Update: Cisco goes SaaS with $3.2B WebEx buy

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.