2012 saw another solid year of growth for web and video conferencing among businesses. User demand is growing at a strong pace indicating that web and video meetings are going mainstream.
In a recent Frost & Sullivan survey of C-level executives in North America, web and video conferencing ranked high among key enterprise communication applications for awareness and usage. Eighty five percent of the respondents indicated that they are aware of the benefits of video conferencing with fifty eight percent using it within their companies. Seventy eight percent of the respondents indicated that they are aware of the benefits of web conferencing with sixty percent routinely using it.
Web and video conferencing are now a key part of enterprise communications, drawn into the buying decision by line of business users as well as IT decision makers. Additionally, prices continue to decline making virtual meetings a viable technology for all, including small and mid-sized businesses.
Several emerging trends are changing the face of virtual meetings. The plain old vanilla online meetings of yesterday are giving way to enhanced offerings that include HD video, advanced mobile capabilities, social media integration, and workplace collaboration tools. These trends are increasingly getting intertwined along with a continued focus on improving the user experience. Here’s what to expect in 2013 and beyond.
- Mobility is all the rage right now and will continue to be the headline stealer in 2013. In 2012, mobile downloads of web meetings grew rapidly. We expect that joining web conferences from mobile devices this year will increase 2 to 3 times over prior year.
- In 2013 and beyond, vendors will shift strategies and lead with "mobile first". As a result, mobile experiences will move from being second-tier clients to being the main focus of development. Vendors continue to lead with iOS followed by Android.
- There will be a greater focus on improving the mobile user experience to offer robust host as well as user controls that are currently missing from most mobile extensions.
- In the future, usage will mostly be driven by the move to "in-app" communications on mobile devices. Companies that lead in delivery of mobile collaboration and content will become the market disruptors.
- Video will continue to see tremendous growth. Bigger screens and 4G speeds make smart phones and tablets the device of choice for online collaboration.
- As IT continues to tackle the headaches of bandwidth and network management, video usage will grow exponentially.
- 2013 will bring accelerated growth for cloud-based video conferencing services.
- We expect the attach rate of video in online meetings to reach 25 percent by 2015. In other words, one in every four online meeting will have a video conferencing component.
- Video conferencing will move away from hardware-intensive, high priced boxes to "video-for-everyone" over iPads and web-browser based clients, which is how a bulk of users will connect in the future.
- Users will show preference for communications solutions that offer any-to-any connectivity. A growing number of online meetings will interoperate with standards-based room systems as well as video chat clients.
- Software-driven solutions, cloud services, and growing virtualization in video conferencing will push out traditional expensive hardware-based solutions and open the floodgates of adoption.
Emergence of Collaborative Workspaces
- The pendulum is swinging from discrete online meetings to integrated collaboration.
- Collaboration is increasingly shifting away from siloed web meetings that are disconnected from user activities to web collaboration fully embedded in applications and services routinely used on PCs and mobile devices.
- Web conferencing vendors in 2012 focused on combining the elements of project management, video and web chat, file sharing, and social media interactions into one unified experience.
- In the future, users will increasingly move away from e-mail and rely on optimizing team communications within shared workspaces.
- Shared workspaces remain dominant for intra-company communications for activities such as project and task management. In 2013, there will be a growing number of workspaces extended for inter-company communications across user communities from multiple enterprises.
Web RTC – Growing Possibilities
- WebRTC is enabling easy browser-to-browser connectivity for real-time applications without the need for a software plug-in. There will be a rapid build-out of applications that will bring in a new level of commoditization in the already fast-changing video and web conferencing markets.
- Several startups are delivering APIs enabling customers to build their own WebRTC-enabled applications, while others are already delivering browser-based voice and /or video services that leverage WebRTC.
- While WebRTC lowers the barriers to entry to build real-time communication applications, the current version gives little control or information for sophisticated multiparty sessions. As such, multi-party web and video communication applications in use today will likely remain in demand.
- As WebRTC technologies continue to mature, there will be growing convergence of the current crop of web conferencing solutions with the emerging WebRTC technology. The growing adoption of WebRTC will force vendors to leverage the protocol to connect users into existing communication experiences.
- WebRTC is expected to have the biggest impact in customer facing applications that extend companies’ customer service and sales capabilities. Look out for rapid innovation of many new solutions for communications based on WebRTC.
At Polycom’s strategy day yesterday at the NASDAQ Marketsite, the Polycom executive team came out in full force to talk about the company’s new direction. After a lull of almost two years when it seemed like Polycom’s R&D engine had slowed down, the company has announced a set of bold new products and enhancements that hit on all key themes – cloud, browser based access, connectivity with Skype and GoogleTalk, and an improved user experience. All these areas strike a chord with anyone who uses video conferencing for business which, as it stands today, continues to be ridden with usability issues.
With these announcements, Polycom takes a direct shot at its competition particularly Cisco and market disruptors Vidyo and Blue Jeans. The details behind the new products including pricing are missing and will trickle in over the next several weeks and months. While there was a barrage of new information that left our heads spinning, what is getting the most attention is the CloudAxis Suite. With CloudAxis, Polycom provides a web interface from where Polycom users can connect with their contacts on commonly used video chat apps such as Skype, Facebook, or Google Talk and import those contacts into a global directory. This is a significant announcement extending the reach of traditional videoconferencing to a wider installed base and for new B2B and B2C applications.
Polycom’s competitor Blue Jeans currently offers interconnectivity between legacy videoconferencing systems and Skype, GoogleTalk etc. in a cloud-based model. Polycom is extending its solutions for any to any connectivity and offering flexible deployment models around it. CloudAxis will enable Polycom’s service provider partners to deploy video and web based collaboration as public and private clouds. Polycom also announced that it will launch a new VCaaS offering, powered and hosted by Polycom, which will be resold by service provider partners for customers that want to deploy an Opex-based model. Polycom emphasized that it will sell the service only through its channel partners to prevent any channel conflict.
