Jason Ader, CFA Dmitry Netis Nimrode Moreshet
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jader@williamblair.com dnetis@williamblair.com nmoreshet@williamblair.com Please consult the last page of this report for all disclosures.
William Blair & Company, L.L.C. receives or seeks to receive compensation for investment banking services from Cisco Systems, Inc. Technology, Media, and Communications | Data Networking and Storage
Data Networking and Storage
Video Conferencing Market Update: Point of No Return
A market in transition. We believe it is increasingly clear that the video conferencing market is in a state of transition with customers considering more software‐based and cloud‐centric solutions and looking at video as a piece of a larger unified communication (UC) solution. The challenge we see for large incumbents—i.e., Cisco/Tandberg, Polycom, Logitech (LOGI $10.46)/LifeSize, and Avaya/Radvision—is how to monetize this
transition given their primary reliance on on‐premise hardware sales.
New kids on the block. A group of emerging players (e.g., Vidyo and Blue Jeans) that do not have to worry about cannibalizing legacy hardware revenue are starting to disrupt portions of the video market with pure software, “MCU‐less” solutions that address the proliferation of video on mobile and other devices and are generally more economical and scalable than existing products on the market.
Endpoint shift to software. While the tried‐and‐true video conferencing room systems market is not going away, we believe the predominant use of video will be at the desktop and on mobile devices, where low‐cost software video clients and USB cameras will obviate the need for specialized hardware. We see a bifurcation in the video endpoint market developing, which will leave demand split between high‐end room systems (e.g., telepresence), where the experience matters most, and low‐end, software‐based clients, where cost and flexibility matter most. We believe this will squeeze demand for
workhorse midrange video room systems, which are often already underused.
The “MCU-less” evolution. We believe the current model of on‐premise big‐iron video bridges, or multipoint control units (MCUs), is not sustainable due to high costs and lack of scalability, particularly as desktop and mobile use expands. Instead, we see “MCU‐less” models emerging for multipoint video calls, specifically those built around video
switching architectures, where the endpoints do the heavy lifting and limited or no transcoding is done in the network. While we expect the incumbents to respond here with solutions of their own, we expect these will be cannibalistic. We also expect a steady shift to video bridging in the cloud, which technically still employs transcoding but will do so at lower costs than traditional on‐premise hardware solutions and will be easier to consume for customers.
“Meet me” paradigm emerging in video conferencing. We believe the “meet me” invitation model, as popularized by collaboration products like WebEx and GoToMeeting, will become increasingly popular for video conferencing, although it will not be appropriate for all use cases. A “meet me” link can be sent via e‐mail or calendar invitation, or can be accessed through a special portal, which eliminates the need to know the video addresses of other participants outside the firewall (a key historical hurdle to video adoption).
Early evidence of changing market dynamics. According to Wainhouse Research, in the first quarter of 2012 the overall video market (endpoints and infrastructure) declined by 27% sequentially and increased by 6% on a year‐over‐year basis, to $630 million. This represents a significant year‐over‐year deceleration versus the prior eight quarters, which saw average year‐over‐year quarterly growth of more than 20%. While macro‐ related weakness likely played a significant role in this slowdown, we believe that the aforementioned market transitions are starting to affect the video industry’s trajectory.
July 05, 2012 Polycom, Inc.
Symbol: PLCM (NASDAQ)
Price: $10.84 (52‐Wk.: $10‐$34)
Stock Rating: Market Perform
Company Profile: Aggressive Growth Cisco Systems, Inc.
Symbol: CSCO (NASDAQ)
Price: $17.15 (52‐Wk.: $13‐$21) Stock Rating: Market Perform
Video Conferencing Market Evolution Market Drivers
We see the video conferencing market at a critical crossroad, driven by the following factors, among others:
1. Moore’s Law and the power of the x86 architecture—Should reduce the need for specialized, DSP‐based video
conferencing hardware (endpoints and MCUs) and expensive cameras for a large portion of the market.
2. Ubiquity of enterprise VoIP and UC systems—Relegates video to just another application in a larger communication
suite and should give end‐to‐end UC providers an advantage.
3. “Consumerization” of video—Business users have become accustomed to using free video conferencing software, such
as Skype and FaceTime, in their personal lives, which creates an overall deflationary impact on business video pricing, in our view.
4. Proliferation of mobile devices—Has fueled demand for more flexibility and portability of video deployments, often at
large scale.
