Cisco's WebEx Acquisition Signals New Model Aimed At Microsoft

On the heels of the Microsoft (MSFT) announcement to buy TellMe yesterday, Cisco (CSCO) has agreed to acquire WebEx (WEBX) for about $3B in cash.

Microsoft and Cisco have had an awkward dance of cooperation and competition over the years since the first Microsoft Active Directory was launched a decade ago. Today this interaction is getting more heated as collaboration becomes central to corporate IT activities. Microsoft had acquired Placeware sometime ago is #2 in the market after WebEx.

WebEx has a network of 3000 servers and over 2M subscribers who use their technology as an on-demand platform for collaboration. Cisco sees that unified collaboration and communication are growing fast and particularly important in the SMB market when it can be offered in a SaaS format.

With $380M in C06 revenues Cisco is paying about 7.6x TTM sales. Guidance calls for minor reductions to earnings in F07 and F08 with additions coming in F09. Because WebEx has established distribution channels, partners and a strong business model, it will be run as a stand-alone business and integrated into Cisco operations over time.

This is said to represent a “new model” for Cisco. It seems similar to the VMWare structure at EMC for now. Cisco is talking about opportunities in the distribution channel but already has substantial established channels with resellers, direct and lower end products like Linksys.

These moves raise more questions:

1. If more and more people are going to use an expanded WebEx/Cisco platform to collaborate does it mean for the usage of Microsoft Office products?
2. Does this move by Cisco put more pressure on Google to add communication collaboration to their Docs and Spreadsheets platform?
3. Will all three of these vendors take steps to provide better interoperability between their offerings?