Polycom is also introducing a new product called the RealPresence Collaboration Server 800s which essentially transports its videoconferencing bridge RMX ‘s capabilities on to general purpose servers for mid-market customers. The Polycom announcement refers to it as virtualized video collaboration. However, it should not be in any way confused with true virtualization of multipoint capabilities. Nor is it a standalone software-based bridge yet and remains a hardware appliance. In the future, it may be virtualized and licensed as software. When it comes to virtualization, Polycom’s competitor LifeSize has made a concerted move and offers LifeSize UVC MP which is a virtualized MCU that users can buy by the port.
Polycom is adding SVC support to both RMX and Collaboration Server 800s. The key market differentiator for Polycom is that it is supporting SVC and AVC on the same physical server (no gateways required) and offers native integration with Microsoft Lync. Additionally, Polycom last week announced that it is licensing its SVC implementation to ensure interoperability. Having a freely licensed specification that Polycom, Microsoft, and other vendors in UCIF can implement will be good for the market and will prevent formation of several "SVC islands" that can further hinder interoperability. In the SVC arena, the battle between Polycom and Vidyo is just beginning, and it will be interesting to see how it plays out. It is important to note that Polycom did not announce a standalone SVC media router which Vidyo offers. Instead, Polycom is software enabling SVC on RMX and Collaboration Server 800s and offering hybrid SVC/AVC. While this will raise the HD capacity 3x and bring down the cost per port significantly, it will not make Polycom’s SVC port price as attractive as Vidyo’s.
Among other announcements Polycom is introducing a new UI and user experience enhancements including the cool SmartPairing software, a new desktop client, and a new line of room systems. Andy Miller in his presentation talked about the strength of Polycom’s partnership with Microsoft and the power of their joint solution. This was aimed to diffuse concerns around Microsoft’s possible direction in the future with Skype, which some believe will remove the need for partner solutions. Sudhakar Ramakrishna talked about open standards-based approach being a key differentiator for Polycom. His statement around the new products being H.265 ready and being backward and forward compatible was broad but nonetheless relevant for customers that are looking at what’s next in video collaboration.
The products from Polycom’s announcements are out by several months and some will be available in Q1/Q2 2013. It almost seems like Polycom announced its six to nine month road map which leaves us wondering if that could lead some end users to hold off on current purchases. Also a lag of several months between announcing the products and actually making them available gives competition time to come in and make real products available.
As Polycom changes gears and moves towards cloud and software-based solutions, it will expand its go to market model from traditional hardware-focused video conferencing channels to broader collaboration SIs and VARs. Polycom would need to evolve its channel strategy carefully without alienating its traditional video conferencing VAR base and ensuring that customers continue to get the support and hand holding that most video conferencing deployments need.
Everyone agrees today that video conferencing is changing at a fast pace. It is moving from hardware intensive high priced solutions to video over iPads and web browser based clients, which is how a bulk of users will connect in the future. But how to deploy and manage secure business quality video conferencing to a large group of desktop and mobile users, without breaking the bank and blowing up the network, remains a key real-world challenge for users today. That’s where I think the current video conferencing vendors can create long term value and sustainable business models. Polycom’s announcements are a step in that direction and a significant evolution for the company.
The video conferencing space is clearly heating up. Without all the technology and pricing details behind Polycom’s announcements, it’s difficult to say to what extent these will be true game changers. However, directionally it all makes sense. Polycom was successful in making a big splash yesterday. It achieved what it intended to do - show to the market and users that it plans to continue leading in the video collaboration market and is willing and nimble to change the direction when needed. That in itself is a big message – the rest lies in execution.
Vidyo is grabbing the headlines this week with the announcement of VideoWay - a free cloud based connectivity service for anyone using H.323 and SIP-based video conferencing endpoints, Lync clients, and mobile devices to connect with each other and/or with Vidyo endpoints. Scheduled to launch this fall, the free service is targeted at users in the enterprise videoconferencing market which is currently dominated by traditional MCU and gateway solutions and services. According to our recent research, the market for video conferencing infrastructure systems continues to grow rapidly with global revenues reaching $746.6 million in 2011, growing at 26.8% over the prior year. The top two vendors – Cisco and Polycom– dominate the market with 75% of the revenue share. Vidyo aims to disrupt this space with its software-based routers that leverage H.264 SVC technology for delivering HD video over general purpose IP networks at lower costs. Growing at 82% in 2011 (albeit from a small revenue base), Vidyo is expanding its footprint for its branded products as well as non-branded offerings through service provider and OEM partners.
I was at the pre-briefing and demo of VidyoWay last week at an analyst event hosted by Vidyo in New York city. The process of joining a VidyoWay call seems extremely simple for even the most novice users. Users can click to connect from the email invite and join the video conference via the web interface with a meeting number and PIN, similar to using an audio conferencing service today. This takes away the complexity typically associated with multi-vendor environments connecting for B2B video collaboration. Users can invite participants from their own address book instead of a centralized directory. VidyoWay also offers a mobile client for smartphones and tablets.
VidyoWay being completely free will appeal to IT managers that are looking to extend the reach of their existing video conferencing systems for B2B connectivity without busting their budgets. This announcement will directly impact not only the traditional MCU market but also services offered by the likes of Blue Jeans (though Skype connectivity is missing), Vidtel, and Glowpoint.
When asked about the cost model and monetization opportunities, Ofer Shapiro Vidyo’s CEO and co-founder explained that VideoWay is strictly meant to connect existing video conferencing endpoints from providers such as Polycom, Cisco, and LifeSize (roughly measuring at a million endpoints today). Vidyo will monitor usage and through its fair use policy will require the use of the service only for the purpose of connecting traditional room and desktop based video conferencing devices. Vidyo is not giving away any free video conferencing clients, such as VidyoDesktop licenses, so it will continue to generate revenues for its product line. As a result, Vidyo will be able to contain the costs while being able to use VidyoWay as a platform to create awareness and get into the enterprise. According to Vidyo, the economics work out way better than the expensive marketing campaigns.
