If Cisco Buys Skype, It Will Be All About Video

According to the TechCrunch blog, citing “reliable sources”, Cisco has already made an offer for Skype, wanting to get in ahead of the former eBay unit‘s planned IPO. This would need to be in the multibillion dollar range, given that Skype is targeting $5bn from its flotation – far more than the $2.75bn eBay got for selling it to private investors last year (or the $2.6bn it had paid to acquire it in 2006).

Focal Points:

• Neither firm would comment of course, but such a deal would boost Cisco's push into unified communications (UC) and collaboration, as well as its rising interest in consumer markets, bringing some of the capabilities it sells to enterprises to the broader user base.
• The most obvious synergy would be in its expanding UC platform, which has massive strategic importance, putting the network at the heart of all of an enterprise‘s behavior and data needs, and relegating the server‘s role to storage. This contrasts with the approach of Microsoft, which wants to place more intelligence and value in the server platform to keep Windows and its services central; or the fully web-based, and less controllable, strategy of Google.
• Skype could bolster Cisco‘s UC strategy, give it a strong over-the-top element to counteract Google (but under Cisco‘s control), and certainly fit the core business better than it did eBay‘s. While eBay had to struggle with the challenge of making a web telephony business profitable, Cisco would have very different objectives – enhancing the revenue and profit of its far broader and higher value models. "Embedding the Skype technology into some of Cisco's existing products, like WebEx and Unified Communications, will only make those products more valuable," Zeus Kerravala, analyst and senior VP at Yankee Group, told CNet. "So they wouldn't necessarily have to make the traditional consumer Skype service hugely profitable."
• That would be good news for Skype too, which remains over reliant on continuing success for consumer Skype Out. Although it has started to turn a profit since it split from eBay, if its service declines it will have few other options – unless its technology has been integrated into something larger, from a financially stable giant like Cisco.

Corralling a major force in VoIP could be advantageous to Cisco and could expand its growing consumer web strategy, but in its enterprise heartland the main interest is more likely to be video. Video is the main driver of increased investment in IP networks, still Cisco‘s bread and butter, and in software frameworks such as security and apps delivery. As such, it has become an obsession for the IP giant, which recently bought video platform ExtendedMedia. CEO John Chambers recently commented: "Video is today's VoIP network”, and Skype brings one of the biggest online videoconferencing bases, claiming 40% of calls using its software are for video chat.