The recent unconfirmed report that Cisco was interested in buying Skype got a lot of attention. Many analysts and pundits pronounced the idea a good one. They pontificated about how Skype service could complement Cisco products and services. Some focused on video communication as well as voice synergies. Few, however, mentioned the fundamental long-term threat Skype poses to Cisco's video conferencing business – and not just Skype, but any Internet-based video communication service. That threat will only grow as time passes. Acquiring Skype could help Cisco cope with the threat.
The conventional view defines Cisco's video conferencing competitors as other equipment manufacturers. Analysts compare Cisco products to those of vendors like LifeSize (now part of Logitech), HP and Polycom. They add up and compare features and capabilities such as number, size and and resolution of screens; bandwidth required; number and type of codecs; frames per second; number of cameras; and other technical factors. They also draw technical distinctions between telepresence systems, the high-end equipment which Cisco specializes in, and video conferencing products, which are less-immersive, less-lifelike systems that also cost less.
But analysts have trouble fitting Internet-based video conferencing services such as Skype's into this larger manufacturer-oriented picture. The main problem is that it's hard to compare the market shares of companies like Skype and Cisco. The difficulty is understandable: one company gives away service that requires little more than a PC and Web cam, while the other makes its money from selling expensive equipment. It doesn't make for neat pie charts, or any other sort of apples-to-apples comparisons.
The conventional view thus misses one of the most important factors that will shape the future of video communication. Currently the two companies are at such extreme opposite ends of the market it's a stretch even to call it a single market. Skype gives video communication services away free at the very low end. Cisco sells very expensive telepresence systems for upwards of a quarter million dollars each to high-end customers. In short, the two don't currently compete at all. But this benign status quo won't last. The grand prize that virtually everyone in the market is chasing is the vast middle ground between the two extremes. And as they do, Skype's and Cisco's models will end up contending for the same customers.
If the services model that Skype represents comes to predominate, it will seriously hamper Cisco's plans to take over the market from the top down. If Cisco owned Skype, on the other hand, it would be in a position to control the takeover of the market from both ends. It could limit the inroads Skype's free service makes into the middle market. It could also use integrated Skype services to convince corporate customers to move up to expensive hardware products. This would also give it control over the interoperability process, which will become increasingly crucial as users demand that devices and services from different providers work together to allow more widespread video communication. With Skype under its control, Cisco could push interoperability protocols that work to its corporate advantage.
Situations like this will be increasingly common in both voice and video communication in the future. More and more companies will find themselves competing with vendors or service providers with vastly different business models. The kind of market-share comparisons that analysts like will thus be increasingly difficult to draw. The resulting lack of hard data will in turn increase the possibility that analysts and competitors alike will find themselves blindsided by developments they couldn't comprehend because they couldn’t quantify them.
This subject will be discussed in more depth in an upcoming VoIP Evolution report on video conferencing.
I think that this video problem will split the analysts from those who are tied solely to technology. Skype and Cisco Telepresence suites have never been similar technologies because they solve very different job roles and have very different value perceptions.
This problem is exacerbated by the 2nd wave perspective of marketing, which has been defined by features and vendor-based perception rather than use cases and end-user perception of products. Through the right lens, Skype, Logitech's core accessories, Lifesize, and Cisco Telepresence all fall into the appropriate buckets, rather than simply being described as "video."
Posted by: Hyoun Park | 09/07/2010 at 05:30 PM