Cisco to shell out $3.2bn for WebEx

Cisco Systems is planning to spend $3.2bn to buy online conferencing company WebEx.

The WebEx software and hosted service, which allows for on-demand collaboration between businesses, will find a home in Cisco's Unified Communications product portfolio.

Cisco executives said during a conference call that the WebEx service is a key product for SMEs. The networking giant already offers some collaboration tools but it does not offer a hosted service such as WebEx's. With a hosted service, businesses can use collaboration tools but do not need to buy the expensive software and hardware required to host on their own network.

Charles Giancarlo, chief development officer for Cisco, said: "WebEx was one of the early leaders in the market for making network-based technology. And it's a natural extension for Cisco's Unified Communication products to give users inside and outside the workplace a way to work and collaborate."

Cisco still generates the bulk of its revenue from sales and servicing of routers and switches that shuttle IP packets across corporate networks and the web. But the company has been pursuing several new markets, such as telephony and video, over the past few years to generate growth. So far, Unified Communications is proving to be a big winner. During the company's second-quarter profits call in February, executives said sales of products in that family had increased 38 per cent compared with a year ago.

The WebEx acquisition is expected to close in Cisco's fiscal fourth quarter 2007, which ends in July. WebEx will then become a part of Cisco's Development Organization while maintaining its service-based business model. Subrah Iyar, CEO of WebEx, will remain with the company. He will report directly to Giancarlo.

WebEx was founded in 1995 and held its IPO in July 2000. The company, which has almost 2,200 employees, reported revenue of $380m for 2006.

Marguerite Reardon writes for CNET News.com