Vidyo has already created a buzz in the market for its solutions and its message against what it calls expensive legacy MCUs. While it does not publicly disclose in-depth revenue details, in Q1 2012 when most vendors reported a Y/Y revenue decline Vidyo grew revenues by 90% for its branded products. With VidyoWay, the adoption will escalate even further making it a key provider in this space.
B2B connectivity has been one of the biggest pain points for videoconferencing users. VidyoWay addresses that challenge directly and since it will be free for any number of enterprise users, it has the potential to immediately swing users from competitive offerings. However, the move is not without risks. It goes without saying that VidyoWay will catch on only if the service delivery is top notch and users don't face any technical or usabilty issues. Moreover, Vidyo’s success will eventually hinge on its ability to have a sustainable monetization model and on conversion of free users to its paid-for solutions and services. While it remains to be seen if Vidyo will be able to significantly impact the well establised video conferencing businesses run by Cisco and Polycom, this announcement is sure to pose some serious headaches for Vidyo’s competition.
Disappointing Q1 results from market leaders Cisco and Polycom, coupled with a mellowed guidance for Q2, do not bode well for the videoconferencing markets. Revenues nose-dived in Q1 raising the big question - can videoconferencing continue the phenomenal climb it has seen over the last several quarters?
Our recent research indicates that 2011 was a watershed year for videoconferencing. Revenues for endpoints and infrastructure systems surged to $2.8 billion in 2011, growing at 22 percent over prior year. Prices were stable and user demand remained strong throughout last year.
Q1 2012 Videoconferencing Revenue Highlights
- Revenues grew 10% Y/Y with endpoints growing at 11.4% and infrastructure at 6.6%. Most vendors with the exception of Cisco reported a Y/Y revenue decline. Cisco was an aberration primarily due to its low sales in Q1 last year. Q1 2011 was a weak quarter for Cisco, largely due to channel issues and delayed orders resulting from transition of its ordering system after the Tandberg acquisition.
- Q/Q revenues declined by a whopping 22.6% from $830.7M in Q4 2011 to $642.9M in Q1 2012. Endpoints declined by 21.5%; infrastructure decline was 25.4%. This seems to be 2 to 3 times the seasonal dip normally seen in the first quarter of the year.
- Among the major vendors, the biggest Q/Q decline came from Cisco followed by Polycom, leading to a market share loss for Cisco in Q1. Radvision reported better than expected Q1 earnings and LifeSize held its revenues stable.
Top Reasons for a Soft Q1
A confluence of several factors are coming into play in the videoconferencing markets.
- An uncertain economic climate – Concerns about the state of the global economy and cautious spending is putting a damper on videoconferencing growth. Vendors are reporting longer sales cycles and delays in the approval process. Furthermore, with the exception of travel reduction, the soft benefits of videoconferencing make it a hard sell to decision makers that are focused on the overall bottom line.
- Sales restructuring and channel issues – Major vendors have cited internal delays due to reorganization of sales teams as they move from selling point videoconferencing products to broader UC solutions. Polycom continues to show weakness in North America as it works on improving sales execution in the region.
- Impact of alternatives - Microsoft's increased marketing efforts around Lync being enterprise ready for voice in addition to its collaboration offerings has led customers to evaluate Lync as an alternative, leading to delays in the decision making process. Microsoft reported a 35% revenue growth in Q1 for Lync. Citrix Online reported a 29% revenue growth for its collaboration products with strong adoption for HDFaces video over PCs and mobile devices. We expect customers will continue to evaluate and adopt alternatives to traditional telepresence solutions to meet their collaboration needs.
- Pricing pressures - A significant slowdown in adoption of high end immersive telepresence suites as well as greater competitive pressures from vendors such as Huawei and Vidyo, that continue to nibble away market share, are leading to lower prices in the industry and impacting revenues.
- Seasonality and buying patters - Q1 has traditionally been the weakest quarter for videoconferencing industry due to the buying cycles. Following on the heels of strong purchasing in Q4, customers are focusing on roll outs during the early part of this year. 2010-2011 was when wallets began to open up and now we are starting to see those deployments settle in. We expect to see a buy- deploy- use- upgrade cycle.
Despite the Q1 market performance we believe the long-term forecast for videoconferencing remains strong. Vendors are stepping up their game with a focus on stronger sales execution and investments in innovation. Video will continue to be top of mind as the next-gen mode of communications, with a bulk of the market remaining under penetrated. At the same time, it is now well understood that the face of videoconferencing is changing at a fast pace. End user discussions have shifted away from being exclusively focused on high-end telepresence to now include video to desktops and mobile devices and being able to do so economically. The emergence of tablets as a videoconferencing device and the impending shift to software-based solutions coupled with the impact of cloud-based delivery will open up new opportunities and at the same time upend established business models.
Avaya-Radvision acquisition rumors have been flying for months so it was barely a surprise when Avaya finally pulled the trigger and announced this morning that it is buying Radvision for $230 million. Avaya is paying about three times Radvision’s annual sales of $78 million in 2011. We see this as a technology acquisition that was a long time in the making after Avaya’s competition has clearly entrenched itself in the videoconferencing market.
Avaya offers a full portfolio of UC products but has been lacking in what is one of the fastest growing collaboration markets today – videoconferencing. Particularly after Cisco’s acquisition of Tandberg and Microsoft’s acquisition of Skype, Avaya was placed in a position where it was missing a key piece of the collaboration puzzle. While Avaya has been selling partner solutions from LifeSize and Polycom and offers its own desktop video solutions, this move places it in the middle of all the action in a multi-billion dollar enterprise videoconferencing space which grew at 22% in 2011, according to Frost & Sullivan’s latest research. Radvision in return will get a new home that it desperately needed after Cisco’s acquisition of Tandberg resulted in fallout for its OEM partnership, which at one point accounted for a whopping 35 to 40 percent of its revenues.
