Budget VC solutions: the key to new markets?

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Walking into the video communications zone of ISE last month, we couldn’t help but to take a step backwards on seeing the sign on the Vu Telepresence booth advertising: ‘Telepresence 1,499 euro’.

While Vu’s definition of telepresence is the one that equates to HD videoconferencing, rather than immersive telepresence with its matching furniture and specially painted walls, the European launch of the company’s solution was the most recent in a line that embraces AverMedia’s AverComm and LG’s new 2,500 euro room system.

The AVerComm H300 supports multipoint conferencing for up to four participants, both-way content sharing, snapshot sharing and meeting recording.

Looking further back in videoconferencing history, market leaders Cisco Tandberg and Polycom have been challenged, in the last five years, by the introduction of HD videoconferencing by LifeSize, infrastructure specialists Radvision’s acquisition of Aethra’s endpoint business and, more recently, the disruptive potential of Vidyo’s new VC architecture.

With each new entrant comes the promise of lower prices, a larger market and a broader channel for video communication. Does this mean that we can look forward to the price realignment that has operated in other technology markets, where more products compete for an increasingly small margin? This downwards price pressure might seem, on the surface, to be advantageos to end-user buyers of VC solution, but lower margins are always accompanied changes in the selling process which are not always positive when the product in question is sophisticated.

But will lower prices drive changes in the supplier landscape?

Scepticism

“No,” says Ian Vickerage, MD of the Imago Group, “or at least not in the foreseeable future.” Vickerage points to the relative market-shares of Cisco Tandberg, Polycom and everybody else. “Despite the availability of other solutions, the two market leaders are still the market leaders and very much so”. Vickerage added that Polycom even put some of its prices up by 10% recently, and so is obviously not feeling any great price pressure.

Despite the dominant market share of the two giants of the industry, a number of other vendors have forced their way into the market. LifeSize has achieved some notable account wins and Radvision making its presence felt with solutions based on tried and tested technology. The problem for newer vendors in the space us that, despite growing interest in VC, the most likely source of a new VC sale today is an existing VC user.

Andy Wright, MD of Video Corporation, says that the demand for room systems is growing steadily but is dwarfed by enquiries for desktop solutions. This demand is coming from existing users increasing the depth of VC penetration in their organisations or, in the case of the public sector, providing video communication to home workers turfed out of their offices with the cutbacks.

Experienced VC buyers, says Vickerage, are looking for solutions that they trust and which can be tailored to their exact requirements. Wright estimates that 90% of business quality video communication is conducted within by people within their own organisations, and that seamless operation is of paramount operation.

Interoperability is still a major concern of the VC world (commanding up to 80% of the R&D budget of some vendors), with a result that many buyers opt for single brand solutions. A further consideration here is the depth and diversity of the leading brands’ product ranges.

Inelasticity

Vickerage argues that these factors contribute to the relative price inelasticity operating within the VC environment. Only where the market leaders have failed to respond to the demands of the market in a timely manner, or have delivered solutions that don’t match market expectations, have opportunities have been created for new entrants.

Nowhere has this been more apparent than in the introduction of HD videoconferencing by LifeSize, or in the easy and cost-effective scalability that characterises Radvision’s technology. The latest challenge presented to the established order arises from a paradigm shift in the use of standard, off-the-shelf hardware. Vidyo’s technology has clear appeal for an IT community completely at home with IP networks, portals and routers.

Price has been a factor with each of these new entrants to the VC market, but by no means the only factor. In each case, LifeSize, Radvision  and Vidyo has offered something different from that available to the market, even where that initial advantage is incorporated into the solutions offered by the market leaders (look at Polycom’s adoption of H264 SVC, for example.)

 Class of 2011

Does this mean that further new entrants have limited chances of success? In our opinion, it depends on what they have to offer. The latest group of new entrants to the VC market have timed their introductions to capitalise on the current groundswell of interest, prompted by the need to drive business efficiency, cut travel budgets and share resources.

There will be new users and some of these will be attracted to offerings tailored to their needs, which has to include a realistic price point. For example,  at BETT in January we took a look at the new offerings from AverMedia. The AVerComm H100 includes everything is an all-in-one, point-to-point solution with 720p / 30fps video output, two-way content sharing, dual monitor display, 7X PTZ camera and a 10W speaker embedded in the Table Hub. The AVerComm H300 supports multipoint conferencing for up to four participants, both-way content sharing, snapshot sharing and meeting recording.

