WebEx makes a name for itself

What makes WebEx run?

Just 10 years old, Santa Clara, California–based WebEx Communications Inc. is a pioneer in Internet-based virtual meetings. Since 1999, it's grown from $3 million in revenue to $308 million last year, its Web conferencing market share (64 percent) dominates the industry, despite the onslaught of several aggressive challengers, and its profit margins consistently beat 20 percent. The company gained more than 1,000 new corporate customers in the fourth quarter of 2005, some 50 percent more than in the same year-ago quarter, and that doesn't count the customers it's bringing aboard thanks to acquisitions.

"The world of online collaboration and meetings has become a phenomenon, and WebEx has done a terrific job of bringing it to the mainstream market," says Roopam Jain, senior analyst, conferencing and collaboration, with consulting firm Frost & Sullivan. "They've accomplished good penetration in large enterprises," says Jain, based in East Brunswick, N.J., "and now they're expanding their core marketing, and making a big push into the small and midsize business (SMB) arena, and even to the individual professional market."

WebEx has come to dominate Web-based meetings; its revenue comes from some 50,000 online meetings a day from 23,000 customers. It's a comfortable niche, but the ground is shifting. Or rather, WebEx is helping it shift, expanding beyond its core capabilities into synergistic areas that support a variety of corporate functions.

Most startling, the company is intent on exploiting the "software as service" model—computer applications that reside on the Internet and are used by customers through a Web browser—that will put it in stark competition with some of the biggest names in the software business (including a certain $40 billion company up the coast in Redmond, Washington).

In short, WebEx wants what labor leader Samuel Gompers once said was his own heartfelt goal: More. The company plans to get just that by developing innovative products complementary to its core technology; these already include its online sales products, remote training, and online events.

As Rick Faulk, chief marketing officer, and president of WebEx Small Business, based in Burlington, Massachusetts, says, "WebEx is not just about meetings and sales demos anymore. We look for the technology to spread from sales to marketing to support. And we have products for each."

Brad Whitt, analyst at RBC Capital Market, in Dallas, agrees: "This isn't just about sharing PowerPoint slides. WebEx is looking for ways to solve specific business problems and processes that customers face."

Beyond Conferencing

Here's what WebEx is doing to extend its reach:

• Last year, WebEx acquired Intranets.com, based in Burlington, Massachusetts, which had developed small-business tools for online document sharing, group scheduling, and database management (Faulk was Intranets' CEO). Now dubbed WebOffice, the newly integrated capabilities will soon enable WebEx to offer smaller companies on-demand, Web-based applications that previously resided only on individual desktop computers, such as word processing, spreadsheets, databases, calendars, e-mail, and more. This "software as service" model (which naturally will incorporate online meetings) not only will open up a large SMB market for WebEx, but also will put the company on a collision course with Microsoft Corporation, which is just coming to the on-demand game with its Office Live product.

• This spring, WebEx and America Online joined up to develop an instant messaging (IM) product for businesses. Dubbed AIM Pro, the new product will combine IM chat with WebEx's video, voice, and Web collaboration expertise. Secure, business-oriented IM is viewed by an increasing number of companies as better than e-mail for internal communications, and the new service should augment WebEx's other offerings. Frost & Sullivan's Jain says, "With this partnership, users will have click-to-call functionality, leading to more usage of services. IM will become the front end to a lot of other services." The company expects a rollout next year.

• In a classic example of transforming existing products into new ones, the company just introduced Support Center. This enables IT departments to access and fix computers through the Internet—a sort of Web conference featuring software patches. As Faulk notes, "It's a logical extension to the business we do."

• Last year, WebEx established a federal team in Virginia to develop Web meeting applications for the government, and its 2005 pilot program ended with some 3,000 subscribers. The Department of Defense is expected to award a permanent contract sometime this quarter, and onlookers say WebEx should win it. Gaining the imprimatur of big government, with its focus on security and reliability, should boost the company's reputation even more.

• In a strategic marketing move, WebEx last year introduced a flat-pricing plan that is a break from previous plans based on usage. A good example is the company's new WebOffice product, which will be priced at $59.95 per month, for up to five users. So far, the plan has been well received by new customers of existing products; analysts estimate that 80 percent to 90 percent of all new customers are opting for the flat-pricing plan.

"The flat-pricing scheme eliminates complexity and overages," Faulk says. "It's much simpler and easier for companies, and as a result, we've had record deals in the fourth quarter. It's easier to sell and easier to buy."

Nipping at Its Heels

Even with all these advances, serious competition remains, and WebEx must innovate fiercely to hold on to its lead. Web conferencing already is an add-on tool to IBM/Lotus Notes and Microsoft Outlook. Microsoft is heavily promoting its separate product, called Live Meeting, and such major players as Cisco Systems, Macromedia, Oracle, and Raindance offer competing products as well.


