Cisco Becomes a Microsoft Competitor

Throughout its history, Cisco has built its vast portfolio talents through mergers and acquisitions. Indeed, startups in the networking field intentionally developed business plans and product portfolios designed to attract a Cisco buyout. But with two new Cisco buyouts this week -- storage appliance producer NeoPath Networks on Tuesday, and collaboration software developer WebEx this morning -- Cisco appears not just to be building up but building out. And today, analysts believe Microsoft may be on notice.

Thousands know WebEx as one of the first live, online conferencing services, and its obvious FedEx-like approach to doing business in the virtual space isn't lost on anyone. It launched the pay-per-use services model online years before its competition would pretend they came up with the idea first.

Cisco perceives itself as the technological father of the Internet, by virtue of the fact that its trademark appears on the most sizable chunk of IP routing and management equipment. But it hasn't been a service provider, although that's a segment of the technology economy where huge revenues are yet to be realized.

Three weeks ago, Cisco invested $135 million in SOA appliance provider Reactivity - they produce a dedicated gateway appliance specifically for processing high volumes of XML-related data. That should have been our first clue. Next, the NeoPath acquisition gives Cisco a big stake in file storage virtualization, driving a big abstraction layer between diverse storage networks and a unified file system - the kind of file system that's nice to have if your business is processing high volumes of XML data.

Now, WebEx gives Cisco something for those acquired components to be doing. Its intention may very well be to build a class of essential software, such as WebEx's collaboration and conferencing services, that are linked directly to Cisco hardware. So customers seeking to build online customer connectivity in record time may have a single-provider solution on hand.

Microsoft is one of the other major players in the collaboration space, with SharePoint Services. But it doesn't have the luxury of a storage system and services gateway tailor-made for its software, though it does have partners who could develop these components for customers on demand.

This morning, Cisco's chief development officer, Charlie Giancarlo, characterized the WebEx acquisition as a natural mesh of synergetic business philosophies.

"Cisco is an innovation company and the philosophy at the core of our innovation strategy is to use the 'network as a platform' for the next explosion in business and consumer applications," Giancarlo wrote. "WebEx fits this philosophy exactly, as their technology is network- based and hides complexity from not only users, but from their IT organizations as well."

But if WebEx was wont to become absorbed by the first big companies whose philosophy meshed with its own, it would probably have been purchased by AOL years ago. Today, AOL is one of WebEx's partners, with the AIM Pro business-oriented version of the instant messaging platform now developed and driven completely by WebEx. When AOL changed its business model to enable partners to assume the burden of building up many of its core applications, WebEx was happy to oblige.

What's more, AOL and Cisco are copacetic with one another. Cisco has long been considered AOL's technology partner, and AOL parent Time Warner is reported to be a major Cisco customer.

So the stars seem to be aligning themselves just right, especially as WebEx enters the "FedEx-Kinko's" stage of its business history. As a result, financial analysts are beginning to wonder whether Cisco's ready to take on Microsoft in this arena head-on.

"Cisco's move into online collaboration is a bold move into both software and services," Seeking Alpha blogger Eric Savitz wrote this morning. "I can't imagine Ray Ozzie is too happy about this."