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Cisco Acquires Tandberg, Changes Video Playing Field

Eric Krapf earlier this Summer reported that Avaya was rumored to be interested in acquiring Tandberg. Right target, wrong acquirer.Cisco Systems announced late Wednesday night that it will purchase Tandberg in an all-cash deal for $3 billion. This is in line with Cisco's long time plan to expand its overall IT market presence through acquisitions rather than a "make it here, only" philosophy. The Tandberg price tag approximates that paid for WebEx and is less than half the Scientific Atlanta cost.

During the past few years Cisco has aggressively been promoting its telepresence video solution, designed for the high end market. The Tandberg acquisition perfectly positions Cisco at the other end of the videoconferencing market spectrum for desktop and relatively inexpensive room solutions, with Polycom as its primary competition.

Video is a bandwidth intensive application that helps drive sales of Cisco's networking equipment, upgrades and new installations. In the span of a decade Cisco has repositioned itself from a network infrastructure supplier into the leading supplier of end-to-end communications system offerings encompassing voice and video applications, while also positioning itself as a force in messaging through acquisitions such as PostPath and Jabber.

Videoconferencing has been evolving for more than 30 years, but remains a relatively small solutions market with current worldwide revenues of a few billion dollars. Cisco has been doing yeoman's work promoting the high end telepresence market the past few years and will certainly be a major force in expanding the market at the other end.

Tandberg and Polycom had relatively limited marketing resources in comparison to Cisco's. Cisco showed what it could do to drive a market when it entered IP telephony through its Selsius Systems acquisition almost 11 years ago. IP telephony systems were certainly going to replace traditional digital PBXs, but Cisco certainly accelerated the timetable and forced the traditional voice system suppliers to respond more quickly to the new competitive threat. Tandberg products fit in very nicely with Cisco's UCC portfolio. Competitors such as Avaya will likely partner more closely with Polycom or even consider an acquisition, because the playing field has now changed. Polycom was able to compete effectively against Tandberg, but will find it far more difficult going against Cisco. The Tandberg acquisition will most certainly be followed by others in the upcoming months. Cisco CEO John Chambers said that "You will see us move with a lot of acquisitions over the next year." Cisco is sitting on large cash hoard of about $35 billion, enough to buy into any market space or fill any gap in its current portfolio. Although Chambers has also said it will continue to partner with IT services providers such as Accenture, an acquisition cannot be ruled out. HP acquired EDS last year and Xerox recently announced its acquisition of Affiliated Computer Services. An IT services business is a strategic means of positioning with customers and influencing future technology purchases. Although Cisco is already well positioned with its customer base, a large in-house IT services business of its own wouldn't hurt.