Cisco buying WebEx for $3.2 billion

Blockbuster deal gives Cisco popular hosted collaboration service provider

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

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 US$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 Thursday morning.

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

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

"It's about time" Cisco made this kind of move, says 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."

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

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

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