Why Skype is perfect for Cisco

The companies complement each other so well, it looks as if it was a match made in heaven. In fact, I would say are much more compatible than Skype and eBay were ever. eBay acquired Skype in 2006 for U.S. $ 2,600,000,000.

Apparently, I am not alone in thinking that Cisco and Skype should marry. Cisco has reportedly already made a bid for the company, according to TechCrunch. The two companies remain silent about the rumors.

One of the major dilemmas of the online auction site eBay with Skype was thinking how to work successfully on their core business technology. At the same time, eBay was not able to own Skype business model profitable enough to justify its high cost.

eBay and Skype finally disbanded. eBay sold its stake in Skype at the end of 2009. And earlier this month, Skype said in an initial public offering with the Securities and Exchange Commission.

Instead, Skype’s business and technology fit perfectly into Cisco product line. In fact, Cisco does not have to do traditional business model of Skype, which generates cash primarily from its SkypeOut service, still profitable to do an acquisition of Skype technology a success.

“Incorporation of the Skype technology in some of Cisco’s existing products, like WebEx and Unified Communications, will only make the most valuable products,” said Zeus Kerravala, senior vice president of Yankee Group. “So would not necessarily have to do the traditional consumer highly profitable service Skype.”

Video is the key
Cisco video is nowadays. In fact, that’s all CEO, John Chambers, you can talk. At a recent event in New Jersey, Chambers said video is quickly becoming the killer app of all IP networks, including the Internet itself. With each new evolution of television, applications consume more network resources. And this feeds Cisco’s business and other businesses.

“The video is now the voice-over-IP, a network,” he said.

So it makes sense that Cisco would like one of the largest online applications of video on the planet as part of its empire. Skype says that 40 percent of all calls made through your video chat software.

The more natural and easier to integrate Skype with Cisco technology is in the conferencing service WebEx, Cisco. WebEx is a collaboration tool that allows leading companies to share documents and communicate online with others. Skype video and voice services are integrated services from WebEx to a new level. Many large and small businesses already using Skype video anyway.

Skype’s technology could also be a good complement to other Cisco products. For example, Skype Video also fit very well in other corporate products Cisco Unified Communications provides a video component to the call of VoIP and presence applications. It could also be used to bring Cisco’s telepresence video conferencing service to the masses.

Cisco equipment has been selling high-end video conferencing for large companies in recent years. And in January at the CES in Las Vegas, the company said it would be proof of a consumer version of the product that offers a similar experience of video conferencing at home. The telepresence system will use consumers’ existing high-definition television and broadband Internet.

Adding the Skype video technology could help Cisco drive down the cost of the service. Skype would also give Cisco an instant user base of at least 124 million active users.

“Even if Cisco could make the technology comparable to that of Skype video services, Cisco would still have to get millions of people to switch service Skype to Cisco,” said Kerravala. “So it could be an uphill battle. Why not buy?”

Skype could also benefit by connecting to Cisco, one of the richest companies in effective and stable in the technology sector. Since the separation last year from eBay, Skype has actually begun to turn a profit. In the first six months of 2010, Skype reported revenue of U.S. $ 406,000,000 and a net profit of U.S. $ 13,200,000, according to the SEC is. Compare this with all of 2009. Then had sales of U.S. Skype $ 719,000,000 and a loss of U.S. $ 99 million. Skype said in its filing with the SEC which is expected to increase revenue through new agreements with Verizon Wireless has beaten and television makers as Samsung and LG.

But even with new agreements in the works, the income stream of Skype is still predominantly linked to a service: SkypeOut. This is the Skype service that allows users to call regular phone numbers in your Skype account. Given that only 8.1 of its 124 million active users are paying customers using this service, the jet of the company revenue is somewhat precarious.

As part of Cisco, Skype does not have to worry if your traditional consumer business, stumbled. Unlike eBay, it could not find a good fit for Skype’s existing businesses, Cisco could still benefit from a free consumer service Skype, although he did little or no money. Skype has a total of 560 million registered users worldwide, with 124 million using the service each month. That’s a lot of eyes around the world that can be associated with the Cisco brand to make Skype calls.

Cisco has been trying to enter the consumer market for years. Sold Linksys brand routers and last year acquired Pure Digital, maker of Flip video cameras for the USA $ 590,000,000.

At the end of the day, Cisco’s core business is still selling switches and routers that shuttle traffic across corporate networks and across the world through Internet. Video is the extensive use more bandwidth out there. Cisco And nothing can be done to encourage the use of video is more money in their pockets. That’s why an acquisition of Skype makes sense as the acquisition of Pure Digital.

A price to pay
The price of a potential acquisition of Skype is not negligible, but should not be a problem for Cisco. Some reports suggest that Skype is looking for a valuation of U.S. $ 5,000,000,000, which means Cisco would at least have to match that of Skype to even consider the possibility of accepting the proposed acquisition.

Cisco has spent that much money for other acquisitions. In 1999, it spent about $ 7 billion in optical networking start-up Cerent. In 2005, he bought the television set-top box maker Scientific Atlanta for the U.S. $ 6,500,000,000. And in 2006, paid a cool U.S. $ 3. 2 billion for WebEx.

In other words, Cisco has demonstrated that going to pay much money for strategic assets. And Skype is at least as, if not more, than many strategic acquisitions of strong Cisco in the past.

The only downside is the potential that if Cisco were to acquire Skype, which was in direct competition with some of its major customers, telephone companies like AT & T and Verizon Communications. But Kerravala not think it’s a big concern for Cisco.

“Cisco is located in a more competitive position with some of its customers,” he said. “But the market is moving toward VoIP anyway. And there are only so many synergies between Skype and Cisco.”