Analysis: Cisco, Microsoft Battle For Unified Communications

Cisco Systems and Microsoft are spending some serious money as they step up the competition in the realm of unified communications. Cisco is acquiring Web conferencing services company WebEx Communications for $3.2 billion, a deal that was announced just one day after Microsoft said it would buy voice/speech services player Tellme Networks for a reported $800 million.

The big-ticket buyouts are just the latest maneuvers by the two companies. Last month, Cisco unveiled version 6.0 of its Cisco Unified Communications system at the VoiceCon Spring 2007 show. It also acquired social networking company Utah Street Networks and is in the process of buying another, Five Across. Microsoft, too, announced enhancements to its unified communications product lineup at VoiceCon, where Jeff Raikes, president of Microsoft's Business Division, in a keynote speech predicted that within three years 100 million people would have the ability to make phone calls from Microsoft Office applications.

"WebEx's network-based technology is a natural extension of Cisco's vision for unified communications and collaboration," said Charles Giancarlo, Cisco's chief development officer, during a conference call to discuss the acquisition of Santa Clara, Calif.-based WebEx. The move vaults Cisco into the No. 1 spot in Web conferencing, ahead of Microsoft's Live Meeting (based on WebEx competitor Placeware, which Microsoft bought in 2003), wrote Jan Dawson, an analyst at market-research firm Ovum, in a report.

The WebEx acquisition, expected to close in Cisco's fourth fiscal quarter, complements the vendor's push into the SMB market given that about 80 percent of WebEx's customers are SMBs, Ovum says.

Acquiring WebEx makes sense for Cisco as the networking giant works to fill out its product lineup, says Charlie Tragesser, CEO of Polar Systems, a Cisco reseller in Portland, Ore. While Polar isn't actively looking to get into Web conferencing services, Tragesser says he can envision situations where a customer for Polar VoIP solutions also might ask for a Web conferencing system.

Microsoft's pending acquisition of privately held Tellme Networks, based in Mountain View, Calif., provides the software giant with a hosted services platform for voice/speech recognition services for mobile phones and other devices. Companies such as American Airlines and Domino's Pizza use the Tellme service to request services and information via voice commands. Microsoft wouldn't confirm reports of the deal's $800 million price.

The Tellme acquisition could help VARs build and extend voice-, speech- and mobile-search solutions based on the Tellme platform, and to integrate those solutions with Microsoft's disparate unified communications and Office applications.

"Why Tellme? Because it's the best hosted services platform for speech today," Raikes said. "Their investments in speech recognition and voice enhance our technologies and open it up to more partners and ISVs."

Peter Pawlak, senior analyst at Directions on Microsoft, says the acquisition raises questions for ISVs and other software developer partners that are already creating solutions on top of Microsoft's Speech Server product or preparing for the upcoming Office Communications Server 2007. Microsoft's Speech Server is primarily an on-premise software solution, whereas Tellme essentially hosts its voice-related services.

"If I were in this area, I'd be paralyzed for a bit until Microsoft reveals its road map," Pawlak says. "For a partner that would build around this, you're basically in limbo mode right now while waiting for them to make this all clear."

Raikes said the details of how Tellme's technology will be incorporated into Microsoft's portfolio, as well as its vision of software and services, will emerge after the deal closes in the second quarter. One of the goals of buying Tellme is to get a foothold in a communications area where Microsoft doesn't yet play: interactive voice response (IVR), Raikes said. Speech Server reportedly has not been robust enough for partners and ISVs to build heavy-duty enterprise IVR applications, but the Tellme platform has a proven track record there.