The vendors, in particular Cisco, IBM, and Microsoft, tout the ability of clients to set up Web conferencing on the fly via their desktops, rather than having to book a prearranged slot for a WebEx meeting. The WebEx–AOL partnership, therefore, could be crucial, with its click-to-call functionality. (It's a particularly intriguing play, considering that AOL and Microsoft are IM archrivals.)

Despite the snarling at its heels, however, WebEx remains the market leader in Web conferencing. And as for its WebOffice product, "it will be a long time before Microsoft has a competing on-demand product—an e-mail client, an Outlook client over the Internet—that delivers," observes Philip Rueppel, research analyst with Wachovia Securities, based in Boston.

"As of June, WebEx will have a product out there that works, with all the pieces that people want," Rueppel says. "Not just spreadsheets, but also network management tools, things to run a small office where you can share documents and have e-mail, all on the Internet. It won't put a dent in Microsoft Office sales, but it will offer small businesses the functionality that larger companies have."

Onlookers and analysts predict WebEx will stay ahead of the pack, but in doing so may well become an acquisition candidate itself. Both Microsoft and Oracle are voracious acquirers of competitors and innovators alike.

If You Build It

If product development at WebEx appears to be central to the sales and marketing function—well, it is.

"We like WebOffice," understates David Berman, the company's vice president of worldwide sales and service, based in Santa Clara. "It gives us the piece we didn't have before, keeping customers totally synched up. It's really the future. The software companies that will succeed in the future are not about code and software, but rather about sales, marketing, and operational efficiency."

Aware of the hovering competition, WebEx works hard to maintain customer satisfaction. Its churn rate, or customer turnover, is almost flat.

"In many cases, our Sales Center product is ingrained in the sales and marketing process of many organizations, and when it's ingrained there, and it's working, customers stick with you," Faulk observes, of a key WebEx product many companies use to demo their own products. Faulk also points to WebEx's dedicated teams that are compensated and incentivized primarily on retention, and the WebEx emphasis on cross- and upselling.

"One important thing for any service is you have to get adoption in the organization," Faulk says. "We not only want to drive adoption in the group that initially bought the product, but across an entire organization."

While WebEx gained its initial foothold with its meetings product, that doesn't represent the core of its business today—analysts say meetings represent just 35 percent of revenue. Take Sales Center, for example, which is used by a growing list of companies, including Salesforce.com, to sell their own products.

Faulk illustrates the WebEx paradigm as used by a typical salesperson: "I'm talking online with a potential customer, and I'll say, 'Let me show you a demo of my product,' and I can take you to a Web site, and show you interactively my products. You can even take control of my screen, and we can discuss it together. It's the rich combination of voice, data, and video."

Even for companies that are mired in older methods, the appeal of WebEx's pitch is obvious, and it seems in tune with today's realities: The company's products can accelerate business velocity, increase sales and meetings reach, and lower cost by eliminating travel. If done properly, these three should increase productivity as well.

The Lure of the New

When people say a market has "potential," that usually means they've failed to penetrate it as of yet. For WebEx, international business accounts for just 12 percent of its revenue. But in March, the company signed a deal with Mexico's leading telecom company, Avantel, to bring its Web collaboration applications to that market, and other deals are also brewing.

"We're definitely investing internationally," Berman says. "Europe is great for us, although it is a little behind the United States in broadband, and therefore there isn't as much awareness of Web conferencing. Japan and the rest of Asia is a little more challenging, because face-to-face meetings as opposed to get-togethers online are important in that culture. We're finding more success there in tech support, our Support Center product. Also, training is really big there, so Training Center is popular."

Further stressing its focus on the international market, this spring the company announced it would boost its sales and marketing spend, hoping to use this enhanced treasure chest to bolster its presence in the EMEA (Europe, Middle East, and Africa) sector. Currently, WebEx earmarks about 32 percent of revenue for sales and marketing, but it will boost that to about 38 percent (with a concomitant drop in research-and-develop spend). That's $18 million added to the sales and marketing budget, for a total of about $117 million.

According to the recently appointed vice president of EMEA, Bert van der Zwan, WebEx will add new marketing staff in this sector and leverage leads generated through Webinars. The company also intends to continue paying to keep itself high up among Google's search results.

New international partners are another focus. The company already has onboard such major telecom resellers as Britain's BT Group and Spain's Telefónica.

How pervasive would WebEx like to be? Faulk alludes to a classic mantra that appeals to him, one previously used to justify the pervasive use of IBM products and services in American enterprise.

"At the end of the day, no one ever got fired for buying WebEx."

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