When it comes to mergers and acquisitions, there are some deals that you can almost see coming but then there are others that hit you like something falling out of the sky. Cisco dropped a small bomb from above when it announced today it was acquiring small social network platform developer Five Across .
Five Across was founded in 2003 by software developers from Apple computer and Adobe Systems. They set out to create a rapid deployment platform for creating and publishing web communities (and social networks) and integrating dynamic content in to them. Put another way, their idea was simple: web communities are popular but time consuming to build. Create a rapid deployment platform and corporate customers can use tools to create their own interactive web communities; sites where they can engage fans/customers and enhance their brands.
At the time of the acquisition, Five Across software is beyond beta and in the market. The NHL with its NHL Connect fan website (currently listed as being in beta)is one of the notable first customers.
On the face of it, thinking purely about revenue, acquiring Five Across seems a curious choice for Cisco. Buying a software developer, let alone one that hasn’t sold a lot of product, is a move away from Cisco’s core business of selling network routers and switches, or even its consumer networking product lines (through Linksys and Scientific Atlanta).
Fortunately, direct impact on bottom line isn’t the only purpose of an acquisition. In this case, there are several ways the acquisition could be to be complimentary without direct contribution. The weakest explanation is almost semantics. Cisco has been running an ad campaign tagged “Welcome to the Human Network.” (a copy of the spot can be seen on Youtube here) The premise is that networks are more than just hardware and Cisco is at the core of it all. Enabling networks is Cisco’s business – Five Across software enables social networks. Social networks fit that bigger Human network. (I know that’s more semantics than business sense but it’s just one explanation).
A better explanation is that the deal is something of a tool for market research. Gaining insights into how companies and consumers are interacting and working on the Net can help Cisco’s planning and decision making with its hardware lines – from storage to switching to consumer networking. Five Across doesn’t have to impact the bottom line directly if information it provides helps Cisco profit elsewhere. That logic fits with what Cisco VP and GM of Media Solutions said to Information Week “Empowered consumers are not only reshaping the entertainment industry, they will profoundly impact the way the traditional IT industry operates.” Cisco may be trying to get a better understanding of how things will change. Getting a direct test market to understand social networking and online interactive/collobarative behavior, could help Cisco position itself to serve its customers best over the next few years.
At a likely purchase price somewhere in the wide range between $15m to $50m (actually terms have not been released, but I’d guess were for around $18m) the cost outlay for Cisco (either in cash or stock) is small. So even if the sole purpose of the deal is to help Cisco seed its newly formed Media Solutions group with 11 bodies and a software asset that may be of added-value to future customers – the price was probably so low to make it an easy purchase decision.
(according to Cisco literature, the media groups purpose is:
Enhancing the Entertainment Experience. Broadband and digitized content are revolutionizing entertainment. The Internet has not only created new audiences but enabled media-content owners to shift from centralized distribution to on-demand entertainment. The Cisco Media Solutions Group provides an infrastructure platform designed to help media-content owners enhance the content and entertainment experience for consumers.")
I’m hoping there will be more explicit comments from Cisco about their goals for Five Across in the near future but for now all there is is speculation.