Network effects

For a long time now, Cisco Systems has felt it has outgrown the world of networking equipment. But the company’s desire to provide it has a wider role to play has led to some curious acquisitions.

In February 2007, its acquisition of social networking site and online meeting place for Californian hippies,, raised a few eyebrows. But the company’s $3.2 billion purchase of web conferencing and collaboration systems and services vendor WebEx could well be the acquisition that helps it prove its standing beyond networking.

WebEx’s online meeting tools dominate the sector with 64% market share: More than 3.5 million people, spread across 28,000 customers, use WebEx every month. That generated $380 million in revenues in 2006, a rise of 23%, and its on demand model makes it world’s largest software-as-a-service (SaaS) provider.

But acquiring that business alone would not make sense for Cisco, which already has its own range of web conferencing tools. “Cisco’s confusing line-up of three web conferencing products will now need to be rationalised,” says Gartner analyst Matthew Cain, while other observers note that the web conferencing business is soon to be disrupted by start-ups offering free services.

What makes more sense for Cisco is the acquisition of WebEx’s Connect service: an on-demand platform through which customers can both procure and execute third-party SaaS applications, all of which can easily be integrated via WebEx’s infrastructure.

Connect is a distant second-best to’s AppExchange (see Cultivating CRM) – one can only assume that Cisco failed to convince Marc Benioff, Saleforce’s CEO to sell up – but it nevertheless offers the company an opportunity to break into the applications market, and in a way that flatters its networking heritage. Whether WebEx Connect proves to be worth three times the price of, however, remains to be seen.

Talk of the town

Meanwhile, speech recognition software – for long a solution in search of a problem – may have found its groove thanks to a new ‘killer’ application. With the size of mobile phones trending towards invisibility, mobile Internet navigation is proving too fiddly for fingers. This endangers what is expected to be a lucrative revenue stream.

People are, however, used to talking into their mobiles, and so speech could well become the control mechanism for the mobile web. Google is known to have patents for speech-led mobile search, speech recognition leader Nuance is about to launch its mobile platform and now Microsoft has acquired speech recognition service provider Tellme Networks for a rumoured $800 million.

Tellme provides a hosted speech recognition service that supports the automated call centres of customers including American Airlines and Verizon. Microsoft will apply the technology to a number of initiatives, with the product likely to make an appearance within its SharePoint communications server.

But, as Jeff Raikes, president of Microsoft’s business division explains, “the key attraction [of] Tellme was their vision for using their technologies in the mobile search area. Tellme already does more mobile search support than Google and Yahoo combined.”

If the mobile search platform does prove to be as crucial as many expect it to be, this acquisition could give Microsoft the online media differentiator it has been long craved.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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