5. Shift to cloud‐based delivery models—A larger IT trend that reduces up‐front costs and simplifies provisioning and
operations.
Endpoint Market Shifting From Hardware to Software
While the room systems market is not going away (we see a continued role for high‐end, integrated video in large conference rooms and executive suites), we expect limited growth in this market given the high costs and lack of flexibility. We believe the predominant use of video going forward will be at the desktop and on mobile devices, where low‐cost software video clients and USB cameras will obviate the need for specialized hardware. We expect many of these video clients will be integrated into broader unified communication suites or collaboration products like WebEx and GoToMeeting (which today have reasonable video capabilities).
Ultimately, we see a bifurcation in the video endpoint market developing, which will leave demand split between high‐end room systems, where the experience matters most, and low‐end, software‐based clients, where cost and flexibility matter most. We believe this will squeeze demand for workhorse midrange video room systems, which are often already underused. In such smaller conference rooms, we expect multi‐purpose displays and computing systems with built‐in video conferencing capabilities will over time replace the need for specialized video hardware.
For the higher‐end rooms (e.g., telepresence), we also expect pricing pressure, as the so‐called midrange systems of today have sufficient horsepower to deliver the highest‐quality video and value‐added integrators can design telepresence‐like rooms at a much lower cost than today’s packaged telepresence systems. Lastly, we believe Skype for business should not be overlooked, and we expect Skype to occupy an increasingly important role in the SMB video market. The technology works, it is easy to use, and it may be good enough for many users—especially for the price.
Video Bridging Architectures Set to Change
From a network infrastructure perspective, we believe the current model of big‐iron video bridges, or multipoint control units (MCUs), is unsustainable due to cost and lack of scalability, particularly as desktop and mobile use results in exponential growth in the number of endpoints. In a traditional multipoint architecture (where a video call involves more than two locations), the MCU receives an encoded stream from each endpoint, decodes each stream, and composites them together in a single mixed stream—a process called transcoding. For homogenous environments (e.g., all HD endpoints), a single mixed stream is sent to each endpoint. For heterogeneous environments, where there are endpoints of various resolutions (e.g., SD and HD), the MCU sends separate streams for each endpoint so that resolution can be maintained. This avoids the least‐ common‐denominator problem for the participants but heavily taxes the MCU’s compute power.
The advantages of MCU transcoding are that it is a proven technology and it is efficient for large multi‐party calls with homogenous endpoints, as only a single stream needs to be encoded and decoded by each endpoint (with the mixing function performed in the network). The main drawbacks are that it is computationally intensive (especially in heterogeneous
environments), which creates scaling challenges and injects unwanted call latency (delay), and that it is expensive on a per‐ port basis (because of its heavy use of DSP chipsets).
Source: Wainhouse Research
Exhibit 1
Multipoint Call With a Traditional MCU
Emergence of Multipoint Video Switching
In a video switching architecture, the endpoints do the heavy lifting and limited or no transcoding is done in the network. There are two basic “flavors” of video switching at this point—scalable video coding (SVC) layer switching (which was pioneered by privately held vendor Vidyo) and simulcast (multi‐encode stream switching based on standards‐based H.264 compression). While the SVC approach is more computationally and bandwidth‐efficient than simulcast, SVC’s main drawback is that it is still a new standard that is not natively interoperable with legacy video conferencing endpoints. We note that both Microsoft (MSFT $30.63; Market Perform) and Polycom have expressed support for SVC and are developing SVC endpoints. We also note that Vidyo’s technology has been on the market for several years while no products using simulcast technology are available, although both Cisco and Polycom claim that products are in development. The challenge for the incumbents is that the new simulcast products are likely to be cannibalistic on a price‐per‐port basis, and they will require forklift upgrades of the endpoints, which could open opportunities for new entrants, such as Vidyo.
SVC switching.Scalable video coding (SVC) technology gets its name from the construct of the encoded video stream, which encapsulates multiple layers and can be scaled up or down depending on available resolution, network bandwidth, and computational requirements of each endpoint. The base layer of SVC is compliant with standard H.264 video compression (the technology that legacy video conferencing endpoints use), although the signaling protocols are different. The enhancement layers provide temporal improvements (frame rate), spatial improvements (resolution), and quality improvements (signal‐to‐ noise ratio).
