I almost fell out my chair today. I heard from a friend (incidentally over Skype) that Cisco was planning to pre-empt Skype’s IPO and wanted to acquire the service provider for as much as $5 billion. Then, I read about it on the Wall Street Journal, and over at CNet. What a joke.

I am down on this initiative for a couple reasons: Cisco-Skype would be competing with Cisco’s biggest channels and customers, who have been loyally purchasing Cisco’s margin-rich routers and switches for years. Those channels and customers have alternatives and likely will act to win.

Although some note that Skype could complement the WebEx service, the fact remains that Skype’s operating philosophy is to avoid standards and focus on proprietary technologies and architectures. There are no technology synergies with Cisco products and Skype services. Cisco can integrate their products today with Skype today as part of the Skype developer program like many other IP PBX vendors have done, without having to spend 5 big ones.

If Cisco wants to pay too much to own a company that generates a little income, they’d be better off keeping it in the banks they have. In fact, Cisco would be better off BUYING A BANK. That way they can earn the spread on their money, instead of just the interest (zero or nearly zero today).

Frankly, Microsoft would be a better acquirer than Cisco, since it would give them millions more subscribers to add to their existing free services.

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