The $3 Billion Elephant in the Room

Is this the end of the VTC world as we know it? *shrug* I feel fine…

Do you feel hear that massive rumbling? It’s the sound of a sudden, major paradigm shift in the A/V world that will have major ramifications for our industry in the months and years to come. Last night, September 30th, 2009, Cisco made an offer of $2.97 billion to purchase Tandberg. The biggest name in IT is now in the process of acquiring one of the biggest names in videoconferencing and, if approved by the Tandberg shareholders, stands to be a game-changing event for our industry. The gradual AV/IT Convergence of the past 5-10 years just exploded forward in a single explosive move. There is a lot to discuss and ponder if this deal goes through.

 

First and foremost, what will happen to the Tandberg sales channel? Will I wake up one day and suddenly be able to sell Cisco product along side my Tandberg product? More concerning, will I wake up one day and suddenly have the videoconferencing market saturated with IT companies now selling Tandberg and competing against me? As if successfully competing in the A/V market isn’t hard enough for the small-to-midsize A/V integrator, let’s add a few hundred or thousand more competitors on each bid AND have them speak the same language as the IT managers and facilities managers who make the purchasing decisions! Oy. As a small business owner, the news of this merger both excites me and makes me quite paranoid about our future ability to compete in the VTC market.

Fortunately, these fears may never come to fruition and if they do, it won’t happen for the better part of a year. After learning of the acquisition, I immediately called my Tandberg distributor/rep and quizzed her on the news. The entire deal hinges on approval by the Tandberg shareholders and government regulators. Even if they all agree (and Reuters news reports indicate that major shareholders are in favor of the move), the finalization of the deal will not occur for the better part of 8 months to a year. This means that changes to the Tandberg sales channel will likely not occur until then. No worries, kids… We have some time to adjust.

Now, what, you may ask, do Tandberg’s competitors think about this news? The biggest threat to Tandberg’s market share is generally recognized to be Polycom. So, I next called my Polycom distributor/rep and asked for some reaction – official or otherwise – to the news. Because it’s such fresh news and because an official ‘reaction’ has not yet been passed along the sales channel, she had nothing to say on the record, though the tenor of our off-the-record chat (as business owner and rep, not as tech-journo and source) was optimistic and reflected many of the sentiments expressed by Piper Jaffray analyst Troy Jenson who was quoted in a ZDNet article this morning – that Cisco’s acquisition of Tandberg will only benefit Polycom and other, smaller competitors like LifeSize. (Read ZDNet’s article here.) Incidentally, my dist/rep for Polycom also carries Cisco and I asked how that little conflict of interest would pan out. Fortunately, they carry only a few Cisco products as add-on commodity items so there’s little likelihood of Polycom/Tandberg drama in-house – good news for them!

Finally, there’s another aspect of this news and the videoconferencing market that has not really been addressed out there. Will the VTC market even EXIST for A/V dealers down the road? The Cisco purchase (and suggestions that Polycom may be next on the acquisition list by Cisco’s competitors) potentially steal the high-end and mid-range VTC market right out from the A/V world and shift it over to the IT realm. At the same time, the low-end of the market has been steadily eroding to companies like Skype and Logitech. Today, any person with a webcam and a decent internet connection has fairly decent “VTC” or video chat capability at their finger tips. This topic has been dancing about the back of my mind since spring when my business partner (and company founder) Larry mentioned a recent Skype chat he had with a relative in Texas. “I think this is gonna kill Polycom and Tandberg!” was his immediate reaction. As he said, the quality was so good and the cost of the equipment and service so inexpensive that he saw little reason for smaller companies to invest in a “proper VTC system” these days.

He makes a valid point, and one that was strengthened in my mind as I perused the VTC company booths at Infocomm `09 in June. The companies had only a few small or personal VTC units on display. (At least, they only showed a few to me as I toured their booths!) The bulk of their floor space and development, it seemed, was given over to mid-to-high end VTC and Telepresence solutions. In fact, this year’s Infocomm featured these technologies heavily. The Unified Collaborative Conferencing Pavilion gathered most of the major players and some minor ones into one area of the show, while a separate HD Conferencing & Telepresence Showcase brought high quality, “immersive” VTC to the show floor in a major and impressive way.

So, where do we go from here? The possibilities are simultaneously bright and grim. On the bright side, the announced acquisition could strengthen the VTC market for A/V, giving a major boost to other players like Polycom, LifeSize and smaller players. It could open a new market to A/V dealers by providing us with access to Cisco products through existing sales relationships and give us a leg up on some convergence bids that we normally lose to IT companies or that require joint ventures on our end to win. On the grim side, this acquisition could be the death-knell of VTC as an A/V technology – the final high-end nail in the coffin that was built with the emergence of the Skypes and other VoIP and web chat apps. Either way, we’re in for an interesting 12 months coming up and, as usual, those of us in the industry nimble and willing enough to change will survive the changing landscape. Until then, hang onto your hats, ride out the temblor and be prepared for any number of possible aftershocks.

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3 thoughts on “The $3 Billion Elephant in the Room

  1. Great article! I was interested in learning more about the potential Cisco purchase of Tandberg. Your evaluation from the AV integrator POV covers the major points well. Thanks for the links too!

  2. Good food for thought. I like your positive outlook. It is easy to get bumbed-out thinking about the overwhelming posibilities of this merger. It is good to remember that will serve to grow the market significantly and that should be good for everyone – measured in differing portions, of course…
    Gary

  3. Sounds to me like there will still be an important place for the integrator… someone who can APPLY the AV gear to optimize the conference experience. When it comes to audio: multiple mics, send/receive levels and room intelligibility; and video: ambient light control, viewing angles, display technology; there is plenty of room for the AV integrator to add value. I am very interested to see how Cisco plans to come to market. Could be that we all line up with a Cisco partner or two!

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