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Cisco's Downmarket Videoconferencing Move

Its $3 billion purchase of Norway's Tandberg will give Cisco videophones that sell for as little as $1,495 to complement its high-end TelePresence systems

By Peter Burrows

If ever a promising technology struggled to take hold, it was videoconferencing. For years, most of the systems that were sold collected dust in conference rooms and office closets, sidelined by hard-to-use controls, flickering video, and maddening audio delays.

But Cisco Systems (CSCO) helped give videoconferencing a new lease on life, when it released its slick TelePresence systems in 2006. Suddenly, it was possible to talk with colleagues across the globe in super-realistic resolution, with a click or two.

But if the world's largest maker of computer networking equipment made videoconferencing cool again, it did so for only a tiny slice of the market. Cisco's TelePresence systems, most of which ship as a specially configured room featuring huge screens, studio-style lighting, and massive bandwidth connections, started at $300,000. Since then it has come out with smaller systems that cost as little as $34,000, but these are still out of reach for all but the biggest, wealthiest corporate clients. "Cisco's approach was definitely going to hit a brick wall," says Andrew Davis, an analyst at Wainhouse Research. "There are only so many CEOs you can take out on the golf course and sell a TelePresence system to."

Melding Tandberg with Pure Digital

That's where Cisco's $3 billion purchase of rival Tandberg, announced on Oct. 1, comes in. The Norway company is the No. 2 player in the $1.5 billion-a-year videoconferencing market, with videophones that go for as little as $1,495. Mix those downmarket systems with Cisco's massive 20,000-person sales force, the largest in the field, and you get "a 9.0 earthquake that really legitimizes videoconferencing as the communication technology of the future for companies," says Davis.

Cisco won't sell videoconferencing in a vacuum. Cisco Executive Vice-President Ned Hooper says Cisco will meld Tandberg's product line with its own collaboration-related technologies, including IP phones and flip cameras acquired earlier this year when the company bought Pure Digital.

That way, workers could attend and contribute to videoconferences from various screens—portable devices, their desktop PCs, or high-def panels in a tricked-out TelePresence room—and be able to not only see other attendees but also share documents, hold chat sessions, and communicate in other ways. "Just as we have transformed the high end with TelePresence, we think the video and collaboration markets are hitting an inflection point," Hooper says. "And now we'll be able to cover the market, from the boardroom to the desktop PC." And of course, all those new heavy-bandwidth communications will need to travel over Cisco-built Internet gear.

Price-Cutting to Move Product

To succeed, Cisco will need to adjust its go-it-alone strategy. So far, Cisco's TelePresence products only work with other Cisco TelePresence systems. The company took this approach in part because it wanted to control the entire experience, like Apple (AAPL) with its iPod, to banish customers' memories of videoconferencing systems of the past.

But despite the company's huge marketing push behind the technology, so far it has fewer than 500 customers. Upstart Lifesize Communications in Austin, Tex., claims 9,000, by comparison, though its products carry a smaller price tag.

To win business, Cisco has had to slash the price or even give away TelePresence systems to customers buying other Cisco products, according to industry analysts and Lifesize CEO Craig Malloy. "That's a reason why they sometimes couldn't give TelePresence away—because it wouldn't work with anything anyone else had," Malloy says. Cisco denies this claim.

A System the Size of a Modem

Tandberg's products have no such problem, however. That means Cisco can now choose to adapt its current products or replace them with Tandberg's technology.

And there are other threats. By buying Tandberg, Cisco trails only Polycom (PLCM) in deployment of big corporate videoconferencing systems. But these remain complex, centralized systems that require users to reserve time and often require help from IT staffers.

At the same time, many workers—particularly younger ones steeped in social networking—are quite comfortable using Webcams on Macs and PCs. And on Oct. 5, Lifesize will unveil the Passport, which packs an HD videoconferencing system into a device the size of a modem—all for $2,400. By attaching it to any flat-panel monitor or TV, workers can launch a videoconference—whether from their cubicle or conference room at work, or their den or hotel room. And sources say Lifesize has struck a deal with Skype, so that users will be able to reach 500 million Skype users without having to know their IP address. "It's very clever, and potentially a very important product," says Wainhouse's Davis.

Cisco isn't going as far downmarket as that just yet. But by packaging Tandberg's tools with its widening panoply of communications tools, Cisco hopes to build an important set of video products of its own.

该E-mail地址已受到防止垃圾邮件机器人的保护，您必须启用浏览器的Java Script才能看到。 is a senior writer for BusinessWeek, based in Silicon Valley.

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