Why Cisco is Spending Millions To Upgrade Video Conferencing

November 20, 2015, 8:19 PM UTC
Robbins listens a question from media during a news conference in New Delhi
Chuck Robbins, incoming CEO of Cisco, listens a question from media during a news conference in New Delhi, India, June 18, 2015. REUTERS/Adnan Abidi - RTX1H2S1
Photograph by Adnan Abidi — Reuters

Another day, another multi-million dollar acquisition by Cisco.

On Friday, the networking giant said it will pay $700 million for Acano Limited, a London-based company focused on video conferencing technology.

Over the past few years, Cisco has pushed to build up its video conferencing and work collaboration business through a series of acquisitions. In May, the company said it would buy messaging startup Tropo for an undisclosed amount. In 2014 it bought work collaboration companies Assemblage and in 2013 it purchased Collaborate.com. Financial terms for those deals were not disclosed.

Cisco’s core switching and routing businesses still accounts for most of its sales, but the growth of those products has slowed. To compensate, the company is branching into other areas like work collaboration and security.

During the latest quarter, Cisco’s work collaboration unit grew 17% year over year to $1.1 billion. Although sizable, the unit remains small next to the company’s legacy switching and routing business units, which brought in a combined $5.82 billion during the same time period. To put it another way, those business units represent 46% of Cisco’s total revenue while the work collaboration unit represents 9%.

Rowan Trollope, vice president and general manager for the Cisco business unit that includes video conferencing and work collaboration services, said there’s plenty of room to continue growing in work collaboration. He pointed to the fact that many companies have antiquated conferencing and phone systems that are due for upgrades.

Acano’s technology lets Cisco (CSCO) integrate with other web conferencing services like Microsoft’s Lync service, now referred to by Microsoft as Skype for Business. Trollope said that Cisco’s customers wanted that interoperability between the two services as well as others.

The Acano technology also merges several different voice streams in a web conference call into one single stream with the help of a “super high-density video conferencing bridge” that cuts the amount of data transferred, said Trollope. If 20 people join in on a conference call, for example, there won’t be 20 different audio streams beaming back and forth, he said.

Of course, Cisco faces competition in this space from fellow tech giants like Google (GOOG) and its Google Hangouts service along with Microsoft (MSFT) and its related conferencing software, Trollope acknowledged. Google Hangouts and Skype can be used for free, although their parents’ both want companies to buy premium versions of those services. Cisco also faces competition from the software video conferencing services sold by smaller companies like RingCentral and the startup Blue Jeans.

Early next year, Microsoft plans to introduce the Microsoft Surface Hub device for conferencing. Google has its own Chromebox for meetings, which may give Cisco some competition in the conferencing hardware space.

But competitors lack the hardware expertise of Cisco, claimed Trollope, who believes that businesses still want to buy big video systems for their offices that start in the thousands of dollars. The prices of televisions and related video gear have dropped in recent years, which Trollope believes will attract customers.

“The world has changed,” said Trollope. “The costs have come down so much.”

Cisco’s plans to sell combinations of video conferencing gear and related cloud conferencing software delivered via its 19 worldwide data centers, he explained. It’s similar to buying a device from a cable company and subscribing to the cable services.

All of Acano’s roughly 200 people will join Cisco, said Trollope. The deal is expected to close by the third quarter of Cisco’s fiscal year.

Subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.

For more on Cisco, check out the following Fortune video:

Read More

Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward