Cisco Betting BIG with Purchase of WebEx
Cisco Systems, Inc. (NASDAQ: CSCO) today announced the acquisition of WebEx Communications, Inc. (NASDAQ: WEBX), the leader in web conferencing, for $3.2 billion - or 7 times WebEx projected revenue of $457 million in 2007. Cisco is betting big with this acquisition on the potential upside in web and video conferencing revenue in the unified communications market space. Cisco is also countering Microsoft's advances in the unified communications market.
Cisco is one of the top 20 innovators of The Innovation Index.
WebEx Revenue Machine
Although the WebEx year-over-year revenue growth is hovering around 20% in the last couple of years, the total revenue growth of WebEx has been solid over the last five plus years. Cisco must have looked at the total revenue growth, and the available market in the next five to ten years in providing such a generous valuation to WebEx. Whereas the total revenue growth of WebEx looked good, the net income was another story:
The WebEx Net Income has been steady around $50 million for the past three years. Of course, Cisco must have considered the lack of net income growth owing to WebEx investing into the overall revenue growth.
Cisco Telepresence and WebEx Collaboration
"We have a lot of strength in voice and video, which we think can help to improve their user experience," Cisco Chief Development Officer Charlie Giancarlo said in an interview today.
Cisco introduced perhaps its biggest innovation of 2006, the Cisco Telepresence, a new technology solution that provides brand new in-person experiences between people, places and events whether they are across town or across the world. However, not all companies can afford Cisco's Telepresence; in particular, the SMBs, and departments of larger companies. For these companies, the WebEx solution of web conferencing and collaboration will be more economical and will see greater adoption. There was also a deeper problem and product gap with Cisco Telepresence: Context and Collaboration. The large company customers want to do more than simply hooking up the Cisco Telepresence gear and participating in full motion video conference - these customers want to collaborate. This was perhaps the biggest weakness of Telepresence. Now, Cisco will be able to provide a comprehensive solution to its large customer base with WebEx Collaboration built into the Telepresence. The WebEx Collaboration suite will provide context to Cisco Telepresence solution. In turn, Cisco Telepresence will see far reaching adoption in the larger corporate market, and the resulting upside in revenue.
Giancarlo had said in December, 2006 that Telepresence may be the quickest Cisco product to reach $1 billion in annual sales. Now, Giancarlo is about half way there with the acquisition of WebEx, and if Cisco is able to fully exploit the WebEx Collaboration solution, Giancarlo will reach there sooner.
WebEx Telesales and Web Sales
What the various press releases and announcements have not talked about is the strength of WebEx Telesales and Web Sales machine that Cisco is acquiring. Led by David Berman, the worldwide VP of Sales and Service, the WebEx Telesales and Web Sales team is a selling machine. Cisco can definitely benefit from the sales process and the sales factory that David Berman and his team have developed at WebEx. If Cisco wants to win in the SMB market with the SaaS (Software as a Service model), WebEx will be able to provide Cisco the necessary framework and the model. And if Cisco is able to replicate this and grow this model further, Cisco can reap a potential windfall which will be greater than the stated acquisition cost of $3.2 billion.
Bottomline
Subrah Iyar and Min Zhu founded WebEx in the mid nineties. Their vision was to grow WebEx into a billion dollar revenue enterprise - although WebEx market cap grew to over one billion dollars, the revenue were about half way to the billion mark. Could Iyar, the current CEO, have taken WebEx to billion dollars in revenue? Possibly. Why would Iyar sell WebEx now after going through the pain of growing the company to $100 million, and then to almost $500 million? Perhaps ten years plus in growing a company becomes tiring, and the challenge of growing a business versus creating new products becomes monotonous. I am sure we have not seen the last of these entrepreneurs though. The WebEx investors, stock holders and employees are rejoicing today on the big acquisition and the upside on their stock valuations.
References:
Bloomberg
Cisco is one of the top 20 innovators of The Innovation Index.
WebEx Revenue Machine
Although the WebEx year-over-year revenue growth is hovering around 20% in the last couple of years, the total revenue growth of WebEx has been solid over the last five plus years. Cisco must have looked at the total revenue growth, and the available market in the next five to ten years in providing such a generous valuation to WebEx. Whereas the total revenue growth of WebEx looked good, the net income was another story:
The WebEx Net Income has been steady around $50 million for the past three years. Of course, Cisco must have considered the lack of net income growth owing to WebEx investing into the overall revenue growth.
Cisco Telepresence and WebEx Collaboration
"We have a lot of strength in voice and video, which we think can help to improve their user experience," Cisco Chief Development Officer Charlie Giancarlo said in an interview today.
Cisco introduced perhaps its biggest innovation of 2006, the Cisco Telepresence, a new technology solution that provides brand new in-person experiences between people, places and events whether they are across town or across the world. However, not all companies can afford Cisco's Telepresence; in particular, the SMBs, and departments of larger companies. For these companies, the WebEx solution of web conferencing and collaboration will be more economical and will see greater adoption. There was also a deeper problem and product gap with Cisco Telepresence: Context and Collaboration. The large company customers want to do more than simply hooking up the Cisco Telepresence gear and participating in full motion video conference - these customers want to collaborate. This was perhaps the biggest weakness of Telepresence. Now, Cisco will be able to provide a comprehensive solution to its large customer base with WebEx Collaboration built into the Telepresence. The WebEx Collaboration suite will provide context to Cisco Telepresence solution. In turn, Cisco Telepresence will see far reaching adoption in the larger corporate market, and the resulting upside in revenue.
Giancarlo had said in December, 2006 that Telepresence may be the quickest Cisco product to reach $1 billion in annual sales. Now, Giancarlo is about half way there with the acquisition of WebEx, and if Cisco is able to fully exploit the WebEx Collaboration solution, Giancarlo will reach there sooner.
WebEx Telesales and Web Sales
What the various press releases and announcements have not talked about is the strength of WebEx Telesales and Web Sales machine that Cisco is acquiring. Led by David Berman, the worldwide VP of Sales and Service, the WebEx Telesales and Web Sales team is a selling machine. Cisco can definitely benefit from the sales process and the sales factory that David Berman and his team have developed at WebEx. If Cisco wants to win in the SMB market with the SaaS (Software as a Service model), WebEx will be able to provide Cisco the necessary framework and the model. And if Cisco is able to replicate this and grow this model further, Cisco can reap a potential windfall which will be greater than the stated acquisition cost of $3.2 billion.
Bottomline
Subrah Iyar and Min Zhu founded WebEx in the mid nineties. Their vision was to grow WebEx into a billion dollar revenue enterprise - although WebEx market cap grew to over one billion dollars, the revenue were about half way to the billion mark. Could Iyar, the current CEO, have taken WebEx to billion dollars in revenue? Possibly. Why would Iyar sell WebEx now after going through the pain of growing the company to $100 million, and then to almost $500 million? Perhaps ten years plus in growing a company becomes tiring, and the challenge of growing a business versus creating new products becomes monotonous. I am sure we have not seen the last of these entrepreneurs though. The WebEx investors, stock holders and employees are rejoicing today on the big acquisition and the upside on their stock valuations.
References:
Bloomberg
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