Cisco Systems Inc. (Nasdaq: CSCO) snapped up Web conferencing software maker Latitude Communications Inc. (Nasdaq: LATD) Wednesday for about $80 million, beefing up its enterprise VOIP portfolio (see Cisco Gains Latitude).

Latitude's desktop conferencing software enables office workers scattered in different locations to share and collaborate on documents over the Web in real time. Companies have increasingly turned to Web conferencing tools to cut costs and allay fears about traveling.

Latitude’s MeetingPlace software has clocked 40 million minutes per month and is used by many of the top Fortune 50 companies, the company says. Cisco is itself a major user, as is Merrill Lynch & Co. Inc., CitiGroup Corp, Applied Materials Inc. (Nasdaq: AMAT), Bristol Myers Squib, Agilent Technologies Inc. (NYSE: A), Adobe, and Budget Rental Car, among others.

Cisco anticipates having the software integrated with its IP PBX call server, dubbed Call Manager, sometime in January 2004.

Analysts say the timing of this acquisition is interesting, as it comes several months after Microsoft Corp. (Nasdaq: MSFT) jumped into the Web conferencing market with its $200 million acquisition of Placeware Inc. Microsoft has since relaunched Placeware as Microsoft Office Live Meeting (LM). The software giant claims there are over 3,000 companies using LM for Web conferencing.

In conjunction with this software, Microsoft offers what it calls Live Communications Server which provides presence-awareness, instant messaging (IM), and real-time collaboration capabilities in one package.

Cisco executives are keen to emphasize that Latitude’s software works with Microsoft products and is not positioned to compete against it. “It’s integrated with PowerPoint and MSN Messenger and Exchange,” says Rik Moran, VP of marketing in the IP communications group at Cisco.

Still, analysts say that with Microsoft’s dominance in the desktop market, it’s going to be difficult for any company, even Cisco, to compete. “That’s a head-to-head duel all the way,” says Robert Mahowald, an analyst with IDC.

Cisco believes it has an edge. “Presence and instant messaging services depend on a relationship with the network,” Moran says.

It could be that the pie will be plenty big enough for everyone, as the market for real-time Web collaboration tools is exploding. In March 2003, AOL AIM had 31.9 million unique users, while ICQ had 28.3 million, according to ComScore Media Metrix. MSN Messenger reached 23.1 million unique users, while Yahoo Messenger reached 19 million. And all this before the products have really been tuned for business needs.

"Instant messenger needs management features, such as being visible only to those people you are in a Web conference with, which prevents you being disturbed by others on your buddy list," notes Moran. Other specialist companies in the Web conferencing sector include WebEx and Raindance.

Cisco said it would pay $3.95 in cash for each share of Latitude, representing about a 30 percent premium over Latitude's closing stock price on Tuesday of $3.05. All 183 employees at Latitude will join Cisco’s voice technology group.

Latitude, which went public in 1999, reported revenues of $26 million for the first nine months of 2003 and a net loss of $72,000. Shares of Santa Clara, Calif.-based Latitude soared 27.5 percent to $3.89 in morning trading on Nasdaq. Shares of Cisco rose 1.2 percent to $22.62.

— Jo Maitland, Senior Editor, Boardwatch