Summary
Cisco need not take on either of these companies. In fact the more web apps appear the more Cisco infrastructure need be bought. Cisco has thrived by connecting the world and over the last few years by providing endpoints. The cultures of Google or Microsoft are totally orthogonal to Cisco's core strengths and it would be difficult to compete.
Analysis
Cisco has a winning formula and deviating from it to compete with Microsoft and Google makes no sense. If you think about the history of Cisco first they tried to route all IP data, then touch all IP data. When they dove into Internet Telephony they converted traditional time data to packet data and handled that. Next they increased traffic by making telephone endpoints and buying Scientific Atlanta so they could make TV interface endpoints. In the last couple of years they have adopted videoconferencing as users and providers, also using up more bandwidth.
Webex is another end point that just happens to run on a PC. Also a user of bandwidth. But all of Cisco's products either direct bandwidth or use it and are either people to people communications or machine to machine communications. A web based application can be considered a person to machine communications. It is an area Cisco is not familiar with. And as a user of bandwidth it isn't high on the list while requiring huge server farms and software maintenance to run.
So competing with G and M seems to me outside of their business model and core competence. While Cisco is well known for successful acquisitions (the only way to compete in this arena if they so choose) they would need one to get into the game. Cisco has had several acquisition failures and they were in an area which Cisco is very familiar with.
If you look at the history of IBM they lost dominance in the computer hardware market when they let Intel make semiconductors which enabled hoards of companies to compete with them. Much better for Cisco to buy the right semiconductor company and start building their own superior parts such they defend the core business.
