Update: Cisco goes SaaS with $3.2B WebEx buy

Buying WebEx makes Cisco a SaaS provider for the first time

Cisco announced on Thursday plans to acquire online collaboration service WebEx for $3.2 billion, giving the network equipment giant a foothold in the software-as-a-service market.

[ IDG News Service's Stephen Lawson interview in audio (MP3): Cisco's Charles Giancarlo explains the WebEx acquisition ]

WebEx, the popular online collaboration service, gives Cisco access to small and midsize companies and puts Cisco in competition with Microsoft's LiveMeeting collaboration service. The deal is expected to close in the fourth quarter of Cisco's 2007 fiscal year. The deal is Cisco's largest since its acquisition of cable TV equipment maker Scientific-Atlanta in 2005, for $6.9 billion.

"With the acquisition of WebEx, Cisco is continuing to invest in intelligent network technology and innovation and to use the network as a platform for the next-generation explosion of business and consumer applications," said Cisco Chief Development Officer Charlie Giancarlo during a conference call with investors, analysts and media.

"[WebEx's] network-based technology is a natural extension of Cisco's vision for unified communications and collaboration."

Buying WebEx now makes Cisco a software-as-a-service provider for the first time. Cisco offers similar functionality to WebEx through its MeetingPlace and Unified Communications products, but these offerings are geared to large corporations who can afford to build internal collaboration systems.

"It's about time" Cisco made this kind of move, said Zeus Kerravala, an analyst with the Yankee Group. "This is huge for Cisco.... Collaboration needs to be delivered in a number of ways. Not everyone wants to buy their own hardware and software to do it. If you want to sell collaboration applications to the small and midsize market, it's much easier to do in a hosted model."

Because WebEx is a Web-based service, it lets users set up meetings more easily with outside parties, which is harder to do with internally built collaboration systems, Kerravala says.

"Collaboration has been a big push for Cisco in the last 12 to 18 months," said Scott Sinclair, an analyst with Technology Business Research.

Acquiring WebEx should help Cisco to expand from its usual territory in the enterprise market into the consumer and small and medium-sized business markets, Sinclair said. The merger plays into Cisco's recent moves to build a greater holding of social-networking tools, such as the Tribe.net deal, and a similar acquisition in February of Five Across.

The boards of directors at both companies have approved the deal, so the merger now has to clear antitrust regulations in the U.S. and abroad. Cisco said it expects the deal to close by the end of the fourth quarter.

The deal is the third acquisition in recent weeks for Cisco, which announced March 13 it would buy the file storage management company NeoPath Networks, and said March 5 it had purchased a share in Utah Street Networks, the operator of the social-networking site Tribe.net. Both companies were privately held, and Cisco did not announce the terms of the deals.

WebEx, based in Santa Clara, Calif., has 2,200 employees. It was founded in 1995 and went public in July 2000. The company reported $380 million in revenue in 2006.

WebEx has more than 2.2 million registered users in 85 countries, the company says. WebEx CEO Subrah Iyar and the WebEx business will continue to operate normally, and will report directly to Cisco's Giancarlo.

Ben Ames of the IDG News Service contributed to this report.

This story, "Update: Cisco goes SaaS with $3.2B WebEx buy" was originally published by Network World.