Having followed Radvision for years now, I had long ago reached the conclusion that its strength lies in its engineering and a well rounded product line but it could only go so far without a strong marketing and distribution channel backbone. With a fledgling channel strategy, particularly in North America, Radvision remains a distant player to market leaders Cisco and Polycom. In fact in recent years Radvision has been surpassed by stronger and relatively newer companies like Vidyo (co-founded and led by ex-Radvision Ofer Shapiro) and LifeSize and fast growing APAC vendors like Huawei. What Radvision lacked in marketing acumen and reach can now be made up by Avaya with its established UC channel network as well as a strong DevConnect community, Avaya’s developer ecosystem.
Radvision offers a full suite of videoconferencing endpoints and infrastructure products for room-based, desktop and mobile video applications. From a product line perspective, the acquisition will be complementary with little overlap.
- Radvision’s Scopia videoconferencing products will enhance Avaya’s core UC capabilities integrating into the Aura architecture, allowing single user experience for multimodal communications over multiple media endpoints.
- Avaya will also gain a platform in mobile video in a market that has been transformed by the strong emergence of video over tablets and smartphones. Radvision’s Scopia Mobile platform offers HD videoconferencing over iPhones and iPads and could add capabilities to Avaya’s Flare experience. Scopia Mobile is not available on Android yet. Avaya had originally introduced Flare over Android OS and recently extended it to iPad. Combined, these two solutions could open up interesting possibilities for a wide array of 3rd party mobile video apps.
- Radvision’s recent products have been particularly targeted at the SMB space which will provide inroads to Avaya to penetrate new segments.
- The acquisition will also offer Avaya opportunities in Europe where Radvision’s acquisition of Aethra has resulted in established channels and rapidly developing partnerships with leading service providers.
According to our latest research, Radvision holds a market share of 2.2% of a $2.7 billion videoconferencing endpoints and infrastructure systems market. While Avaya is not gaining a significant market player like Cisco did with the Tandberg and WebEx acquisitions, this move is strategic to Avaya. It makes Avaya a serious contender in the end-to-end collaboration markets where it can now offer a complete solution to its customers. It would be interesting to see if other UC vendors that do not yet own the videoconferencing piece will follow suit and move from a partner-friendly approach to a more self sufficient collaboration strategy. Anyone who uses videoconferencing today knows that the technology continues to face interoperability challenges. As a result, customers have shown a strong preference for end- to-end solutions from a single vendor. Both strategically as well as from a technology point of view, it places Avaya in a stronger position when competing head on with Cisco and Microsoft (which closely partners with Polycom for video). This is not a customer acquisition or a market share growth move by any means but a technology acquisition that will strengthen Avaya’s collaboration product portfolio. Moreover, as Avaya is preparing for its IPO, Radvision adds the highly valued video collaboration piece to its portfolio that positions it well in the eyes of investors.
Avaya’s three phase integration plan- starting with basic integration between Avaya and Radvision’s SIP and H.323 stacks followed by tighter integration of Radvision products with Avaya Session Manager and Avaya Aura and finally full integration of user interfaces - will take several months. However, Avaya is known for its nimble execution when it comes to integrating acquired companies into its fold.
The videoconferencing market, dominated today by Cisco and Polycom with a combined market share of over 75%, will have another large player to contend with. At the same time, Avaya has a challenging road ahead since both Cisco and Polycom have deep roots in videoconferencing through advanced product lines and strong channel and partner relations. Cisco announced this morning that it will buy NDS group for about $5 billion to accelerate its Videoscape platform. Cisco’s video vision in enterprise markets extends beyond videoconferencing to pervasive video through web presence, learning management systems, streaming, digital signage, surveillance, and video enabled smart boards. Bottom-line is that video collaboration in general is growing to become a key piece of business activities today. With the acquisition of Radvision, Avaya can further tighten its grip on the enterprise communications and collaboration market.
We recently published our 2011 web conferencing research which points at the strong demand and growth potential for web conferencing solutions. Global revenues in the web conferencing market reached $1.5 billion last year, growing at 10.8%. User demand is growing rapidly though revenue growth is starting to slow down due to increasing market maturity and the impact of declining prices. Revenues are expected to reach $3.1 billion in 2015, supporting a widening user base and a healthy 5-year CAGR of 15.3%.
Fast decline in prices and significant technology evolution are permitting customers to roll out web conferencing at a wider scale, going beyond traditional departmental-level deployments. The market is seeing early mainstreaming with penetration rates pushing up. Here are the key trends and findings:
SaaS Remains Dominant – Hosted services or SaaS contributed 81% of total web conferencing revenues. Based on an OPEX model, cloud technologies are creating time to market advantage for organizations of all size. The on-premise market showed strong momentum registering higher revenue growth than SaaS. The push toward UC is expected to lead to stronger growth for on-premise web conferencing. Cloud based UC services are evolving and do not yet offer the robust capabilities that their server-based counterparts provide. The need for customization and deeper integration are other reasons for adoption of on-premise UC.
Mobility and Video Redefine Collaboration – Enterprise communications is getting redefined as it centers around three new trends: mobile, social, and visual. End users will continue to win the "battle of choice" (BYOD, BYOA, consumerization of IT…). The mobility explosion, combined with growing demand for video and social media, has led to richer forms of web collaboration enhancing the end-user experience. Personal videoconferencing fueled by Skype, Apple FaceTime, Google Talk, is making enterprises more video-ready which has pushed video into all collaboration forms including web conferencing.
Software plus Service – Private clouds, hybrid solutions, and managed services are emerging to shake up traditional business models. As users move from an "either/or" approach to a hybrid ‘software plus service’ model, vendors are offering flexible deployment modes to meet changing end-user needs. Private clouds are the right answer for large enterprises that are risk averse and want to take small steps to cloud computing.