Privately held Vidyo pioneered the SVC standard and introduced a patented approach to multipoint SVC switching (called “adaptive video layering”) using a centralized video switch (VidyoRouter), which has knowledge of each endpoint’s
capabilities. In this approach, the endpoints are responsible for all encode and decode processes. No video processing is done in the network—only stream switching—which dramatically reduces network infrastructure costs relative to traditional hardware MCU solutions (our checks suggest as much as one‐tenth the cost), decreases latency (again because no processing is done in the network to slow things down), and improves error resiliency (due to the efficiency of the SVC standard over non‐QoS networks).
The VidyoRouter decides which stream profile to send to each endpoint (base layer by itself or base layer plus one or more enhancement layers), based on the capabilities of each endpoint (e.g., higher resolution to room systems, lower resolution for mobile devices; see exhibit 2) as well as the network conditions. The VidyoRouter is simply software on an x86 server, and recently Vidyo introduced a virtual edition of the VidyoRouter (VidyoRouter Virtual Edition [VE]), which can be deployed on any standard hardware equipped with virtualization software. This makes the SVC switching approach inherently more scalable and cost‐efficient than hardware‐based MCU transcoding.
The main drawbacks to this approach include increased computational and bandwidth requirements at the endpoints (which creates practical limitations on the scale of a given multipoint call, at least in terms of the number of participants a user is able
to see), reliance on newly standardized SVC technology, and the need for gateway transcoding to deliver interoperability with traditional (non‐SVC) video endpoints.
Source: Wainhouse Research
Exhibit 2
Multipoint Conferencing With SVC Layer Switching
Simulcast.Simulcast is similar conceptually to SVC switching in that no transcoding is necessary in the network, which reduces costs and latency relative to traditional MCU architectures. The main difference is that simulcast requires multiple individual streams to be encoded at each endpoint (versus one stream with multiple layers in the SVC case). In the case of simulcast, each video endpoint will simultaneously encode two or more streams at different quality levels and then send these to a video switch, which will determine which signals get sent to which endpoints on the other end (based on criteria such as network bandwidth, display resolution, or who the speaker is). This will require substantial encoding horsepower at the endpoints as well as new simulcast‐ready endpoints and new video infrastructure products. Simulcast requires higher computational and bandwidth requirements at the endpoints than SVC switching because of the need to encode and decode separate individual streams, which creates even more practical limitations on the scale of a given multipoint call.
While each of the simulcast streams in a multipoint call will be native H.264 video, the signaling will be different and thus a gateway of some sort will be required for backward compatibility with the installed base of video endpoints that do not support simulcast. As mentioned, simulcast products are not commercially available at this point. Our analysis is based on discussions with industry experts; the actual products, when they come to market, could have greater or lesser capabilities than what we have laid out.
Source: Wainhouse Research
Exhibit 3
MCU in the Cloud
The multipoint architectures mentioned above can either be deployed in the customer’s private data center or hosted by a service provider in the cloud. Cloud‐based video bridging is not a new concept—it has been around for at least a decade in the form of outsourced video teleconferencing services, similar to audio conferencing services, where customers pay by the minute and the calls can be operator‐assisted or made without reservations. The decision of whether to implement an on‐ premise or hosted solution will be driven by cost, security, and performance requirements. Historically, installing a multipoint video conferencing solution on‐premise offered enhanced security and potentially lower latency for organizations with dedicated WAN branch connectivity by eliminating the need for the cloud to intermediate communications between disparate physical locations. In addition, per‐minute charges for video teleconferencing were often exorbitant.
We project a macro shift to cloud‐based video bridging due to lower capital and operational costs and enhanced security and performance. Just as virtually no customers still buy or own their own audio bridges—because of better economics for cloud‐ based (hosted) audio conferencing—over time we see no reason why most, if not all, of the video bridging market will shift to the cloud. This is likely to have negative implications for the revenue and margins of traditional MCU vendors as the shift to the cloud will drive up MCU utilization (fewer idle ports on customer premises) and transfer pricing power to the cloud providers (fewer, larger customers). In addition, we see changes in the underlying MCU architectures and connectivity capabilities of these cloud‐based services and the emergence of a new breed of video service provider (VSP) that is disrupting that market and could thus accelerate cloud adoption.
