many people do have a problem- and each of their customer’s should be satisfied. I think you are right, SaidAndDone, Linux is more open to new and changing features which gives it better versatility for users.

five_whys

I cant get this.. totally stumped..

I agree with all rationale on adding strength to SMB focus and so on… BUT lets not forget that Webex
– literally sucks when you try to use it – somebody mentioned above that Adobe has better service… the list of competitor is quite big
– it is reaching to commodity type service – prices falling rapidly.. the cost of switching is not high for this type of service, so very little hold on customer base!!
– last year, specially in last few months, Webex has gone out agressively and signed plenty of flat rate contracts to avoid competitors taking market share.. however, this does hurt the overall space..

Given their pretty good record of successful acquisitions, you would expect better move than this!

PD

With Web 2.0 companies like Yugma, Yugu, Glance, View, DimDim, I think Cisco/Webex will loose ground in the SME space. Seems expensive given it’s older technology, with higher cost structure.

Rick

Now know why the increase in Webex stock price last several months.

Leakage?

Om Malik

Nikos Theodosopoulos of UBS had this to say in his note:

We believe CSCO & MSFT continue to become more competitive as they evolve their portfolios, especially in the unified comm. mkt. WEBX’s main competitor is MSFT, which acquired PlaceWare in 03, followed by CTXS. Yesterday MSFT announced acquisition of Tellme Networks, a voice recognition play, which we believe will compete w/ CSCO as well.

Om Malik

Mark Sue from RBC had this to say:

Facilitating group-think and packaging it into one easy-to-use solution for the SMB customer base may be Cisco’s goal.

Video in the enterprise segment is still in the early days of deployment, but the growth in web-conferencing and video within the SMB segment via the emerging on-demand subscription model is taking hold. Microsoft is also aggressively targeting this growth opportunity within its “Microsoft Live” platform.

Furthermore, Cisco’s partner IBM may also broaden its product offering considering its older Lotus notes products have limited collaboration functionality.

csven

I suspect this will go well beyond MS and Cisco. With PLM finally getting some broad adoption (many people I know working corporate only reported moving to PLM in the last couple of years) and those vendors increasingly moving to provide services for small business, unified communication becomes a much bigger and broader deal.

rob

Cisco already has a competing product with Meeting Place – the only difference is that Meeting Place is premise and WebEx is hosted.

This won’t have anything to do with it’s $300k telepresence solution – totally different solutions with radically different price tag.

tl

Cisco’s earlier purchase of social networking assets from Tribe.net them the core SNS technology to make webex more sticky. One could imagine a potential consumer play (think of a realtime photo browsing experience between dispersed family members / friends, and many other scenarios) – i don’t know if that is their core demographic though.

What makes this exciting is that they have purchased a ‘space’ where real ‘work’ happens – where people are spending real ‘time’ – they could allow social networking to grow from w/in this webex space. you can imagine many cool scenarios here…

Gigaom may differ on this line of thinking: http://gigaom.com/2007/03/03/cisco-tribe-five-across/

ab

We’ve been using Adobe’s Connect product now for a few months and are finding it far superior to WebEx…I expect they will continue to gain market share against WebEx moving forward. In this light, the rich valuation seems unjustified.

jc

Sorry, but I also like skypes “voip kernel” approach, embedding the skype kernel into handsets. They are becoming quite the innovator in that area and can drive voip on many many different devices. Not to mention their 3party app2app api which opens up the message channel for developers, this will take them very far if they do not eat their young.

jc

Sorry, I forgot to mention, adobe is also vying for the voip space and p2p space and is no slouch in software, what they are missing is an enterprise database and customers who use
it.

jc

well, 2 million paying users for 3.5 billion…I see the goal, its the limited user base, 2 million, that is a big question mark. The race to the bottom on voip will be interesting, and I would not bet agains yahoo, ms, skype, cisco, or any contender. In fact, I bet oracle is about to get into the picture. Why? Becase you are talking about the convergence of many techonlogies, not the least of which is the enterprise database as we know it. Skype is doing a good job of making its userid the single tying factor to voice and the potential for infinite services on top of its massive social/consumer/business network. With googol trying to pony up with at&t, I do not see them as having a clear focus…they are too busy creating too cool web 2.0 tools for free…”they can’t see the forest for the trees…we are quite smart emperor’s dressed in the best and brightest attire. Cisco is a carnivore, but so is ms, and oracle.

Paul Bissett

The collaborative business and service efforts are a large component of the future of Web 2.0 applications and is a big part of the business plans of many of the Web 2.0 companies. With the advent of commodity computer, particularly commodity computing cycles (a la Amazon Web Services like EC2/S3), the ability for smaller companies like 37signals to compete with Microsoft and Cisco in this sphere will only be enhanced. It will be interesting to see if the ROI on the $3.2B over the next couple of years is positive.

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