I woke up this morning and did what I always do first thing, check my blackberry (shows the life I have). The first message I saw was a press release from Cisco announcing that they were announcing their intention to acquire video specialist Tandberg for $3.2 billion. That's roughly a 25% premium over the previous 3 month weighted average but is a quite affordable for a company with over $30 billion in cash and assets.I do want to say, I wasn't surprised by the move at all. What's more of a surprise is that shopaholic Cisco had not bought them earlier. Video has been a key part of Cisco's overall go to market strategy for the past few years and appears to be the one true killer application that can drive network upgrades (and isn't that what Cisco is really all about?). No matter how much Cisco claims it's trying to drive greater collaboration for its customer base and other things that seem almost philanthropic at times, it's no secret that it has to drive network upgrades for it to succeed. Cisco reminds me a little of the sharp tongued lawyer in the Broadway show "Chicago." I picture John Chambers as Billy Flynn dancing around saying "all I care about is love" while the cash register is ringing in the background. Cisco needs video to get the volume of traffic on the network to stimulate the long awaited network upgrade the industry has been waiting for. And owning video will prove to be more effective than partnering.
The solutions from Tandberg do fill a big hole for Cisco, which has the high end, boardroom system, Telepresence, but that's really more for scheduled meetings between executives. Tandberg's solutions can be used almost ad hoc and can deliver video on an individual level, bringing the benefits of video communications and collaboration to everyone, no matter where they are (queue up "all I care about is love").
From an industry perspective, the move is somewhat counter to where the rest of the vendors are going. We've seen many companies align themselves with one another forming partnerships to deliver broad based, industry standards based solutions. Here I think of another character in Chicago, the killer Velma Kelly singing "I simply cannot do it alone" to Roxie Hart. If you've seen it, Vemla is trying to coax Roxie into partnering with her to fill a hole in her product line (the hole is the sister Velma killed) to deliver a solution to the audience. If John Chambers had been Velma, he simply would have announced his intention to acquire Roxie Hart for an undisclosed amount of cash.
For most of our industry, the theme of collaboration has been both a customer benefit, as the solutions will allow people to interact with each other differently, but also a go to market strategy as vendors collaborate with one another to create choice and deliver solutions. Hence we've seen partnerships such as Avaya/Polycom, Nortel/Microsoft and Siemens/IBM. In fact, one of Tandberg's main value propositions is its ability to integrate into Microsoft's collaboration suite, so it will be interesting to see how that plays out long term. In some cases, smaller struggling vendors have to partner to stay viable, but certainly companies like IBM and Microsoft could afford to buy--but, for the most part, they choose to stay in their core markets (although Microsoft is about to step all over the voice industry). Cisco can easily afford to move into many adjacent markets and over the past few years we've see the company move into Web based collaboration (WebEx), consumer video (Flip), servers (UCS) and now room and desktop based video with Tandberg.
This move by Cisco will create further competition between Cisco and the rest of the communications industry as it will further expand its competitive landscape. Cisco will continue to vertically integrate where it can, creating an even broader definition of "end to end" than it even had before. This creates a competitive situation where Cisco will be vying for business against more than one competitor in most situations. This is one of the main reasons the "ABC" or "anything but Cisco" sentiment has expanded as much as it has over the past couple of years. In fact, I was chatting with a reporter recently about this and how Cisco competitiveness is now showing up in vendor presentations that he would never have thought about in years past.
