Wednesday, October 7, 2009

Cisco's Tandberg deal: Big ambitions, big challenges for telepresence

So last week Cisco (NASDAQ: CSCO) announced a definitive agreement to acquire all outstanding shares of Tandberg (OSLO: TAA.OL) for $3.0 billion in cash (that would be 153.5 Norwegian Kroner per share).

Company officials positioned Cisco's motivation for the deal as helping Cisco "expand its collaboration portfolio" so the company could "offer more solutions to a greater number of customers," and accelerate market adoption.

Let me scrub the public relations spin off of that, translate into plain English, and reveal Cisco's real motivation for this pretty sizable acquisition. Cisco has a problem. Their big push to bring video conferencing to the enterprise hasn't been able to break out of the largest conference rooms within an organization.

Cisco's video initiative is the modern equivalent to Bill Gates' vision of a computer on every desk and in every home. Gates realized his dream. But there are several reasons why Cisco will be frustrated in their effort to get video on every business desk, despite dropping $3.0 billion on Tandberg.

I've been involved in and have followed the desktop video problem for longer than I care to admit. My first startup, Teleos Communications Inc., which was founded in 1986 around a circuit switched telco technology/service called ISDN, was supposed to bring video well beyond the executive conference room. And it did, partially, from a bandwidth/cost perspective. But we never really got video outside of the conference room.

A list of companies have followed in those footsteps, such as AT&T/Lucent, PictureTel, CompressionLabs, and Polycom. All have failed to really move video conferencing out of the conference room niche. What I'm about to say might be controversial, but I'm going to say it anyway. I think Cisco is running into the same issue right now.

They've certainly made some improvements to business video conferencing. But just one of their rooms can cost $1 million, and can take months to design, install, test, and launch. You're not going to sell a lot of rooms at $1 million apiece (or even 1/100 that), and at those prices, you just can't deploy it deeply enough within the enterprise to make it really useful.

The costs don't end there. The truth is, Cisco doesn't really care deeply about collaboration or video. What they do care about is driving corporate demand for bandwidth, because that drives the switch upgrade process, the network upgrade process, and the router upgrade process.

Nothing would push those upgrades as strongly as a wholesale embrace of real-time video by large businesses, with video's unmatched appetite for bandwidth.

Imagine the bandwidth requirements for a global enterprise with several $1 million Cisco telepresence rooms and tens of thousands of Tandberg's $1,500 down-market videophones. Now imagine the cost for the care and feeding of the infrastructure.

Playing Devil's advocate, let's assume, for a moment, that Cisco solves the bandwidth problem (a huge assumption, but play along). Let's also assume that paves the way to making video cost-competitive, and thus appealing, as a technology for broad deployment throughout the enterprise.

Let's assume, too, that Cisco solves the complexity of setting up the video connections -- a challenge that has not been met, in my opinion; certainly not for N-way conferencing conversations. It might be solved for a point-to-point conversations (ala Skype Video or the various IM offerings with point-to-point video), but not N-way.

Assuming the cost and complexity problems get solved, one looming issue will remain, and no amount of investment or engineering genius will solve it. It's the human factors, which will prove to be the ultimate gating factor for broad-scale horizontal video adoption in the enterprise.

I'll explain why in my next post.

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