3/19/2007 -- Cisco Systems Inc. has made more than a few head-scratching acquisitions in the past, but its purchase last week of Web conferencing and collaboration specialist WebEx -- for a cool $3.2 billion -- has to be one of its biggest. Never fear, analysts say, Cisco's $3.2 billion expenditure isn't so much the stuff of a long-odds gamble at the craps table as it is a savvy -- if risky -- double-down at blackjack.

Cisco officials spin the WebEx buy as a boon to the networking giant's aspirations in the collaboration and communications space. Cisco last week announced a pair of collaboration and communications partnerships (with both IBM Corp. and Microsoft Corp.), and WebEx gives it a turnkey communications (including both audio and video conferencing) and collaborations platform of its own. "As collaboration in the workplace becomes increasingly important, companies are looking for rich communications tools to help them work more effectively and efficiently," said Cisco chief development officer Charles Giancarlo. "The combination of Cisco and WebEx will deliver compelling solutions accelerating this next wave of business communications."

That's about the long and the short of it, analysts say, although the acquisition itself is another case of Cisco trying to diversify away from its bread-and-butter networking roots. "One of Cisco's key long-term goals is to transition beyond the core networking space into applications and supporting infrastructure," write Gartner talking-heads Matthew Cain, David Willis and Jeffrey Mann.

In this respect, the Gartner trio sees the WebEx acquisition as a software-as-a-service (SaaS) play, too. "The market for on-premises applications is saturated and virtually impossible to penetrate, given the presence of vendors such as IBM, Oracle, SAP and Microsoft," they write. "The only viable way for a vendor to become a significant presence in the application space is to change the provisioning paradigm -- in this case, by pursuing a...SaaS...model and making an 'end run' around established on-premise providers."

Similarly, WebEx -- which is known primarily for Web conferencing -- has steadily diversified its own offerings, Gartner notes, citing its delivery of SaaS collaboration capabilities (such as e-mail, team spaces and instant messaging). "We believe Cisco will use WebEx as part of its competitive strategy to aggressively move into the application space through the SaaS model," Cain, Willis and Mann write. "The high degree of name recognition that the WebEx brand enjoys with business users will be particularly helpful to Cisco in its push into the SaaS market."

Not that the acquisition is all upside for Cisco, of course. The networking giant already possesses several existing Web-conferencing products and the WebEx assets will need to be reconciled with these. Gartner anticipates that Cisco will merge the voice-conferencing capabilities of its Unified MeetingPlace offering with WebEx's superior Web conferencing.

The deal complicates the competitive outlook for Cisco, too -- particularly with regard to existing partners (and simultaneous competitors) such as IBM Corp. and Microsoft Corp.

"The deal is part of a broad set of Cisco initiatives and acquisitions in the areas of collaboration and the Internet, which will lead the vendor to compete with traditional business partners, including telecommunications carriers and Internet companies such as Google," they conclude. "The acquisition of WebEx also portends tough competition with Microsoft, whose voice initiatives have been moving into Cisco's core market areas."

Elsewhere, Big Blue's Sametime Web conferencing product more or less competes with WebEx, and Cisco recently inked an agreement to work jointly with IBM to develop an Eclipse-based unified communications client, which would compete with a similar effort WebEx had under way, Gartner points out. --Stephen Swoyer