Why Cisco paid $3.2B for WebEx?

webexlogo.pngCisco Systems announced this morning that it is buying web conferencing company, WebEx for $3.2 billion – another sign of the router maker’s ongoing software makeover. For the price of two YouTubes, Cisco just bought a company that had sales of $380 million, and a net income of around $47 million. The move, a smart one, is actually part of a bigger chess game the company is playing against Microsoft.

Microsoft with its communications efforts is increasingly competing with Cisco in the VoIP business. The two companies will continue to butt heads as the worlds of computing and communication collide and become COMMputing. Mark Jo Foley, in an excellent post outlines the growing importance of Sharepoint for Microsoft.

“SharePoint is the definitive OS or platform for the middle tier,” Ballmer explained. It is the “missing link” (my words, not his) between personal productivity and line-of-business applications

Bing! WebEx which started out as a simple web conferencing company has started to take on some of the qualities Microsoft’s Steve Ballmer (via Foley) outlines. Shared workspaces, email and even office type apps are part of WebEx’s extended offerings.

Here is what Cisco’s Chief Development Officer, Charlie Giancarlo has to say:

Web 2.0 is perhaps most evident in the consumer marketplace with social networking sites, mash-ups and video sharing services. This is the “play” part of Web 2.0. But this collaborative technology will make huge advances in the business effectiveness with online collaborative tools like WebEx’s. WebEx was one of the early leaders in this market and remains a leader 10 years later, making intercompany collaboration accessible and easy for their customers.

Bing! Bing!

WebEx has about two million customers, many in the small to medium sized businesses – an area of focus for Cisco in recent years. With the Linksys business unit’s special focus on SMB, this deal has very little downside, unless Cisco manages to mess things up.