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Analysis: Would Skype Vault Cisco into Streaming?

When it comes to "big iron" companies that equip service providers with routers necessary to handle terabits of internet data, the two companies that come to mind are Cisco and Juniper.

Yet both companies have begun to diversify their revenue bases: For instance, Juniper recently purchased Ankeena and is rolling its Media Flow technology into services coupled-loosely, at first-to its big iron offerings.

Cisco, for its part, has moved heavily into videoconferencing and telepresence, two markets it's tried to crack for more than a decade, with its recent acquisition of Tandberg.

Cisco's gone a bit deeper into the consumer space than Juniper, with the 2003 Linksys acquisition slowly providing Cisco a foothold with almost 25% of U.S. internet-enabled consumers.

A rumor this week that Skype may be acquired by Cisco, prior to Skype's IPO later this year, was first reported by TechCrunch, but picked up by The Wall Street Journal, among others.

Skype's ownership is split between eBay, which currently owns 30 percent of the VOIP provider, and company founders Janus Friis and Niklas Zennstrom, who jointly own 14 percent. Silver Lake Partners, JoltID Ltd., Canada Pension Plan Investment Board, and Andreessen Horowitz own the remaining 56 percent of shares. The anticipated price point for Cisco to acquire Skype has already been set, as Skype set expectations in its pre-IPO filings of achieving approximately $5 billion in market cap when it goes public. 

The news of a potential Cisco acquisition of Skype has sent a number of analysts looking for the anticipated tie-ins between the companies. Let me suggest three, all desktop- and mobile device based: streaming, videoconferencing, and voice over IP.

This is the one readers may be the most interested in, but it's probably of least interest to Cisco as a standalone solution. After all, Skype is decent at low-latency, bi-directional conversations, but it's not been really leveraged up as a broadcast solution.

Still, with the ability to tap into a reported 560 million Skype users, the possibility that Cisco could leverage its sizable position in home networking to create a video delivery solution isn't too far out of bounds, especially given last week's announcement that Cisco is acquiring content management system solution company ExtendMedia.

Voice over IP
Cisco has a long history in Voice over IP, starting with its acquisition of Selsius back in 2001. At that point, VoIP systems used H.323, the same protocol that was used in emerging IP-based videoconferencing. 

Now, most VoIP systems use Session Initiation Protocol (SIP), a protocol that allows for rapid setup / teardown of phone calls, mimicking a traditional SS7-based phone switch so much that SIP switches are now referred to as "soft switches." 

SIP also has the ability to use a variety of audio (or video) codecs, making it ideal for integration between a variety of traditional and soft switches. Skype Connect, the paid business version of Skype, fits nicely into this model.

"Use Skype Manager to set up a SIP Profile for your PBX, and buy channels," the company's Skype Connect website notes. "No more hardware to buy. What's more, Skype Manager you can centrally manage every aspect of Skype in your business from a single tool."

In other words, as Cisco has moved into end points, with its Cisco VoIP phones, as well as back towards its core competency in the network core with soft switches, Skype provides a way for Cisco to move rapidly into the desktop- and mobile-device software-based phone.

This ability to tie core network products into an end-point strategy is shifting towards video, as John Chambers has made no secret over the past few years that Cisco's next growth curve will be riding the video wave.

If software-based phones are of interest to Cisco, the concept of a software-based videoconferencing solution would be a master stroke in driving adoption of Cisco's telepresence and tele-health solutions.

With Cisco's goal of seeing its tele-health solutions installed in hospitals and doctors' offices, the company has had to face the reality that many previous tele-health attempts have faltered due to the lack of affordable end points for the patient. 

In many previous attempts, tele-health solutions revolved around a patient visiting a central location to join a consult with a doctor. But patients seemed more inclined, if they were going to have to drive to one location, to spend the extra drive time to go for a face-to-face visit.

In contrast, the cost of the Skype software-based videoconferencing solution is free, a highly affordable number; in addition, Skype's videoconferencing is already in use by over 8 million Skype users, so familiarity with the product is high.

Leverage low-cost voice calls on top of this-a service Skype already provides-and Cisco also has a pre-emptive model against Google and others who are entering the VoIP market.

Finally, add the ability to provide training, especially health training, as part of a streaming broadcast network, and it's apparent there might be a winning combination in a Cisco-Skype pairing. 

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