Neither of these solutions represents a particular breakthrough in technology terms, but AverMedia has designed the specifications and price points to appeal to education buyers. In the company’s view, the education market is at the tipping point of adoption, with price being the remaining objection.

Admittedly AverMedia’s ambitions go way beyond education, but as an on-ramp to the VC market, a differentiated solution designed for a very significant market sector is a good starting point. The price is set to attract new users in education, and at around the same price as an interactive whiteboard solution we believe that it will have some appeal.

ISE introductions

Moving on to ISE introductions, Vu TelePresence announced the European availability of its telepresence solutions designed for the needs of SMBs, and the opening of Vu TelePoint conference suites available to rent by the hour. While Vu says that its technology is innovative, price is a major component in its offering. The company claims that its solutions cost as little as 20% of comparable solutions from leading vendors. 

At this level, Vu’s objective is to position VC as an everyday alternative to voice. CEO Devita Saraf said: “While other companies in the industry are focused on scaling down their large enterprise solutions to fit a different market, Vu is a customised solution specifically made for entrepreneurs and SMB professionals. We see ‘Vu-ing’ as the next telephone not as a substitute for travel.”

The Vu TelePresence Pro solution offers HD video quality, multi-party conferencing for up to five locations, desktop screen-sharing and up to 3,000 hours of video recording capability. The company says that it has spent $15 million and three years of R&D in developing its solution. Vu claims: “no more jitters or frozen frames and it requires a realistic bandwidth 400-600 Kbps for HD quality video.”

Also at ISE, and priced in a similar bracket to AverMedia and Vu, LG showed a new room system suitable for conference room and office environments was also shown. Little detail was available but in a demonstration featured on the AV News ISE highlights video (see it at www.avnews.co.uk) the company showed a calling facility that uses captured images of call recipients as a user-friendly alternative to IP addresses.

 Market impact

Whatever the respective qualities of the new solutions from AverMedia, Vu and LG, Vickerage is sceptical that simply offering a lower price will be enough, of itself, to change the pattern of demand for VC. He points out that there have been many attempts before to introduce VC with similar capabilities to the established players but with lower prices.

He explains that even that largest brands, like Sony, have found this a struggle. Vickerage does support the view that there is room in the market for clearly differentiated solutions which happen to offer lower price points – it’s a question of emphasis. He points to Vidyo as an example: the vendor offers an innovative technology using standard hardware, which, by its nature, appeals to buyers from an IT background. Because the solution is designed around standard IT hardware it is also cheaper, but that the price is a secondary consideration.

Vidyo’s VidyoRouter architecture uses H.264 Scalable Video Coding (SVC) and eliminates the Multipoint Control Unit (MCU), enabling high quality video to work over the Internet, 3G, 4G and Wi-Fi networks at lower cost compared to most MCU-based solutions.

Ofer Shapiro, co-founder and CEO of Vidyo, explains that: “Our software-based solution leverages off-the-shelf devices that users already own and use with their residential and wireless broadband connections. This versatility allows people, who are becoming increasingly more mobile, to connect with colleagues and customers via high-quality, natural video communication, at price-points that were never before available.”

Vidyo spans a full range of applications, from the VidyoDesktop with personal telepresence capabilities on a PC or a Mac to the VidyoRoom that encodes and decodes HD-quality video at up to 1080p or 60 frames per second.

 Conclusions

While current trends point to the continued success of the leading brands among existing users, we believe that new entrants with a clearly defined strategy will find a market. For some existing users price will continue to be a secondary consideration, when compared with the ability to deliver a seamless, custom solution tailored to their requirements and integrated into their unified communications strategy.

The R&D burden that playing in this space imposes has been enough to deter new entrants to the market in the past, but market conditions have moved on. There is an unparalleled level of interest in VC. New solutions are targeted at new users in education and the SME sector, where the initial cost of a VC solution is often the barrier to adoption.

For this strategy to succeed, the onus will be on the vendors of the solutions to drive home the message to end users that VC solutions exist at new price points, and to attract new channel partners with the skills and experience of selling to these target groups. It will be a particular challenge to explain to prospective partners why it’s worth selling budget VC solutions when there is a healthy and margin rich opportunity available from the established VC brands.

Our opinion is that the nature of the solutions will have to change as will the way that they are sold. Current VC pricing is simply a reflection of how difficult the technology is to sell and support to ensure that the end-user customer is satisfied.

The Vu TelePresence Pro solution is said to offer HD video quality, multi-party conferencing for up to five locations, desktop screen-sharing and up to 3,000 hours of video recording capability – and all for 1499 euros.


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