An example of an upstart VSP is Blue Jeans Networks. While Blue Jeans still leverages transcoding technology to interconnect users in multipoint calls, the company has internally developed a distributed, software‐based MCU in the cloud that leverages a pool of standard x86 clustered servers. The company asserts that this architecture results in lower costs and better scalability and reliability than services based on traditional hardware transcoding MCUs. Blue Jeans also offers broad connectivity and interoperability capabilities across a range of platforms, where most video teleconferencing services offer only generic connectivity for H.264 endpoints. Blue Jeans supports legacy standards as well as any‐to‐any interoperability with newer
platforms, such as Skype, Google (GOOG $595.95; Outperform), and FaceTime. The company also recently announced the addition of standard Web browser access to the Blue Jeans service, currently available in beta, allowing participants to connect to a Blue Jeans meeting with nothing more than their Chrome, Firefox, Internet Explorer, or Safari browser and a camera.
Meet Me in the Cloud
One of the biggest hurdles to widespread adoption of intercompany video conferencing has been the lack of a global directory (like the phone network), which makes it difficult to connect with parties outside the firewall and usually necessitates IT personnel intervention. The beauty of Skype, despite its flaws around quality, reliability, and interoperability, is the existence of a global directory, meaning that all a user needs to know is the e‐mail address of the Skype user for a call to be launched. But Skype is a closed system, which limits its appeal to many business users.
Several efforts are underway in the industry to develop greater federation among service provider networks to create some level of a video global directory, but our sense is that this vision is still a work in process, mainly because of the expense involved in making it happen and the challenges in getting different service providers on the same page. Perhaps the most promising federation initiative is the Open Visual Communications Consortium (OVCC), a group of vendor and service providers endorsing interoperability between multivendor video conferencing and collaboration systems. Polycom has helped pioneer this effort and Cisco recently joined the group, expanding membership to 27 parties about eight months after its launch.
Absent a global video directory, we believe the “meet me” invitation model, as popularized by collaboration products like WebEx and GoToMeeting, will become increasingly popular for video conferencing, although it will not be appropriate for all use cases. The beauty of this model is that a person’s contacts list simply serves as the video directory, eliminating the need to know the video addresses of other participants. A “meet me” link can be sent via e‐mail or calendar invitation, or can be accessed through a special portal. An increasing number of vendors, including Vidyo, Blue Jeans, and Vidtel are leveraging this “meet me” model, simplifying the user experience and reducing IT involvement.
Video Conferencing Market Data
According to Wainhouse Research, in the first quarter of 2012 the overall video market (endpoints and infrastructure) declined by 27% sequentially and grew 6% on year‐over‐year basis, to $630 million. This represents a significant year‐over‐ year deceleration versus the prior eight quarters, which saw average year‐over‐year quarterly growth of more than 20%. On an annual basis, the video market grew 25% in 2011, according to Wainhouse, which creates a tough comparison this year,
especially with significant macroeconomic headwinds apparent. From a market share perspective, Cisco and Polycom remain the dominant players, with combined market share in the 75% range.
Sources: Wainhouse Research and William Blair and Company, L.L.C.
Quarterly Video Conferencing Market Revenue (Endpoints and Infrastructure) Exhibit 4 499 523 568 677 597 682 693 860 630 15% 15% 12% 22% 20% 31% 22% 27% 6% -10% 0% 10% 20% 30% 40% 50% 60% 0 200 400 600 800 1,000 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 ($ mi lli on) Year-Over-Year Growth
Sources: Wainhouse Research and William Blair and Company, L.L.C.
Exhibit 5
Annual Video Conferencing Market Revenue (Endpoints and Infrastructure)
1,573 1,517 1,700 2,126 346 434 567 706 1,919 1,951 2,267 2,832 0 500 1,000 1,500 2,000 2,500 3,000 2008 2009 2010 2011 ($ mil lio n )
Sources: Wainhouse Research and William Blair and Company, L.L.C.
Video Conferencing Market Share (Endpoints and Infrastructure) Exhibit 6 29% 29% 29% 27% 32% 30% 28% 25% 27% 47% 44% 46% 48% 42% 52% 50% 49% 48% 24% 26% 25% 25% 26% 18% 22% 27% 25% 0% 10% 20% 30% 40% 50% 60% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
Polycom Cisco/Tandberg Other
Vendor Highlights Blue Jeans Network
Blue Jeans Network has built a cloud‐based video conferencing service that makes it easy to host high‐quality video meetings connecting many participants using many different devices and supporting many combinations of video conferencing
endpoints (e.g., H.264, Microsoft Lync, SIP, Cisco Jabber, Skype, Apple FaceTime, Google Video Chat, and others). The company recently announced the addition of standard Web browser access to the Blue Jeans service, currently available in beta, allowing participants to connect to a Blue Jeans meeting with nothing more than their Chrome, Firefox, Internet Explorer, or Safari browser and a camera.
