Cisco is following a path that Saugatuck expects other on-premise technology players and Master Brands to follow with regard to SaaS: buy into the business -- then develop it further.  This path will be driven by both operational and financial market realities that must be considered by established on-premise software players seeking to leverage the SaaS phenomenon.

Master Brands and on-premise ISVs have two challenges.  First, these established product-oriented companies will need to learn how to sell and support a services offering; in our opinion, buying the expertise and bringing it in house may be the fastest way to do so.  Second, established on-premise players migrating to SaaS -- and especially Master Brands -- will more likely prosper in SaaS by growing a subscription revenue stream gradually, or by making accretive acquisitions, rather than converting existing products in a "big bang" approach.

Collaboration -- and unified communications -- are the hottest SaaS application categories through 2008. We can expect to see increased M&A activity as well as a boatload of smaller players developing SaaS offerings to compete with Cisco's WebEx Connect, Oracle Collaboration (OCS) on Demand and Microsoft Office Live Groove.  Realtime collaboration is a business necessity in today's highly distributed knowledge worker-based economy.  The business value chains of today's global companies depend heavily on collaboration among a variety of business partners, suppliers, contract manufacturers, services providers and distribution channel partners.

The WebEx Connect vision combines Software-as-a-Service, Web services, workflow, document routing, and access to on-premises data and applications in an on-demand collaboration suite that can be configured to the needs of the business user.  With the weight of Cisco and its portfolio behind it, and with the increased partnering momentum arising from the acquisition, WebEx gains further credibility and resources at the same time that Cisco secures a foothold in the burgeoning SaaS market.

No doubt, Cisco itself faces some key challenges in integrating WebEx, as the two firms have very different organizations, cultures and offering mixes. In particular, Cisco's sales force is world class at selling networking gear and a variety of technical management services into the enterprise, but the company has less experience with marketing and selling enterprise software, and little to none in selling business services such as WebEx Connect.

This is particularly relevant given WebEx's transition itself from web conferencing application provider to on demand collaboration platform provider (with the introduction of WebEx Connect). As such, Cisco will need to carefully and successfully manage the rollout of the WebEx Connect platform, including partner development, while up-selling the WebEx customer base.

In our experience, even for companies as well versed at integrating acquisitions as Cisco, the effort associated with learning to market an entirely new product set (to a different buying constituency) is often underestimated.  If this challenge can be met -- and there are many potential paths to address these issues -- this acquisition will not only be a major step forward in moving Cisco up the value chain, but it will also place them front-and-center in the next-generation of enterprise software.