Brockmann and Company | Customer Insights

This was really weird. I first heard about a plan to develop a $400 HD web camera first on stage from the Microsoft Corporate VP for Unified Communications, during his keynote. Gurdeep Singh announced that TANDBERG would deliver this product. So I arranged a call with the product marketing folks at TANDBERG to discuss the product features and understand the state of readiness.

In short, this was a typical Microsoft announcement - provocative and a year ahead of schedule.

Provocative:

High Definition and Web Camera (meaning USB-attached) in the same sentence.

• Microsoft and TANDBERG in the same sentence.
• Development has not begun in earnest, since the product is not due until 1H2009.
• Channel for the product is not yet certain. Will Microsoft resell it? or just define/share technologies for it?
  

Key questions to be answered in the coming months:

Exactly 'how High Definition is HD' will be the question for Microsoft?

There is no doubt PCs are poor multimedia processors. Otherwise the video industry would have used them. PCs are great general purpose computing platforms, or for text entry like word processing and spreadsheet operations, but lack the processing power to deliver sustained streaming flows of highly compressed data like MPEG-4 or other standard compression techniques. I will predict that Microsoft will announce its own technologies as they've done with the forward error correction as in their real-time voice algorithm for their OCS 2007 clients.

 What will be the tradeoffs necessary to reach the sales price target of $400?

Optics and image capture

Silicon  vs PC processing

Audio microphones/pickup and processing 

Channel means it has to hit a cost target of $200 

It will be a compelling price point, if they can get there, but still no guarantee that it will kindle the rapid development of the enterprise desktop HD video unit market. Note that it's not clear to me that the quality of the desktop video experience is the performance variable that the industry needs to drive. 

The people at Fortune magazine organized a very eclectic 2-day agenda around a global conference in a southern California luxury hotel. I'm sure it was awesome to participate. I wasn't there, but had been to a Fortune conference in Paris, France in 2000. It was spectacular, and I'm sure this one was excellent too.

Nortel provided a telepresence capability that positioned the equipment of Polycom, together with the service management capabilities of Nortel, that went beyond the demonstration dialog of Nortel's arch-competitor at the VoiceCon event just last month in Orlando. Instead of just having one 60 minute session a la Cisco, Nortel made the technology and service a seamless part of the conference. They delivered four sessions involving telepresence as the travel-avoidance technology for at least one participant-speaker:

• Updates from the Developing World with speakers in New Delhi, India
• Greening the IT Industry with speaker in Raleigh, NC
• Global Perspectives on Energy Policy with speakers and moderators in Paris, France
• Sustainable Tourism with speakers in Frankfurt, Germany

Participants in the remote locations were accessible directly to the attendees at the Pasadena CA hotel. 

As predicted in this blog, the use of telepresence in conference keynotes will become a standard fare. Nortel's adoption of the service at this conference really pushed the yardstick in executive conferences, like this one. I think that these capabilities will fit particularly well in venues where the organizers are aiming for cosy and collegial settings, not thousands of people. It's best when the experience can be more personal, and since it is still a Seeing is Believing kind of market stage right now, it has to involve collaboration of and with senior executives.

It also fits well when it is relevant to bring folks from across divergent geographies to discuss relevant topics where business travel seemed underwhelming, or can't be accommodated. Organizers no longer have the worry about conflicts with particularly desirable keynote speakers either. This way, virtually any schedule can be accommodated and squeezed in without having to resort to red eyes or back breaking travel schedules. Is this the future of political campaigns?

On the heels of outstanding quarters from both TANDBERG and Polycom, Cisco announced that it has achieved 500 units on order or shipped and signs up AT&T to complement their BT Conferencing relationship.

Although Cisco may only be counting the $300,000 x 300 units = $90 million in revenues over the past 18 months, there are many pull-through advantages. Firstly, Cisco sells the enterprise Ethernet switches required to connect the room to the WAN. Likely dual 1Gbps interfaces are recommended. Then they sell the WAN edge routers for MPLS service and require 10-12 Mbps per monitor for access to the WAN. Then they sell the carrier MPLS equipment to aggregate and transport all this IP. 

The service provider has to be a Cisco Authorized Telepresence Service Provider with attendant requirements about management and operations that can only mean more Cisco product and Cisco-certified customer engineering expertise standing by or managing the network and the service. Overall, I would guess that the behind the wall represents 2X the revenue that Cisco gets from the room itself, making Telepresence as a high bandwidth proposition very attractive to the Cisco shareholder and the Cisco service provider.

Of course, Cisco will move into sub $100,000 HD systems, but not for another year. I bet they think there are still plenty of market stimulation to be done this way, especially now that AT&T is pushing the technology too.

Not from what the numbers tell us. Yesterday Polycom reported earnings and today, TANDBERG did the same.

I'm pleased to note today that there has been growth, significant growth in the video units of these two companies. Polycom grew video 16% year over year to $159.5 million in first quarter revenues. TANDBERG exceeded that performance with 39% year over year growth and revenues of $178.1 million.

You might recall that while Polycom focused its acquisition this past year on VoIP, and mobile VoIP in particular. Spectralink had 6 days to contribute to Polycom voice revenues in the first quarter last year. In contrast, TANDBERG focused its energies on bulking up in the video space with its acquisition of Codian. 

There aren't too many enterprise markets generating 39% and 16% growth these days. This kind of growth, in spite of the financial trouble in at least one of video conferencing's key segments - financial services - speaks to the confidence in the underlying advantages of the HD range of capabilities. I've written about these advantages and the confluence of the elements of the Perfect Storm.

Of course, past performance is no indicator of future success, yet the results show that despite the troubles of the past two or three quarters, there remains robust growth in video conferencing applications and technologies.