The company’s mission is to make video conferencing as simple and straightforward as an audio conferencing session (or a phone call), as well as to achieve full endpoint interoperability and cloudlike scale. Blue Jeans’ video bridge in the cloud strives to bring down the price of business‐quality video communications to spur wider adoption. The platform acts as a “meet me” service, meaning that participants must set up conference calls through e‐mail invitations or a personal‐meeting URL and are not able to spontaneously call one another. It is important to note that Blue Jeans does not have its own endpoints or
proprietary video format—it is a service provider offering outsourced video bridging from the cloud.
Blue Jeans’ innovations are centered around 1) a distributed, software‐based video conferencing bridge that runs on a cluster of standard, off‐the‐shelf x86 server hardware, 2) real‐time transcoding technology, which enables interoperability among the wide range of video formats (e.g., H.264, H.323, and SIP); and 3) cloud‐based scalability, which allows for the hosting of tens of
thousands of simultaneous video conferencing sessions. This approach is aimed at “democratizing” the MCU market, affording end‐users with bursting capabilities beyond some set capacity and eliminating the need to buy and maintain an expensive MCU. The company argues that its cloud‐based solution is even preferable to emerging SVC solutions, which require specialized SVC endpoints and gateways for backward compatibility with today’s industry‐standard systems, adding to complexity and cost. The company recently announced new pricing plans that offer multi‐way video conferencing as a subscription‐based service, and it signed several distribution partners. Among the early partnerships are major A/V system integrators, such as InterCall, AVI‐SPL and IVCi. The company touts a total cost of ownership over a five‐year span of one‐quarter the cost of a typical on‐ premise, hardware‐based MCU.
Cisco
Cisco has started developing a simulcast solution (multi‐encoding) and publicly stated that such a solution would ship in 2012. The company is making enhancements to existing video conferencing infrastructure to support both single‐encode and simulcast (multi‐encode) environments. Among new multi‐encode hardware are the new Cisco video switch (still work‐in‐
process), which handles routing of the incoming video streams; the new TelePresence Conductor, which manages the resources involved in a multipoint video call; and updates to existing Codian MCU, which will act as a multipoint gateway (video transcoding gateway) between single‐ and multi‐encode endpoints.
To extend the reach of video and unify various communication functions on many devices and systems (on‐premise and mobile), Cisco recently announced an initiative to standardize on Jabber, a standards‐based presence and messaging software platform obtained in a 2008 acquisition. Cisco is moving to consolidate its existing collaboration product silos (WebEx, WebEx Social, and video) and mobile endpoints under a unified UC client, based on the Jabber technology. The rise in video should continue to benefit Cisco, but the market is changing rapidly and Cisco will need to adapt quickly. Jabber is aimed at stemming the rise of Microsoft Lync and the growing trend away from desk phones and traditional video systems by providing a simple unified communication interface.
Cisco recently introduced a cloud‐enabled service called Callway aimed at the SMB market; it works with a series of Cisco TelePresence endpoints, including the Jabber Video client. The solution (compatible with standards‐based endpoints via SIP or H.323 protocol) uses MCUs and supports up to 12 participants, although it lacks native Microsoft Lync integration. The
Callway service mimics LifeSize and Polycom cloud initiatives, which are branded LifeSize Connections and Polycom RealPresence Cloud, respectively.
Cisco recently joined the OVCC. Cisco also offers Interprovider Cisco TelePresence, which enables Cisco TelePresence users across different service provider networks to seamlessly connect with each other, including those from AT&T (T $35.60; Market Perform), BT (BT $33.15), Orange, Tata (TCL $8.49), Telefonica (VIV $25.30), Verizon (VZ $44.71; Market Perform), and others.
Glowpoint
Glowpoint provides cloud‐managed video services using an OpenVideo cloud architecture that makes delivery of consistently high‐quality video conferencing and telepresence service as simple as the Internet between any endpoint, network, and business. Glowpoint recently introduced version 2.0 of the company’s Virtual Video Room, a cloud‐based “meet me” service—a video equivalent of reservation‐less audio bridging services. The company also launched OpenVideo Mobile, an app that allows end‐users to manage and schedule video conferencing meetings from any location on an ad hoc basis, using Google Maps to locate local telepresence and video conferencing rooms.