Growing Focus on Interoperability – Interoperability across multiple devices, networks, and applications will be critical to long-term viability of any offering. Vendors are offering SDKs, and open APIs for seamless integration with line of business applications, development of customized mobile apps, integration with telepresence systems, and so on.
Global Footprint – Growth in APAC far exceeds the annual growth in other regions. APAC is growing from a smaller base and remains under penetrated, posing strong opportunities over the next several years. Ensuring global availability and support of products and services will define the winning vendors and solutions. BRIC nations as well as countries classified as MAVINS (Mexico, Argentina, Vietnam, Indonesia, Nigeria, and South Africa) are the next hotspots for growth.
Pricing Pressures – While web conferencing continues to be a good growth market, revenue growth is not fully indicative of demand. Rapidly declining prices are bringing in early stage commoditization. We expect price declines to be in the 15 to 20% range over the next few years resulting from heightened competitive pressures and an increased focus on selling larger communications solutions.
Strong SMB growth – Cloud-based solutions are winning big among SMBs. SMB contribution in hosted web conferencing market continues to climb at a rapid pace. Vendors across the board are revving up ecommerce capabilities for better SMB penetration. While e-commerce is well established in North America, efforts are underway for ecommerce enablement and local language and currency support in several international markets.
Ongoing Market Consolidation - The web conferencing market has seen several smaller players and free conferencing providers gain significant traction. However, with the overall move toward UC, the market is getting more concentrated in the hands of larger vendors. Recent acquisitions include Dimdim by Salesforce, Elluminate and Wimba by Blackboard, Netviewer by Citrix Online, and more recently that of iLinc by Broadsoft. In the UC space, Microsoft’s acquisition of Skype further consolidated its position in the communications market. The well-established position and marketing muscle of communications giants pose threats for smaller players. However, larger vendors that are integrating web conferencing into their UC portfolio have to evolve their business models to continually innovate, offer attractive pricing, and stay agile to outsmart smaller more nimble competitors.
Keep it Simple – The dominant theme is simplification and creating easy-to-use stickier solutions at attractive price points. Feature explosion, or overloading a product with features, leads to explosion in complexity. What remain top of mind among customers are simpler intuitive yet rich user interfaces that deliver real business functionality. Open solutions are enabling an entire ecosystem of third party applications that run on top, so users can customize their user experiences and functionality.
For further information and in-depth market metrics, forecasts, market shares and valuable insights see the full study titled "Analysis of the Global Web Conferencing Market" (code N9D0-64) on www.frost.com.
Early this week I attended Cisco Live and the adjunct CScape analyst event in high energy Vegas. Despite the press surrounding Cisco’s ongoing troubles (http://tinyurl.com/69hcuo7), the tone of the event was positive and the attendance was a record 15,000+ attendees in-person and 40,000+ attending virtually. Cisco’s executive team remains focused and committed to execute despite the distractions. John Chambers’ keynote was balanced – upbeat but realistic enough to make Cisco’s recovery path appear credible. It covered everything that one expected to hear as Cisco moves ahead, acknowledging the need to streamline the company and focusing on innovation around four key communication tenets – mobile, social, visual and virtual.
Cisco’s collaboration business has been a strong performer and was the focus of my discussions at Cscape. Cisco laid out a clear direction and roadmap for Jabber and WebEx, with Jabber becoming Cisco's next generation unified client that ties together multiple communication and collaboration applications. Mobility has long been center stage for Cisco and, as one of the four key tenets, is now even more prominent in the company’s initiatives. Besides the progress made by its own enterprise grade collaboration-ready tablet Cius, Cisco also leads the market in providing extensions of its communication applications over multiple mobile devices and operating systems. WebEx offers High Quality video over ipads, iphones and Android devices. With more than 1 million mobile downloads already, WebEx mobile is clearly a point in case for the fast emerging world of mobile collaboration. Cisco’s overall mobility strategy positions it well for the post-PC era, a clear differentiator over its competitors.
Video as expected remains a key highlight at any Cisco event. During his keynote, Chambers set the tone for video’s prominent role in the future with a bold statement that video will not only be the next voice but will also be the primary form of IT. While one may question the ability or willingness of IT and the timeline for the transition, it clearly reflects a growing end user need and the direction that Cisco will continue to pursue. Video has been integrated into all communication clients offered by Cisco including Jabber. Jabber video clients will interoperate with Cisco TelePresence and other video solutions as well. High Quality video within WebEx will be enhanced to HD video, further putting the spotlight on the role of video in desktop collaboration. Lastly, Cisco’s recent focus on openness and standards based products removes several doubts around its ability to interoperate.
As one looks at Cisco’s pervasive video strategy, it's reasonable to question customers’ ability to deploy wide scale video and its impact over their networks. I saw demos of Cisco’s recently announced Conductor solution and Prime Software. Conductor, which acts as a traffic director to ensure intelligent conference placement and admin controls, and Prime a comprehensive network management tool could solve several IT headaches associated with broad video deployments. Expect to hear more from Cisco's infrastructure team as it works across several fronts to bring out advanced management and control capabilities. For customers looking at outsourcing videoconferencing, Cisco offers Callway, a cloud -based subscription service which was launched early this year. Interestingly, Callway remains little known and under-marketed. There is a growing need among customers to move video into the cloud for ease of use and management and to enable seamless B2B communications. B2B remains a key challenge for videoconferencing customers today. The Frost analyst team met with BT conferencing, a key Cisco partner, at the show. BT is doing significant work on B2B and managed services for video, providing an open interoperable environment between multiple vendors' solutions and is seeing very strong growth revenue growth for its managed videoconferencing services.
At the pervasive video roundtable discussion it was heartening to see a true case of pervasive video presented by West Texas A&M University which is using video for learning, security and communications to enable next generation learning. Video has been integrated through web presence, learning management systems, digital signage, surveillance, and video enabled smart boards using Cisco MXE and Show and Share. James Web, CIO at West Texas A&M University, mentioned that the new generation of students uses video and social media pervasively. As a result, they not only expect video in the class room but in some cases are demanding it.
