Cisco to Acquire Tandberg for $3B

Cisco has done a remarkable job pushing the telepresence market forward but on the low-end of the market the company left lots of room for smaller players such as Tandberg, Lifesize, etc to prosper while relying on Cisco’s marketing and PR to carry them forward. Now Cisco is about to pick up Norway based Tandberg, a strong player in the video market for $3 billion in cash.

Obviously this deal is in line with the John Chamber’s vision of video everywhere and moreover allows Cisco to control a large part of the video market. Cisco is now in the position now more than ever of being able to lower the prices of the video units it sells so as to move more routers and other data center products.

Companies like Polycom are not pleased with the situation. Stefan Karapetkov, Emerging Technologies Director for the company had this to say in his blog:

Cisco announced today that they will acquire Tandberg, and this will have significant impact on the video communications market. It will reduce competition, and limit customers’ choices, especially in the telepresence space. It will, hurt Radvision who now fills the gap in Cisco’s video infrastructure portfolio.

I am however more concerned about the standards-compliance that have been the pillar of the video communication industry for years. Tandberg and Polycom worked together in international standardization bodies such as ITU-T and in industry consortiums such as IMTC to define standard mechanisms for video systems to communicate.

Cisco on the other hand is less interested in standards, and considers proprietary extensions as a way to gain competitive advantage. The concern of the video communication industry right now should be that the combined company will be so heavily dominated by Cisco that standards will become last priority, far after integrating Tandberg products with Cisco Call Manager and WebEx.

Telling is the fact that both Tandberg and Cisco declined participating in interoperability events over the last few months.

While I am not as up to date on the travel schedule of Tandberg and Cisco – especially as it pertains to standards meetings, it is obvious that with this acquisition, Cisco will have a major, overshadowing position in video and this is bad for customers as there will be less room for competition.

As a Cisco investor, you should look at this move in a positive way as Cisco has had a good track record with M&A in the b2b space.

Still, the Tandberg acquisition is a large one and the larger the acquired company, the more chance for failure. This deal will be a tough one to screw up though as Cisco’s sales channel has the right relationships to move lots of Tandberg s gear. Polycom is not a small company and they are well respected in voice and video. This deal will put pressure on them but could also open up gaps in the market which can be exploited as Cisco digests this large video meal.

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