Cisco and BroadSoft – Does it Make Sense?
The announcement today that BroadSoft has accepted an offer to be acquired by Cisco opens a new discussion about the changes we can expect across the industry. At the BroadSoft Connections conference, Rowan Trollope of Cisco and Michael Tessler of BroadSoft talked to how they see the two companies coming together.
First, it is clear from the comments and slides that Cisco sees this as a major transformation of their communications and collaboration business. Cisco Call Manager, while the clear market leader in VoIP adoption in the enterprise is not capable of a multi-tenant deployment. This has limited Cisco in the cloud to larger deployments with HCS, often limited to 250-400 minimum line counts. While Spark Calling has been positioned as an SMB solution, the level of adoption has not been high.
With the addition of the BroadSoft portfolio, Rowan made it clear that Cisco intends to adopt the BroadSoft Business cloud platform across all market segments. While HCS will continue to be an offer, targeted to organizations with strong affinity to the CUCM products, for everyone else BroadSoft Business will become the Cisco cloud solution. The intent is to address SMB to small enterprise with service provider (SP)-delivered (and branded) solutions. For the enterprise and large enterprise spaces, the solution will be delivered by Cisco in the cloud and sold/fulfilled by VARs and Systems Integrators. What was not clear is how branding will be managed going forward for both the SP and general markets. Whether Cisco retains the BroadSoft brand remains to be seen.
Beyond branding, the acquisition moves Cisco into a leadership position in the Cloud PBX/UCaaS space. BroadSoft claims 18M cloud seats. With estimates of total Cloud PBX/UCaaS seats between 30 and 40 million globally, that makes BroadSoft, through their partners, at about 50% of the current cloud communications space. With this acquisition, Cisco jumps to a major position in the cloud.
While the upside potential of the acquisition is high, there are some areas where issues may emerge. While branding was not discussed in detail, the branding of the offers and how the competition between the channels is managed is critical. BroadSoft has focused on service provider channels. Cisco has those, and many more traditional VAR channels and large Systems Integrators (SI)s. Managing the market with the same solution available with SP branding and the Cisco/BroadSoft brand will present an interesting challenge. How segmentation and channel conflict is managed will become even more critical. Another issue is how premises Cisco CM solutions will integrate with the BroadSoft-based cloud offers. While maintaining the HCS solution solves that for larger companies, for smaller companies that need a hybrid, having a different premises and cloud software bases may be an issue.
A final thought is whether the deal will complete or whether another option may emerge. Johnson Fistel, LLP has begun an investigation to decide if they can sue the BroadSoft board on the value of the deal, which was a sub-10% premium. To be fair, the BSFT stock price is up 54% since May 1, much probably attributable to rumors of an impending acquisition. The other major potential is a higher offer, either from another vendor or from Private Equity. With Cisco establishing the value, the potential of a PE firm deciding to move forward could be high. As happened with the Mitel-Polycom merger, a PE firm can come in with a slightly higher offer and change the equation, though Cisco may match an offer in this case.
Overall, assuming the acquisition closes, it will dramatically change the cloud communications landscape. It will enable Cisco to have a potentially superior position in the SMB/mid-market versus Microsoft. The rationalization of Cisco Spark and BroadSoft UC-One and Team-One will define the offers for the future. With relative low adoption of Spark to date, the emerging answer will define much of the competitive landscape in the future. Overall, acquiring BroadSoft is a logical step for Cisco. The purchase price represents less than 3% of Cisco’s available cash and the value is huge. Cloud is projected to grow at rates in the low 20% by companies like TMR, resulting in a doubling of the cloud telephony/UCaaS markets. Assuming that Cisco can retain or even grow the BroadSoft success and can acquire 50% or more of those seats, it could represent an additional 18M or more seats over the next few years. Assuming an average value to Cisco of $5-10 per month for the value of those seats (sold through SPs or channels), the new revenue is around $1.7B annually. That is enough to get everyone interested.