Cisco to Acquire WebEx for $2.9 Billion

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In a March 15 podcast, Cisco Chief Development Officer Charles Giancarlo said the acquisition is the latest step in the fulfillment of Cisco’s vision for network communications and collaboration. The move essentially is an investment in network technology and innovation to meet projected growth expectations in business and consumer applications.

 

Giancarlo also said demand for collaboration technologies is growing, and products and services are grow increasingly more sophisticated in an effort to keep up with business’ need to break down geographic communication barriers.

 

The small to medium businesses (SMB) market is one of the fastest-growing and most consistently growing for Cisco. This acquisition will give the company a leg into the SMB market, which is part of its acquisition strategy to accelerate its presence into growth markets.

 

WebEx serves more than 28,000 clients in 85 countries. The company has 2,100 employees worldwide and did $380 million in revenue and $107 million in operating income in the 2006 fiscal year.

 

After the acquisition, Cisco will have access to the WebEx MediaTone Network, with more than 3,000 servers to support a customer’s entire business cycle and a subscription-based delivery model. It is targeted at the SMB market, with about 2.2 million registered subscribers.

 

These gains will aid Cisco in offering existing and new customers the collaboration and productivity tools that previously were available most often to larger enterprises with IT infrastructures of corresponding size.

 

Giancarlo said Cisco plans to keep the WebEx subscription model in tact because it is a key differentiator for the company and for the capability, and the acquisition will enable WebEx to expand its scope globally, particularly in the departmental enterprise customer segment.

 

According to Cisco spokespeople, WebEx’s products complement Cisco’s product line, and the company sees potential for new customer opportunities through the acquisition.

 

Cisco’s unified communications vision is to make its network the platform to personalize, scale and deliver content whenever users want it, on whatever device they want, through whatever medium they want.

 

Similarly, WebEx likely will expand its offerings and make use of Cisco’s worldwide sales channels to increase its market presence in Europe and Asia, as well as take advantage of Cisco’s technology offerings, distribution and other synergies to leverage its way into corporations and larger service providers in the consumer market.

 

“Cisco has a very strong suite of products and services around voice video communications primarily,” said Subrah Iyar, WebEx chairman, CEO and co-founder. “We are very strong in data. When you combine the two, you get data, voice, video, which makes it very strong on all three fronts.

 

“From a product perspective, they’re very strong in selling products and solutions, particularly to large enterprise networks and carriers. We are very good at selling services to small medium businesses. When you add the two, you have complete products and services for end-to-end IT communications.”

 

Because the market is competitive and growing all the time, Iyar said, the Cisco/WebEx combination will be very powerful and will offer customers cost-saving opportunities.

 

Where before an organization might have had to buy different pieces of separate technology to build a complete solution — and pay more in the process for those different, integrated pieces — now efficiencies and complete solution-delivery format will offer cost and implementation efficiencies.

 

Interestingly, it was WebEx that approached Cisco. Late 2006, Iyar said many companies approached WebEx about a possible merger, and because it is a public company with a responsibility to its shareholders, the interest sparked a market check for other companies that might be serious contenders for a merger.

 

There is no plan to release any of WebEx’s employees.

 

“There’s no need — in fact, we probably need more,” Iyar said. “One of the key things is to retain the people who have the DNA and the know-how. One of the reasons we selected Cisco is because they have the best reputation for integrating companies and retaining employees. My brother-in-law was in a company that got bought by Cisco, and he actually enjoyed the experience.”

 

The acquisition, which has been approved by the boards of both companies, is slated to become official in Cisco’s fourth quarter, roughly the second quarter of the calendar year.

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