Cisco Eyes Subscription Business With WebEx Buy

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Cisco Systems is making a play for subscription-based services with its $3.2 billion deal to acquire WebEx Communications, the Web conferencing market leader.

"WebEx's network-based technology is a natural extension of Cisco's vision for unified communications and collaboration," said Charlie Giancarlo, chief development officer at Cisco, San Jose, Calif., in a conference call. "This vision is to give users inside and outside the workplace the ability to interact collaboratively over the open platform of the Internet [and] to personalize, scale, send, receive or collaborate on content whenever and wherever they wish on whatever device and through whatever medium they choose."

Santa Clara, Calif.-based WebEx provides subscription-based conferencing services to 2.2 million registered users. The publicly traded company reported $380 million in revenue last year and has nearly 2,200 employees. It's the No. 1 Web conferencing provider, with a 67 percent share of the market, according to Forrester Research.

"Cisco will preserve all aspects of WebEx's subscription model, as this is one of the key differentiators for the company," Giancarlo said.

Subscription-based services stand to play a bigger role for businesses in general and Cisco in particular, he noted.

"It's a theme that's starting to penetrate more and more businesses, whether its software businesses, subscription-based businesses such as we're talking about today with WebEx, and potentially even some of the hardware-based businesses, where there are maybe more models for 'pay by the drink' rather than specifically selling a piece of iron and getting one price at that point," Giancarlo said. "While I don't think I can say at this point in time that its going to drive an entirely new business model for Cisco -- I think we're far away from that -- I do think as a theme we'll be seeing it touch on more of our business over time."

The WebEx acquisition also adds fuel the competitive fires between Cisco and Microsoft, which holds the No. 2 spot in the Web conferencing market. Microsoft bought WebEx rival PlaceWare in 2003 and is beta-testing new Web conferencing capabilities for its upcoming Office Communications Server 2007. Cisco and Microsoft both partner and compete with each other in the IP communications space.

The WebEx deal reflects another recent theme of Cisco's acquisition strategy: technology that allows people to collaborate regardless of location, Giancarlo said. Cisco earlier this month closed acquisitions of two social networking companies, Five Across and Utah Street Networks. Those purchases will allow consumers to "play together," while WebEx lets people work together, he said.

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