The Video Conferencing Business Just Got Interesting
I have this week participated in two video conferences in as many days. Unless you count the occasional Skype video call, which for the moment I won’t, that’s two more than I did in all of 2010, all of 2009 and all of 2008 combined.
This occurrence brings into focus the apparent intensifying of competition in the enterprise video conferencing market between the networking giant Cisco Systems and several other players who hope to challenge it, among them Polycom and a start-up called Vidyo.
The second of these two video conferences occurred Tuesday in a telepresence suite at a Cisco office in Manhattan. The occasion was the announcement of Cisco’s latest ASR 9000 router, a powerful piece of gear that can move 96 terabits of data every second, sufficient bandwidth, it says in a press release, to simultaneously stream in a second video recordings of every Super Bowl game and World Cup and Cricket World Cup match ever played.
The meeting was held at multiple sites. Two telepresence rooms in New York were used, two more in California, one in New Jersey, one in Atlanta, and one in Milan, Italy. Execs from various Cisco customers from Comcast, Cox Communications, Tata and FastWeb, service providers all, testified about how great the ASR 9000 is, and how it’s making their business easier and so on.
You’ve probably attended a meeting like this, but if you haven’t it’s a curious experience. Attendees appear on large high-definition video screens arrayed on the other side of a conference table meant to create the illusion that they’re in the room with you. Holding a meeting like this is more effective than a traditional conference call, and cheaper than paying the travel costs that would normally be required to get the same people gathered in a room.
The launch event was meant to follow Cisco’s release last week of its Visual Networking Index forecast, its assessment of how big the Internet is, and how big it’s going to get a few years out. Video, hailed often by Cisco CEO John Chambers as a key strategic play that will eventually help Cisco work its way out of its current troubles, naturally figured prominently in the forecast. Consumers and businesses alike will be demanding lots of video, whether it’s for entertainment or for holding meetings.
If you’re a service provider seeing video demand, Cisco’s ASR 9000 line of routers are proving “increasingly popular” as the analyst Jess Lubert of Wells Fargo securities wrote in a research note to clients on June 6. “Several content, media, and service provider customers are deploying the platform to leverage its advanced video capabilities.” This bodes well for Cisco’s business on the back end of video. And Cisco also participates in the business of selling the front end. All the telepresence gear bore Cisco’s brand. Indeed, video conferencing–or what Cisco calls collaboration–is one of the things that is going right at Cisco these days. It’s on track to be a $4 billion business this year, and is growing at a healthy 25 percent clip.
But there are challenges. Elsewhere in Lubert’s note were some observations that Polycom is winning some business away from Cisco. Demand is strong for gear from both vendors, yet frustration among some customers and partners with Cisco and its Tandberg unit is causing them to steer more business toward Polycom for the moment, Lubert writes.
There’s no denying that Polycom is on a roll. Sales grew 26 percent in 2010 to $1.2 billion, and group telepresence products accounted for $796 million, or 65 percent of sales. Its shares have risen by 135 percent since October. And last week it spent $89 million to acquire Hewlett-Packard’s Halo video conferencing business, a rare divestiture for HP, the world’s largest technology company. HP, a latent rival to Cisco in the networking space, will resell Polycom equipment as part of the deal. Meanwhile Polycom said it will expand its relationship with Microsoft, whose Lync video conferencing software, as Lubert wrote in the Wells Fargo note, is turning out to be a big driver in sales of Polycom equipment. So when we talk about office video conferencing equipment, we know who the two main players are: Cisco and Polycom.
All this brings me to the first of those two video conferences in which I participated this week. On Monday I was introduced to Vidyo, a New Jersey-based video conferencing start-up that aims to upend both of the established players with a product that undercuts them on price and outdoes them on features and flexibility.
Till now, Vidyo was focused on the desktop video business, but it has aimed its sights at higher-end office conferencing systems. Backed by $74 million from Menlo Ventures, Rho Ventures, Sevin Rosen Funds, Star Ventures and the Four Rivers Group, it has now set its sights on the higher-end video conferencing market.
The first thing I noticed during the Vidyo meeting was what I called The Brady Bunch Effect. Nine screens were arrayed in a conference room, for nine different people against light blue backgrounds (as in the picture above) in a way that reminded me of the old TV sitcom. The company calls the product VidyoPanorama, and it can support as many as 20 screens at a resolution of 1080p with 60 frames per second. Vidyo CEO Ofer Shapiro told me that just such a system with nine screens could be set up for $60,000 compared prices in the $300,000 range for similar systems from the bigger players with fewer screens. Vidyo’s starting price for a four-screen system is $40,000. It also supports tablets and smart phones, including Apple’s iPad 2 and phones and tablets running Google’s Android operating system.
All a company needs to get started is a good Internet connection and a Vidyo router added to a rack in its data center. There’s also an application that must be installed on whatever Mac/PC/tablet/phone you want to use for conferencing.
Video conferencing and telepresence are the sort of technologies you keep hearing about, but they never seem to reach any critical mass. I’ve heard people say “This is the year for video conferencing” since about 2003, and yet in 2011, it’s still unusual, at least in my anecdotal experience, to participate in one. Yet the numbers don’t lie. Companies want it, and just as Cisco and Polycom are making a serious go of selling it to them, here comes a start-up ready to turn that business upside down. If I were Cisco or Polycom, I’d be worried.