Cisco Throws Down Gauntlet With $3.2B WebEx Buy

Taking direct aim at Microsoft, Cisco plans to acquireWebEx Communications for US$3.2 billion. Under the agreement, Cisco will purchase all of the outstanding shares of WebEx for $57 per share. The transaction is expected to close in the fourth quarter of Cisco’s fiscal year 2007.

The deal dramatically ups the stakes in the competitive Web conferencing market, which is on track for rapid growth.

Two Players

Currently, the market is dominated by two large players — Microsoft and WebEx — as well as a handful of smaller, but still significant, vendors such asRainDance andNetspoke.com.

Last year, Microsoft acquired PlaceWare, folding it into its LiveMeeting video conference offering. The market is still relatively evenly divided between WebEx and LiveMeeting, Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times.

“However, Microsoft has been gaining more share since it took over PlaceWare,” he noted.

That was likely one of the reasons WebEx allowed itself to be acquired, he speculated. “It realized it couldn’t compete with Microsoft and needed a large parent.”

Closing the Gap

The acquisition of WebEx not only closes a gap in Cisco’s product functionality but also poises the company to catapult past Microsoft in Web conferencing market share.

“Cisco will be able to bring to market stronger collaboration for video conferencing than anybody else is able to offer,” Enderle said.

Microsoft has to go through third parties such as HP for the hardware, he pointed out. The two products, essentially, must be integrated for use.

“The historic problem with video conferencing is that it is difficult to use,” remarked Enderle, “so the more a product is integrated from the beginning, the better. Out-of-box integration and ease of use is what Cisco will be able to bring to the table with this acquisition.”

Collaboration Is Key

This is the message that Cisco is imparting with its announcement of the acquisition.

“As collaboration in the workplace becomes increasingly important, companies are looking for rich communications tools to help them work more effectively and efficiently,” said Charles H. Giancarlo, chief development officer at Cisco.

“Cisco believes the network is a platform for all forms of communication and collaboration, and WebEx’s technology and services portfolio complement Cisco’s leadership in the unified communications and collaboration market, while providing Cisco with a new and unique business model to expand its presence in the fast-growing SMB (small and mid-sized business) market.”