Cisco buys into social-networking fray

Cisco plans to announce Friday that it's buying Five Across, an 11-person company based in San Francisco that has developed software that allows large companies to easily add social-networking features to their Web sites without needing to hire a team of engineers from Stanford to do it. Using this tool, companies will be able to create communities in which users can share audio, video and photos, as well as post blogs, podcasts and profiles.

Cisco has not disclosed terms of the deal, which is expected to close in the third quarter Cisco's fiscal year 2007, which ends April 28, 2007.

While at first blush it seems odd that Cisco, a company that sells hardware to shuttle bits around the Internet, would buy a software-based, social-networking company, analysts following the company say it actually fits in well with Cisco's long-term strategy.

"Social networking is all about attracting more eyeballs," said Danielle Levitas, senior analyst and vice president for IDC. "And it's interactive in nature, so people are downloading and uploading pictures and video. They are streaming media. It drives a lot of traffic on the network, which causes a need for more capacity. And Cisco is the company that provides all that infrastructure."

For more than a year, Cisco has been implementing a strategy to broaden its product portfolio beyond simply being the "plumbers of the Internet." The company has been aggressively pushing into new markets that are more consumer-focused, such as video, home networking and even consumer electronics.

Late last year, it created the Media Solutions business unit, which develops and markets products to digital media content owners. The head of the group, Dan Scheinman, has said the next step for Cisco is to work more closely with the companies that are creating the movies, TV shows, music and other multimedia content that end up in consumers' homes.

Cisco executives say this acquisition will likely be the cornerstone of the company's digital media strategy, because social networking is an important way that people connect with and discover content. This will become critical for big media companies, such as the movie studios and television networks, as they continue to move their content onto the Internet.

As audiences find more ways to consume content, whether it be on the Web, on a cell phone or on another portable device like an iPod, media companies need to maintain their connection to these consumers to continue to make their brands relevant.

Disney has already seen the value in the social-networking phenomenon. It recently revamped its Web site to create a MySpace for tots. Kids are able to play games, watch music videos, customize their Web sites with Disney characters like Tinkerbell or chat with other kids.

Disney's new site was homegrown and took more than a year to design. But Cisco hopes that with the Five Across software, it can help other media companies build these features much more quickly, making it more plug-and-play.

Cisco is approaching this market much like it has every other new market it has entered. Executives at Cisco said that Five Across is just the first of many acquisitions to come. It's still unclear, however, what other pieces Cisco may feel it needs to assemble to fully build out its portfolio.

But one thing is becoming clear. As Cisco moves into this new market, it's going to face a slew of new competitors, from Google to Yahoo to Microsoft, which either own social-networking sites or offer tools to help build social networking into Web sites. So far, these companies have focused on allowing people to add social-networking features to their personal blogs and Web sites. None of them has developed a comprehensive solution that could be sold directly to large companies.

"It will likely change who Cisco views as competitors in the future," Levitas said. "But it won't happen overnight. Yahoo and Google are offering some of these tools piecemeal. And it's not like everyone will rush out to buy Cisco's software right away."