Summary
Many make the assumption that Cisco is buying Tandberg (TAA.OL) to help improve sales of Cisco equipment. That is the smallest part of the equation. The real battle for the dollars of enterprise services is creating huge opportunities for startups and smaller competitors.
Analysis
What is the business corollary of 'Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime'?
How about "Sell a man a fish and you make money today. Sell a man a 'fish a month' service and you make money forever"?
The market for communications equipment, Cisco's traditional bread and butter, is commoditizing. It is becoming a single sales event market. Without a disruptive innovation that trend isn't going to change.
So, how does a company like Cisco keep growing when sales are dropping and margins are shrinking? Simple, shift to services. HP did it by buying EDS . Dell just did it by purchasing Perot. Look at IBM, the gleaming example of a shift from hardware and software blend into a product and services blend.
Ok, so maybe 'simple' is a bad word. Shifting to services and recurring revenues is a simple idea. Executing on that idea is far from simple and many companies have failed. IBM succeeded. HP? Dell? Cisco? Time will tell...
Tandberg sells video conferencing services. Cisco also sells video conferencing services through their TelePresence units and Webex platform. Tandberg rounds out the market for Cisco and will probably make Cisco the dominant competitor over HP, Microsoft and others.
Sure, Cisco will sell it's own equipment along with Tandberg services. And Cisco will cut costs and shift expenses away from partners like RadVision. But, the real goal is long term, recurring revenues through services. Not one time shot sales of equipment.
Is there more to come for Polycom or Radvision (RVSN.O)? Or even Emblaze-VCON, Avistar or Aethra? What about HP, Dell, Huawei, Alcatel-Lucent and the other OEMs that are pursuing service revenue streams?
There are lots of companies that want to get into the 'fish a month' service market. The acquisition of new service fleets is just starting to accelerate.
David Croslin consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