I left CScape with a clear understanding of Cisco’s advantage in the industry as an end to end provider of all elements of collaboration to its customers – messaging, presence, voice, audio, video and web conferencing, unified messaging and mobility. However, Cisco’s collaboration vision is not without challenges. Its product lines today are a mish mash of multiple architectures and form factors. While consolidation is on Cisco’s agenda, we expect it to be a while before we see significant product simplification from an end user perspective. The multiple acquisitions have also resulted in operational challenges. Cisco’s channel integration issues, post Tandberg acquisition, have been well known. Cisco launched a new program for its AV channels early this year. However, its channel issues will be resolved only gradually as Cisco builds a well laid out plan, where each partner sees benefits in the bigger Cisco pond. Lastly, to ensure long term growth Cisco needs to aggressively address its lack of presence at the low to mid end of the market where competition is winning. Not only will Cisco need to redesign the products but also address a new level of price competitiveness that it is traditionally not known for.
Over the next several months a key focus at Cisco is streamlining. If Cisco stays focused on its execution plan, it can drive new growth through its collaboration portfolio which is very well positioned to lead in the post-PC era and in next generation communications that will be supercharged with video.
Yet another major acquisition news came out this morning. Polycom announced that it will acquire HP’s Visual Collaboration Unit including the Halo products and managed services, ending HP’s not so successful venture into the videoconferencing market. The acquisition, which is valued at $89 million, is expected to close on August 1, 2011. According to Polycom it will be immediately accretive upon close.
The acquisition price seems miniscule compared to some of the mega acquisition numbers we have seen in recent months. However, it should be noted that HP’s sales from Halo are far smaller and not close to the success seen by its competitors in immersive telepresence. But that’s not why Polcyom is acquiring HP’s videconferencing business – it’s not a technology acquisition by any means. Polycom already owns all the technology components that HP videoconferencing brings to the table. So this is clearly a potential customer acquisition and market growth move.
The HP acquisition and partnership announcement gives Polycom the added muscle in a fast growing and consolidating market. From day one Polycom gets access to HP’s 425 blue chip videoconferencing customers. More important than the acquisition news is the announcement that HP and Polycom have established a strategic relationship in which Polycom will be an "exclusive" provider to HP for telepresence, including both resale and internal HP deployments. That itself opens up immense opportunities for Polycom. HP’s 320,000 employees have a growing need for collaboration internally, creating a strong new customer for Polycom. The exclusive partnership also means Polycom will get access to HP's global distribution channels and sales team to sell its conferencing gear to HP's vast customer base. Considering that videoconferencing despite all the hype remains an under-penetrated market, think of the all the sales opportunities this could generate for Polycom among HP customers that are already investing in networking, storage, and managed services.
The two companies have agreed to make Polycom videoconferencing and telepresence applications available for WebOS platform and TouchPad line. Mobility is a hot topic and the most exciting developments in collaboration are coming to mobile devices. This partnership will further strengthen Polycom's growing integration with tablets and smart phones.
Along with the acquisition announcement Polycom also made headlines by announcing -
- Open Visual Communications Consortium - Long time in the making OVCC is an open video exchange cloud with carriers to help expand inter-exchange and B2B videoconferencing beyond proprietary video platforms and carrier networks. The 14 service providers as founding members include top names such as AT&T (a strong Cisco telepresence partner), Verizon, BT, Glowpoint and Telefonica.
- Polycom and Microsoft announced “Rally”, codename for a purpose-built HD telepresence product. It’s the first room telepresence solution with an embedded Lync client, and will natively integrate with Microsoft Office 365 cloud service as well as premise-based Lync systems. This further solidifies Polycom’s growing partnership with Microsoft. In a UC webcast today Polycom had a strong showing from its key partners including HP, Juniper, and Microsoft.
There are several questions that emerge from the Polycom-HP announcement. What will happen in the long term to the Halo product line? Though Polycom has announced its commitment to support Halo and the existing customer base, it is unlikely that Polycom will continue with dual telepresence lines. Also, after the acquisition will Polycom continue with HVEN telepresence network and managed services and will that create conflict with its service provider partners? Lastly, there are big challenges for Polycom to truly leverage HP’s channels to sell videoconferencing products, which is a very different sale from HP’s core products.
Polycom has been gaining a lot of momentum in recent months and has benefitted significantly from a growing ecosystem of partners, particularly Microsoft. This announcement creates another solid partnership. What competition has to worry about is how to counteract an even more powerful Polycom. It is evident that this acquisition is a move against Cisco. It also means the end of HP’s OEM partnership with Vidyo which has been gaining significant mindshare for its SVC-based videoconferencing line. The HP-Microsoft-Polycom triangle of partnership could mean huge challenges for Polycom’s competitors.
For the last several days, the rumor mill was abuzz with possibilities of a Skype acquisition. Microsoft’s announcement this morning that it is acquiring Skype for $8.5B in cash seems aggressive and risky from a financial point of view but could be a game changer for communications. This acquisition could make Microsoft a serious contender in the cloud and will help Skype overcome the huge challenge of credibility among enterprise users. However, all this comes at a high cost for Microsoft, a company not known for acquisitions.
Skype, with over 600 million registered users in 2010, had only 8.8 million paying users. It made $860 million in revenues in 2010 and had long-term debt of $686 million. That’s the part that leaves many scratching their heads. It is a huge acquisition by any means of a web-based company - looking at the price-to-sales ratio of the acquisition Microsoft is paying about eight times the revenues. Do the possibilities of integrating Skype in Microsoft’s portfolio give Microsoft the competitive advantage (over Google, Apple and Cisco) and the income generating potential in the long term?