The company’s service portfolio includes video management services, video collaboration services, and video exchange services, enabled through a cloud‐based MCU and supporting a variety of endpoints from Polycom, Radvision, and Cisco. While the company still uses traditional (DSP‐based) network infrastructure for hosting in the cloud, it is cognizant of the software‐ based MCU trends taking over the industry. For the time being, management believes it is adequately suited to continue offering low‐cost managed and cloud‐based video infrastructure services. It prices its video bridging services (Virtual Video Room) at $0.25 per minute per port and has more than 50,000 endpoints certified on its network. The company exited 2011 on the brink of profitability, posting $28 million in revenues for the year.
LifeSize
LifeSize shares its parent company’s (Logitech) vision that HD video should be available to anyone and anywhere, delivering high‐quality HD video systems with the lowest total cost of ownership. The company has developed a complete range of HD video solutions, including full‐scale telepresence, traditional room systems, desktop and personal systems, softphones, and UVC video infrastructure. LifeSize, along with Microsoft, is a founding member of Unified Communication Interoperability Forum (UCI Forum), which works to bring about standards‐based SVC products to improve the HD video experience.
LifeSize Connections, launched in July 2011, is a cloud‐based video collaboration service targeting business users, supporting up to nine‐way multipoint calling (based on H.263, H.264, and VPX video standards). Connections is based on technology from Logitech, LifeSize, and SightSpeed (acquired by Logitech in 2008), and, at least for now, it is only available to other LifeSize Connections users and systems. There are no IP (or ISDN) gateways to enable calls to external IP (ISDN) video systems. The service is available for $30 per month per named personal user (including a software endpoint) and $100 per month for a LifeSize room system, and is sold both indirectly through channel partners and directly to end‐users. The Connections cloud‐ based video service competes directly with Cisco’s Callway, which is sold directly to end‐users. Polycom, on the other hand, has announced its RealPresence Cloud service, which will be sold exclusively via channel partners to avoid any channel conflict.
In July 2011, Logitech announced the acquisition of Mirial, a privately held provider of personal and mobile video conferencing solutions based in Italy. Mirial’s client/server solution for desktop and mobile video collaboration was rebranded as LifeSize ClearSea. ClearSea is available both as an appliance and as a virtual machine supporting PC/Mac and Android/iOS
smartphones and tablets. The product supports H.323‐/SIP‐based devices and allows for up to 26 participants on a call.
Polycom
Polycom is working on scalable software and cloud‐enabled switching and bridging solutions that are focused on multivendor interoperability as well as endpoints that are more software‐centric and targeted at mobile users. The company has also discussed plans to support multi‐encode (simulcast) technologies, although no timelines have been announced. However, its historically heavy focus on DSP‐based video hardware (endpoints and infrastructure) will test its R&D and go‐to‐market abilities. The company announced in early 2011 that it will provide H.264 SVC technology to Microsoft as a video engine powering Microsoft Lync, although development of this, according to our sources, has been delayed, which could jeopardize its inclusion in the next version of Microsoft Lync, which is to due to ship this summer as part of the Microsoft Office 15 beta release. The SVC‐based Microsoft video client will be interoperable with legacy Polycom video endpoints, and Polycom’s conferencing bridges will provide full SVC support, eliminating the need for separate gateways to connect SVC clients with non‐SVC clients. The SVC technology aims to allow high‐bandwidth video sessions to be carried on the public Internet versus dedicated
network pipes. In addition, Polycom has introduced a purpose‐built video conferencing room system for Microsoft Lync, called Rally, and is co‐developing a portfolio of new UC devices to be introduced in the future.
On the cloud front, Polycom is working to develop a global directory, billing, and calling mechanism to make video
communications as easy as picking up a phone and calling someone. The company spearheaded the creation of the Open Visual Communications Consortium (OVCC), announcing that many of the world’s leading service providers have joined the
exchange, which will enable intercompany and interprovider visual communications services delivered beyond today’s private corporate networks. Founding members of OVCC include Airtel, AT&T, BCS Global, BT Conferencing, Cable&Wireless
Worldwide, Global Crossing, Glowpoint, Iformata Communications, Masergy, Orange Business Services, PCCW Global, Telefonica, Telstra, and Verizon. OVCC capabilities were initially targeted to come to market as early as the fourth quarter of 2011, but we have yet to see tangible results toward interprovider video exchange or federation.
