Will WebEx Change Cisco?

Cisco Systems Inc. (Nasdaq: CSCO) is acquiring WebEx Communications as part of its goal to lead the next generation of business communications, but the hefty $3.2 billion buy would sit alongside other acquisitions that analysts say have languished.

Yesterday, Cisco agreed to buy WebEx in a $3.2 billion cash deal set to close by August. (See Cisco to Buy WebEx for $3.2B.) Cisco sees WebEx, which offers services such as online meetings, as a way to further help the small- to medium-sized businesses that buy Cisco gear.

Cisco has acquired collaboration technology before, but analysts aren't impressed with the results. "They had a whole bunch of little cobbled-together startups they bought, and to me, it never had any real meat on it," says Frank Dzubeck, an analyst with Communications Network Architects.

Those pieces included MeetingPlace, a conference-calling application acquired with Latitude Communications in January 2004, and Orative, which offered applications including conference calling for mobile phones. (See Cisco Lines Up Latitude and Cisco Ingests Orative .)

In buying WebEx, Cisco says it's just following the trends set by its enterprise customers. Collaboration is becoming a big deal in business communications, so Cisco should have a hand in that, chief development officer Charles Giancarlo says. Plus, WebEx touches on the "hiding complexity" buzz phrase that Cisco CEO John Chambers has been tossing around -- meaning, Cisco wants a hand in technologies that provide new communications features while being easy to use.

Cisco probably thinks it can move WebEx into new aspects of its business, says Tom Nolle, an analyst with CIMI Corp.

"Cisco must view this similarly to the way they view Scientific Atlanta ," Nolle says. "There's already a sales organization that can drive this in the normal channel, and Cisco also plans to drive it in its channel."

Cisco commented along those lines in canned remarks yesterday. "We believe that there is significant scope for WebEx as part of Cisco to expand its presence globally and to move further into the departmental enterprise customer segment," Giancarlo said. (Cisco officials couldn't be reached for further comment today.)

Lately, CEO Chambers has talked about selling services and "architectures" rather than point products, since he expects low-cost challengers to storm the router market. (See Cisco Rolls Out Roadmaps.) These new directions have gotten Cisco into untested terrain in recent months, though. Cisco's mysterious Media Solutions Group, for example, has bought a couple of social-networking startups, saying Cisco wants to be part of changing the way companies talk with customers. (See Cisco's Consumer Branding Crisis and Cisco Adds to Social Stockpile.)

"They're going further and further afield from the hardware side into the software side. I don't think that's a change in the strategic direction for the company -- it is the strategic direction," Dzubeck says.

— Craig Matsumoto, West Coast Editor, Light Reading