Microsoft will integrate Skype’s capabilities into its enterprise products (voice, video, etc.) and also into Xbox/Kinect for video calling. However, there is significant overlap as several of Skype’s capabilities are already available today through Lync and Live Messenger. Microsoft’s Kirk Koenigsbauer demoed Lync videoconferencing over Kinect at Enterprise Connect in March. Having said that, Skype is a way better IM and voice/video calling client than Live Messenger. Additionally, Microsoft will integrate Skype into Windows Phones which can possibly help narrow the huge gap between Windows Phones and iPhone and Android. And there’s the speculation that Facebook will get access to Skype as part of Microsoft's partnership with Facebook. Indeed Skype’s vast reach today can open a world of new opportunities for Microsoft but how and when Microsoft will make money on Skype is hard to see yet.
From a UC perspective, this will truly give Microsoft the network and the reach to take UC to the cloud at a large scale. Since Skype made significant changes last year, there was anticipation already about Skype becoming a serious contender for voice and video for mainstream businesses. However, the biggest concerns were around user perception that Skype is a free consumer-grade service and not yet enterprise-ready from a security and reliability perspective. That’s where the Microsoft Skype marriage can make some true market changing moves. Additionally, Microsoft which has been struggling to get into the SMB market can clearly access that now with Skype. Although, from a financial point of view it is not clear immediately how Skype, which posted a loss of $7 million in 2010, can help Microsoft’s huge money losing online services division.
What does this mean for Microsoft’s competitors? On the enterprise collaboration side, Microsoft’s competitors have been challenged by its fast emerging UC portfolio and Microsoft's market disruptive prices. Skype as a low-cost provider will only increase the headache for Microsoft’s competitors. The announcement made by Skype and Citrix Online in March also looks questionable now.
Given all the above it’s not hard to see why Microsoft made this acquisition. Like any major acquisition it will be a while before we see the integrations and there will be organizational and execution challenges along the way. But there are several interesting possibilities that will unfold with time, possibilities and opportunities that come at a very high cost for Microsoft. The angle might as well have been to keep Skype out of Google and Cisco’s hands.
On a personal note, I like my Skype the way it is and I like it free and I am hoping Microsoft doesn’t mess with that.
This week we published our 2011 videoconferencing endpoints research which points at the huge growth potential for videoconferencing. Global revenues for the videoconferencing and telepresence endpoints market reached $1.7 billion in 2010, growing at a robust 17.8%. The strong market growth in 2010 can largely be attributed to a surge in interest for videoconferencing to cut travel costs and enhance the communications experience. The overall outlook for videoconferencing is starting to look more and more attractive. As the economy continues to improve and the general interest in all things video keeps rising, IT managers are looking at the feasibility of rolling out “pervasive video”. Many vendors are touting the mantra “video is the new voice”, pushing the notion that simple voice calls will become a thing of the past. While mainstream adoption of pervasive video may still be a few years away, the demand drivers are all aligned for the market to pick up pace. Here are key trends and findings-
• The market has seen accelerated pace of new product developments, pricing shifts, as well as consolidation. While the market for room systems will continue to be healthy, the fastest acceleration will be seen in desktop and mobile segments. The spread of mobile and desktop video will feed into the growth of room-based systems. Vendors are carving a solid path to address an end-to-end video strategy that spans all the way from immersive and room-based video to desktop and mobile video.
• The small and medium business segment will likely become the next economic growth point in the future. SMB adoption continues to grow at a much faster pace than adoption by enterprises. Videoconferencing vendors are targeting the SMB customer by making products easy to install and use and by providing lower prices. High SMB penetration seen by LifeSize and Polycom in 2010 has resulted in stronger overall SMB data for the industry.
• In 2010, market growth was primarily driven by room systems. Most businesses perceive better ROI in multi-user room systems as compared to personal use executive systems. Executive systems are seeing heavy competition not only from software-based desktop video clients but also from the influx of enterprise tablets that are increasingly video enabled. While Executive systems will continue to remain under pressure, declining prices as well as evolution of new form factors such as the Avaya Desktop Video Device will boost growth.
• B2B and interoperability issues have taken center stage. As usage climbs up, customers are looking to maximize their ROI by making video extensible to an increasingly diverse base of endpoints and clients - with both their internal and external value chain. While there is work that still needs to be done, endpoint vendors are focusing on providing interoperability with other vendors’ solutions and service providers/carriers are introducing inter-exchange services that can connect their customers to users on other carrier’s networks.
• The mobility factor continues to gain unprecedented attention. The invasion of tablets in the enterprise will be strong over the next few years with a diversity of form factors. Faster, smarter, and more capable smart phones and the emergence of collaboration-ready enterprise tablets is fueling the interest in mobile videoconferencing. Additionally, the move toward 4G will help carriers deliver higher quality video.
• The growth of UC has had a tremendous impact. Video is being viewed as an essential element of a UC solution. Desktop video in particular is expected to shift from a standalone solution to a collaboration suite. Accordingly, adoption of desktop video will be impacted by the uptake for UC.
• The consumerization of IT and viral growth of video in the consumer market, along with rapid adoption of social networks are changing the way people communicate. These mega trends are also bringing down the cultural barriers that have traditionally restrained wider use of videoconferencing and are having a deep reaching positive impact on promoting video adoption. Green initiatives continue to be a key driver.
• Most businesses today do not have the network infrastructure to support wider deployments that require not only a high bandwidth data network, but also upgrades to existing video infrastructure, such as MCUs, gateways, management software etc. The immense growth seen in the endpoints market is increasing the demand for videoconferencing infrastructure and 2010 has already seen this trend.
• Videoconferencing in the cloud is a nascent market starting to evolve. New cloud services that combine hosted email, messaging, groupware, along with video and web collaboration will see greater adoption as users increasingly evaluate collaboration as part of a bigger enterprise communications purchase. These services will be available both as public clouds as well as private non-shared more secure and flexible clouds.
• The competitive landscape is fast evolving. Cisco TANDBERG solidified its position and continues to dominate the revenue market share. Polycom leads the market in terms of unit shipments and posted the highest growth in 2010 in the industry. A large part of Polycom’s success can be attributed to the strength of its product line and a well- executed channel strategy.
