Cisco Buys Cloud Communications Vendor BroadSoft for $1.9 Million

The $1.9 billion deal will accelerate Cisco’s transformation to a more cloud-centric company and add to the consolidation trend in the market.

Cisco BroadSoft Deal

Cisco Systems’ planned $1.9 billion acquisition of cloud communications vendor BroadSoft is the latest step by the vendor to shift its business model to one better suited to the cloud-centric nature of modern enterprises and also marks the continued consolidation in the crowded unified communications market.

On Oct. 23 Cisco officials announced the company's intent to buy BroadSoft a day after reports of negotiations between the two companies began circulating. The deal will add to Cisco’s growing portfolio of communications and collaboration technologies while expanding its presence in the cloud communication space.

BroadSoft offers a range of cloud communication technologies and has partnered with more than 450 telecommunications companies in 80 countries to bring its products to more than 19 million customers around the world.

The deal is expected to close in the first quarter of 2018. After that, BroadSoft employees will be folded into Cisco’s UC Technology Group, according to company officials.

BroadSoft officials have been vocal about the shift in communications technology from on-premises to the cloud.  In a survey released early last year, BroadSoft officials said that the cloud UC market penetration will jump almost six-fold between 2015 and 2020 when it will make up about 41 percent of the overall unified communications space. At the time of the survey, the penetration was about 7 percent. That growth will come in all segments, from small businesses to giant enterprises.

The demand is coming from businesses that are looking for platforms that enable their increasingly mobile workers to collaborate from anywhere and on any device they have access to, whether it’s a laptop PC, smartphone or tablet.

“As our customers continue to transition to the cloud, they are demanding deployment flexibility across all of these experiences,” Rob Salvagno, Cisco vice president of corporate development, wrote in a post on the company blog, referring to everything from meetings and messaging to calling and contact centers.

“This requires collaboration solutions across all workloads on premises and in the cloud. We chose BroadSoft as it provides a portfolio of cloud collaboration platforms and business applications, which strengthen our cloud investments and ability to deliver collaboration solutions to our global telecom provider customers.”

With BroadSoft in the fold, Cisco will be able to combine its strength in on-premises and enterprise-focused offerings with BroadSoft’s partner-based cloud communications technologies that have reach into the small- and midsize business (SMB) and mid-market spaces.

BroadSoft President and CEO Michael Tessler also was bullish on the deal, saying in a statement that as “businesses continue to move toward the cloud in search of simplicity and speed, joining Cisco will allow us to deliver best-in-class collaboration tools and services.”

The deal also falls in line with Cisco’s efforts to increase the percentage of income derived from recurring revenues. The company is aggressively transforming from a company that sells networking boxes to one that provides software and services both on-premises and in the cloud.

In a conference call in August to talk about Cisco’s quarter financial numbers, CEO Chuck Robbins noted that more than $1 billion—or 11 percent—of product revenue came from recurring business, which grew 40 percent over the same period last year. He noted that 31 percent of total revenue was recurring and 51 percent of software revenue came from subscriptions.

Cisco’s acquisition also will continue a consolidation trend in a communications market dominated by Microsoft and Cisco and that appeared to have more vendors that the business demand could carry.

The BroadSoft acquisition comes just days after Cisco announced it had acquired privately-held application performance monitoring software company Perspica for undisclosed financial terms. This deal complements its January 2017 acquisition of application performance management specialist AppDynamics for $3.7 billion

The shift toward the cloud not only fueled changes by established companies like Cisco and Polycom, but also brought forward a range of smaller pure-play companies like BlueJean Network and Zoom. Such a crowded field had industry analysts predicting a series of acquisitions, which appears to be playing out.

Most recently, Mitel, which has been aggressive in pursuing acquisition, bought ShoreTel in September for $430 million, closing a deal that was three years in the making after earlier attempts failed. That deal also was driven by the demand for cloud-based communications. Other deals in recent years have included venture capital firm Siris Capital buying Polycom, Nokia buying Alcatel-Lucent, ThinkingPhones buying Fuze and then taking on the Fuze name.