“Cisco to Buy WebEx”

http://www.redorbit.com/news/technology/902812/cisco_to_buy_webex/index.html?source=r_technology

In what appears a very strategic M&A deal, Cisco has decided to acquire a company named WebEx Communications for a very large chunk of cash–$3.2 billion. The former is a leading supplier of networking equipment, such as routers and switches. WebEx, meanwhile, is in the applications sector–providing services which allow companies to organize online meetings. Why exactly is Cisco willing to put forth so much money for WebEx?

Is Cisco’s strategy merely to broaden its focus in networking? Basically. According to the article (linked above), Cisco wants to expand into communications, social networking, and other fields in an attempt to help heighten network traffic and ultimately demand for its networking gear. The company has a lot of cash at this point and, in effect, the ability to set such a plan in motion.

What we see here is that Cisco has been playing the “network effect” card, as discussed in class, to perfection. The value of its networking gear to a service provider (and ultimately consumers) increases with the number of network users. Users, of course, grow with the success of WebEx’s service and other useful networking opportunities (Cisco’s goal here). Although the article does not mention how WebEx was valued, I would find it particularly interesting to learn Cisco’s methods in ascertaining the fair market value of its assets.