For further information and in-depth market metrics, forecasts, market shares and valuable insights see the full study titled “World Videoconferencing and Telepresence Endpoints Market: Market Gathers Steam as Customers get Ready for Pervasive Video” (code N8C3-64) on www.frost.com.
Polycom announced today the addition of six new executives to its management team. These appointments include Joe Burton as SVP and CTO and Sudhakar Ramakrishna as SVP and General Manager Products. Joe Burton comes from Cisco where he served as CTO for Unified Communications. Sudhakar will join Polycom from Motorola where he is Corporate VP and GM for Wireless Broadband Access Solutions and Software Operations. Polycom also announced the combination of its video, telepresence, and voice development units into a single R&D organization to better establish itself in the UC market. Polycom will be forming three new lines of business (LOBs) - enterprise and government/public sector, service provider, and small-to-medium business (SMB) - focused on better meeting end user needs in each of these sectors.
There is certainly a big shakeup going on within Polycom's management. It started a few months back when Andy Miller replaced Bob Hagerty as CEO. Today's announcement is not surprising since Andy, who came to Polycom from Cisco and Tandberg, had promised to shake things up and focus more on the broader unified communications market. He had also talked about transforming the Polycom culture that is more product and technology focused. Polycom grew at a strong pace in 2010, reporting a 25% revenue growth in the first half of 2010 over same period last year.
Polycom is at unique cross roads today where it faces competition from new directions. Not only is the combined Cisco-Tandberg entity a huge threat but also Polycom's long term partner Avaya is switching gears to partner closely with Polycom rival LifeSize to offer an end-to-end video product line. Avaya announced its own desktop video device last week at an event in New York. Polycom's traditional business structure was soon going to become a hindrance. We believe the new moves being put in place bode well for a more concerted UC effort by the company as well as renewed vertical and end user focus. We have to wait and watch if and how the new management can execute and establish Polycom with a bigger UC vision.
Last week we published the 2010 web conferencing study which points at exciting opportunities in the fast evolving web conferencing space. A veritable explosion of web 2.0 tools and growing need for real time collaboration continues to draw users to web conferencing. As companies look to accelerate team productivity and support better and faster decision making, applications like web conferencing are becoming a critical component of enterprise communications.
IT is starting to make web conferencing an investment priority as part of a bigger bundle of collaborative applications. The future holds growth opportunities as web conferencing gets increasingly adopted as a standard communication tool like email and IM. Here are top ten trends in the web conferencing market -
• Next generation of collaboration evolves - Web conferencing continues to morph and evolve substantially as new technologies are developed and introduced. New cloud services that combine hosted email, groupware, and messaging with collaboration are starting to become available. These collaboration bundles will overshadow stand alone web conferencing, as users look at getting the most value by buying an end to end communications suite.
• Hybrid models continue to emerge - Collaboration and information sharing has represented a low hanging fruit for cloud service vendors. As IT evaluates migration of critical communications such as email to the cloud, delivery models that provide core services from the cloud via hosted solutions will increasingly be combined with on-
premise applications. Private clouds that offer many of the same benefits of public clouds but are managed within the organization for better control and security will see increased prominence.
• SaaS momentum strong though on-premise will grow faster - SaaS is the dominant delivery model for web conferencing today. Due to ease of use, rapid deployment, limited upfront investment, and lower management costs SaaS will continue to be dominant especially among SMBs. However, as the world of enterprise communications converges around UC, initial deployments are going to be on-premise. For several companies the quest for customization, specific features, and deeper integration are key reasons for adopting on-premise web conferencing and UC.
• Focus on simplification - The dominant theme in 2010 among web conferencing vendors is focused on creating easier to use solutions at attractive price points to move the market beyond a niche status. Pricing pressures continue to intensify as the market matures and ease of deployment/use are becoming increasingly important. The desired user benefit is cost and time savings, as customers prioritize on using the product quickly without enduring a substantial learning curve.
• Targeting the IT buyer - With integration of conferencing capabilities in broader enterprise communications, IT is making key decisions related to collaboration purchases that are starting to span wider deployments. Though departmental level buying is still strong and line of business heads continue to invest from their operating budgets, there is a greater push from IT to standardize on enterprise wide solutions. Line-of-business managers have a significant influence on IT strategy and are coming to the decision making table for vendor selection.
• Integration with social media - The integration of enterprise software and social networks is clearly the next big communication trend. With the immense rise in adoption of Twitter, LinkedIn, and Facebook, web conferencing and UC vendors are now focusing on providing integration with social networks to change the way users interact with coworkers and customers and to create a more sticky user experience.
• Mobility is huge - A big technology theme for conferencing providers in 2010 is mobility. New form factors to support the growing need for mobile communication and collaboration are emerging. In addition to soft clients that sit on the most popular devices (iPad, iPhone, Google’s Android-based smart phones, and Blackberry); tablets have emerged as a new form factor for mobile collaboration.
• The spotlight is on video - Video integration with all forms of collaboration is another area of technology focus. There is a growing demand for video to be integrated, all the way from desktop to conference rooms to mobile devices. Web conferencing vendors that provide desktop video are reporting higher usage, particularly for applications like virtual classrooms, training, and customer-facing events. Furthermore, with the next generation of smart phones and impending 4G arrival, video on mobile devices is now becoming a reality.
• Green Business - Green initiatives continue to draw new users to conferencing technologies. Many vendors are providing green calculators to help users realize the carbon emission savings and to create a larger following. Green business initiatives are still in their infancy stage and will drive greater adoption of conferencing in the long term.
• Shifting channel strategies - Vendors' channel strategies are evolving at a fast pace. The overall shift in the future is going to be toward selling through a larger community of VARs and SIs as vendors increasingly add web conferencing to hosted email and other collaboration offerings. The trend toward low prices indicate that channel partners have to find opportunities in tagging value-add services as well as selling in bulk to see the true long term revenue benefits.
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