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3/16/2007
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Cisco Fights For More Space On Desktops With WebEx Deal

It wants to be more than a behind-the-scenes infrastructure player. That'll put it more in competition with Microsoft.

Cisco Systems is spending $3.2 billion to get in people's faces.

Its pending all-cash acquisition of Web conferencing company WebEx Communications shows just how serious it is about moving beyond being a supplier of infrastructure that operates in the background of businesses to also providing software and services that sit squarely in front of end users. The deal, among Cisco's five largest acquisitions ever, also moves it into closer competition with Microsoft in unified communications and collaboration.

WebEx holds two-thirds of the estimated $550 million hosted collaboration services market, Forrester Research says. Its products are mostly for Web-based meetings using audio, PowerPoint slides, and file sharing, though it also has video and chat features. Cisco already has its MeetingPlace conferencing software, and it sells a bundle of IP-based communication products--voice, conferencing, instant messaging, presence, and multimedia--that can be accessed from one user interface. But it doesn't have as effective and simple-to-use a conferencing tool as WebEx delivers, including the hosted service that makes it popular with small businesses. Companies can buy pay-per-use WebEx meetings starting at 33 cents per minute for each user.

Giancarlo expects more deals -- Photo by John Powell/Bloomberg News

Giancarlo expects more deals

Photo by John Powell/Bloomberg News
Cisco isn't talking specifically about what it will do with WebEx, but chief development officer Charles Giancarlo hinted at plans to integrate Cisco's voice and video products into the WebEx offering. That could include incorporating Cisco's more advanced videoconferencing capabilities and even elements of Cisco's studio-based "telepresence" technology, which gives the appearance of individuals being present in the same room, Giancarlo says.

WebEx sales grew 22% last year to $380 million, in part by selling to small but global businesses like TrueModern, a California company that sells modern furniture and bedding for kids. It uses WebEx to share product drawings with factories in Thailand and India, eliminating travel time and cost. TrueModern employees just started using WebEx's PC Now feature to access documents stored on remote computers from their mobile phones. What CEO Edgar Blazona hopes to see from the Cisco deal is the ability to use WebEx for more impromptu communications with people overseas, via instant messaging or video, rather than requiring everyone to call into a conference.

Cisco, with its complex, premium-priced routers and switches, isn't a mainstay among small and midsize companies. But it must attract such companies to succeed in the collaboration and unified communications markets, and bundling unified communications with a hosted collaboration service could be the ticket. "We like WebEx because it's simple," says Blazona. "I hope Cisco creates an interface that will make Cisco products a little bit more user-friendly to smaller companies."

But don't expect Cisco to make a major push into subscription-based services. Giancarlo says services "are not going to drive an entirely new business model for Cisco. I think we're far away from that." He describes it as a "theme that we'll see touch upon more and more of our business over time."

For larger businesses, expect Cisco to give end users that WebEx ease of use by integrating it with Cisco's existing MeetingPlace Web conferencing tool and its unified communications system, and providing it as an on-site, server-based application, says Jeremiah Caron, an analyst at Current Analysis.

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