OVCC differs from Interprovider Cisco TelePresence in that OVCC addresses standards‐based video conferencing solutions (supporting SIP and related signaling mechanisms) that interoperate within and across multiple service provider exchanges (versus a single exchange supported by a handful of service provides handpicked by Cisco and using Cisco’s proprietary TIP technology).
Under the rebranded RealPresence umbrella, Polycom announced a new cloud strategy and offering (Polycom RealPresence Cloud service) designed to reduce the barriers associated with creating a Polycom‐powered hosted collaboration service. RealPresence Cloud is a turnkey service (i.e., video conferencing with hosted video bridging), available as a white‐labeled service via select Polycom partners, and includes key features like IM and presence, call control, security (NAT/firewall traversal), and resource management. The RealPresence Cloud is offered with limited availability through a few qualified service providers.
Polycom is extending its video software to mobile device platforms, including those based on Android, BlackBerry, Windows, and Apple (AAPL $612.22; Outperform), with the objective of allowing mobile device users to connect with each other and
with existing video conferencing and telepresence environments. Polycom’s m100 software clientfor PCs and mobile devices
allows for person‐to‐person calls but requires a Polycom MCU for one‐to‐many connectivity. Polycom’s RMX conferencing bridge serves as the interconnection point for users on various devices using various video coding technologies. The first announced partner here is Samsung, whose Android‐based Galaxy tablet offers a Polycom video conferencing application supporting both 3G and 4G network connections.
In October 2011, Polycom acquired ViVu, a privately held company that has developed innovative video collaboration software that can be easily embedded into Web applications, such as enterprise, social, and vertical industry applications, to enable instant Web‐based HD video collaboration. Polycom expects to leverage ViVu technology to embed HD video into Web‐based applications through an OEM model as part of its RealPresence platform initiative.
Radvision
Radvision’s fate was sealed earlier this year when the company was picked up by Avaya for $230 million. The company announced partial SVC support in April 2010. The product was initially targeted to support only temporal layer enhancements (based on variable frame rates) and not spatial improvements (resolution). The company’s SCOPIA desktop client and SCOPIA XT room systems support SVC, and its SCOPIA Elite MCU can act as a gateway for interoperability with H.263 endpoints. Still, the SCOPIA Elite MCU does not act as a layer switch and does not offer the benefits associated with a layer switching architecture. Having been subsumed under the Avaya umbrella, Radvision is starting to focus on how its products interoperate with Avaya’s Aura UC platform as well as Microsoft Lync. The company plans to focus on ease of use and the ability to support ad hoc video communications. The company expanded its MCU product portfolio over the course of last year to include a full line of video conferencing clients (through the asset purchase of Italian endpoint vendor Aethra) including desktop, room, and immersive telepresence systems. Adding focus on mobile environments, the company launched SCOPIA Mobile v3, a standards‐based enterprise‐grade HD videoconferencing application for mobile devices.
StarLeaf
StarLeaf is a new entrant to the market, led by a British trio of video industry veterans known for their prior founding of Codian (sold to Tandberg/Cisco), Calista (sold to Cisco), and Madge Networks. The company has assembled an all‐in‐one portfolio of voice as well as personal and room‐based telepresence products and a purpose‐built advanced management platform with a consistent user interface and ease of use in mind. Nearly four years after its founding, the company is
delivering to market an enterprise‐class IP PBX and video conferencing system (StarLeaf Telepresence PBX 6000 Series), and IP phone (StarLeaf Phone), a desktop and room‐based video conferencing endpoint (StarLeaf Personal Telepresence and Group Telepresence, respectively) and NAT/firewall traversal border device (StarLeaf Telepresence Border Controller). The company is also selling a cloud‐based solution for multiparty video and voice collaboration on a pay‐per‐use basis for $99 a month (StarLeaf Personal Telepresence desktop device or a managed legacy H.323 device) or $199 a month for a room solution (StarLeaf Group Telepresence).
Vidyo
Vidyo is the industry’s first end‐to‐end SVC‐based video conferencing platform encompassing both endpoints and
infrastructure. The company’s value proposition offers lower costs, decreased latency, lower processor requirements, and better scalability—the secret sauce is its pure‐software, SVC‐based video switching technology (known as “adaptive video layering,” for which Vidyo has an issued patent).
