Chatting with Allan Sulkin from the Cisco Collaboration Summit just now, he said he wasn't expecting to hear a lot about the Tandberg deal, given its current unresolved status. Before VoiceCon, I blogged my opinion that the deal would get done, but this article from Motley Fool makes a strong case that Cisco will be willing to walk away rather than up the bid, as many Tandberg shareholders are demanding.The Fool makes a fair point: Cisco's an acquisitive company. If they let themselves get pushed around by Tandberg, then the next company Cisco tries to buy, and the next and the next, may take the notion into their heads that those numbers for which they're signing on the line which is dotted, are really just opening bids.
To a certain extent, this makes sense, but I'm still not sure it has me convinced. There are basically two kinds of Cisco acquisitions: Blockbusters and building blocks. Tandberg is a blockbuster, as was Scientific-Atlanta, WebEx, etc., as well as, arguably, in days gone by (on a different-looking playing field), were Crescendo and StrataCom. Blockbusters get Cisco into either a new or a dominant position in a crucial adjacent or overlapping market.
Building block acquisitions are really the mainstay of Cisco. Often it's small companies with obscure--at the time--technologies: From Selsius Systems, which got Cisco into the voice business, to the more recent PostPath email move, and tons of security, infrastructure, social networking, application performance companies plus lots more.
I can't imagine the small fry at a startup or young company putting the screws to Cisco when Cisco decides to buy their little company to put another brick in its corporate structure. The kind of negotiating that the Tandberg shareholders are doing now would only happen in the case of the Blockbuster deals, which are fewer and farther between.
Obviously Cisco doesn't want to pay more for Tandberg than the agreed-on price, but I'm not sure that resolving to walk away from the deal would necessarily save the "many billions of dollars over the next few years" that the Motley Fool talks about.
On the other hand, one of Allan's comments to me on the phone today was that Cisco is really going all-in on video (I'm paraphrasing). Cisco clearly sees video as the engine of network traffic growth for the next several years--at least until we get to the point where those holographic images that Cisco likes to demo become more commonplace. At the end of the day, Cisco's goal is to put ever more traffic on every network possible, so that people will continue to need ever bigger switches and routers. They did it with voice: They grabbed market leadership in products, but more importantly, they forced all their (newfound) competitors to finance continued Cisco growth by forcing those competitors to build products that required bigger Cisco switches and routers. Now Cisco can scrabble for VOIP market share with the likes of Avaya and Microsoft, but they've gone quite a ways in maxing out that market's demand for IP infrastructure. There are more network upgrades to do in order to support ongoing VOIP deployments, but the VOIP market is reaching maturity.
So Cisco has to move on to its next traffic generator, which is video.
Video will continue to grow even if Cisco doesn't end up buying Tandberg, but it'll grow a lot faster if Cisco gets Tandberg. In the long run, that additional growth may be more likely to generate "many billions of dollars over the next few years" than any possible savings from Cisco walking away from a Tandberg deal, with the resulting take-no-prisoners reputation that such a move would earn Cisco.
Another thing: Cisco becomes a big, sometimes leading competitor, in the new markets like VOIP, set-tops, and video, that it enters with big deals. But powerful competitors still remain in those markets. In contrast, Cisco owns the switching/routing business. Yeah, I know, HP, Nortel, Extreme, Brocade, etc. etc. Cisco owns that market. If Cisco forces all the competitors in any new market it enters to start doing things Cisco's way--or even if Cisco just creates a rising tide that lifts all the boats in a particular market--the end result is that Cisco wins big in its core market.
Maybe Cisco will back out of the deal out of principle; nobody wants to be seen as a pushover. But, in current and future terms; they can afford to pay more. The decision will be whether they can afford not to do the deal.
