Cisco (NASDAQ:CSCO), a telecom equipment manufacturer that competes with Juniper (NYSE:JNPR) and Acatel-Lucent (NYSE:ALU), entered the virtual conferencing business in 2007 with the acquisition of WebEx.
WebEx provides on-demand collaboration, online meeting, web conferencing and videoconferencing applications to consumers as well as businesses. Cisco recently made the WebEx app available for free to users of Apple’s (NASDAQ:AAPL) iPad tablet PC and the iPhone. We believe that Cisco’s app will make its web conferencing even more appealing to mobile workforces.
Web conferencing is part of Cisco’s strategic vision to drive greater global data consumption. The company works with telecom companies to provide faster broadband internet, thereby encouraging more data usage by customers, which in turn drives demand for Cisco’s data network switches.
We estimate that Cisco’s web conferencing business constitutes about 1% of $23 Trefis price estimate for Cisco’s stock, or about $1.4 billion based on our estimated $137 billion value for Cisco.
Below we highlight in greater detail how Cisco benefits from the WebEx app and greater data consumption.
Making App Available For Free A Marketing Push By Cisco
Cisco’s focus is its core network switch business. The company has a history of making acquisitions to maintain high switch and router market share, and to grow in new markets. Cisco is a relatively new player to web conferencing, and certainly aspires for more visibility of its WebEx application so that it can compete better. A free WebEx app for the iPad and iPhone is a useful marketing tool that will reach a small, but affluent user base.
Free WebEx App to Drive Consumer Data Usage, Benefit Cisco’s Core Business
Cisco is not a passive equipment manufacturer; instead, it works with its business partners to actively drive technology improvement, in turn benefiting Cisco as well. Cisco has been working with telecom companies to push for high speed broadband.
Making WebEx available for free to iPad and iPhone users is a small yet an active step by Cisco to influence consumer behavior and encourage data usage among customers. Increasing data usage will lead to more demand for improved networks with higher data carriage capacity, thereby generating more sales for Cisco’s core network products like routers and switches.
By modifying the forecast above, you can see how Cisco’s stock will be impacted if the market for enterprise router grows at a faster rate than we expect due to increased data usage resulting from Cisco’s efforts.
Impact of Free WebEx App on Web Conferencing Business Minimal In Short Term
Cisco currently has more than half a million WebEx subscribers who pay a monthly average fee of more than $55 to enjoy the full services of the WebEx application. Cisco generates more than $400 million in revenue from its web conferencing business.
The WebEx app is available to a user base of more than 40 million iPhone and iPad users which can help Cisco to drive demand for WebEx subscriptions. More importantly, it can help Cisco over the long-term by increasing demand for more mobile data.
For additional analysis and forecasts, here is our complete model for Cisco’s stock.