Vidyo offers room systems (VidyoRooms) and immersive telepresence systems (VidyoPanoroma); software clients for laptops, desktops, and mobile devices (VidyoDesktop and VidyoMobile); a video switch (VidyoRouter) to connect SVC endpoints intelligently via layer switching; and a gateway device (VidyoGateway) used to provide interoperability with third‐party endpoints (SVC is not yet interoperable with industry‐standard H.264 systems or other SVC systems). In contrast to a traditional MCU approach, Vidyo’s patented SVC switching architecture requires no video processing in the network; the endpoints are responsible for all encode and decode processes, and the VidyoRouter decides which stream profile to send to each endpoint.
The company recently pushed the innovation envelope, releasing a virtual edition (VMware [VMW $90.64; Market Perform] based) of the VidyoRouter (general availability expected this summer). This product targets both enterprise and service providers offering enhanced multipoint scalability, global deployment flexibility, and lower costs.
All of Vidyo’s products (endpoints and infrastructure) run on standard x86 servers. Pricing for the endpoints tends to be significantly below incumbent vendor pricing. Pricing for the VidyoRouter is split into product price (for the core box or virtual edition) and concurrent connections, which is similar to the concept of a telephone line connecting to a PBX.
Connections are enabled through floating port software licenses called VidyoLines, as opposed to hardware port capacity,
which is fixed to the geography of wherever the MCU is installed. VidyoLines are perpetual, concurrent‐use licenses priced at $950 per 1080p‐capable point‐to‐point or multipoint VidyoLine. The typical ratio of users to VidyoLines is 10 to 1.
Connections to room‐based video endpoints (either from Vidyo or third‐party vendors) are offered free of charge (i.e., they do not burn VidyoLines).
Vidyo’s solution is available in both on‐premise and hosted “flavors” through the company’s service provider partners. The company recently introduced a white‐label program, touting simplified pricing for multipoint, telepresence‐quality
videoconferencing services that can be offered by service providers, distributors, and value‐added resellers that aim to enter the video conferencing market without up‐front videoconferencing infrastructure investments. The services allow subscribers to have a conference with anyone with a mobile device, PC, Vidyo room system, or a legacy endpoint system; they start at an MSRP of $30 per user per month and an MSRP of $0.20 per minute for each legacy‐based guest joining the conference.
Vidtel
Founded in 2008, Vidtel offers a cloud‐based video conferencing service enabling B2B connectivity across any standard video conferencing device (e.g., Cisco/Tandberg, Polycom, LifeSize, and Sony [SNE $13.75]) and new platforms, such as Skype and Google. The Vidtel solution includes a video calling address, which allows easy connection between video conferencing endpoints anywhere in the world. The Vidtel Connect service allows one‐to‐one connectivity on demand with a monthly subscription fee similar to a mobile phone subscription. The Vidtel Meet Me service enables multiple parties to dial into an assigned video conferencing bridge on demand with what the company claims is disruptive pricing.
William Blair & Company, L.L.C. is a market maker in the security of Cisco Systems, Inc. and Polycom, Inc. and may have a long or short position. Additional information is available upon request.
12/31/09 12/31/10 12/30/11 $10 $15 $20 $25 $30 $35 3/23/10 - O 10/20/11 - M Polycom Inc. (PLCM)
Current Rating: Market Perform
Jul 3, 2009 - Jul 4, 2012 Previous Close: $10.75
Source: William Blair & Company, L.L.C. and FactSet Legend: I = Initiation, RI = Reinitiated, @ = Analyst Change PT = Price Target
12/31/09 12/31/10 12/30/11 $14 $16 $18 $20 $22 $24 $26 $28 10/6/09 - O 11/11/10 - M Cisco Systems Inc. (CSCO) Current Rating: Market Perform
Jul 3, 2009 - Jul 4, 2012 Previous Close: $17.15
Source: William Blair & Company, L.L.C. and FactSet Legend: I = Initiation, RI = Reinitiated, @ = Analyst Change PT = Price Target Current Rating Distribution (as of 06/30/12)
Coverage Universe Percent Inv. Banking Relationships* Percent
Outperform (Buy) 60 Outperform (Buy) 8
Market Perform (Hold) 32 Market Perform (Hold) 1
Underperform (Sell) 1 Underperform (Sell) 0
*Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.
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