Analysis: VC boom as unit values rise

VC boom as unit values rise
The cynicism that has surrounded videoconferencing stats and forecasts has not entirely gone away. At the Wainhouse Collaborative Communications Summit in Berlin this Spring even Wainhouse Research managing partner Andrew Davis couldn't resist putting up a slide saying that telepresence is ‘a marketing term to overcome historical negative attitudes towards videoconferencing'. The telepresence versus videoconferencing argument, he added, is generating ‘lots of heat, but not much light'.

End point values rise
Over the past couple of years that has changed. World sales of videoconferencing end points have risen steadily from about 50,000 units in 1998 to over 220,000 units in 2007, but total revenues were flatlining at around the $600m mark. Suddenly the revenue graph has taken off, doubling from $600m in 2003 to $1.2bn in 2007. That has been the result in a fast rise in end point values - from an average of $4,800 in 2003 to $6,000 in 2007 - which has been brought about by a move towards high definition and telepresence. Increased sales from high end units have more than buoyed up a market that has also seen the introduction of more and more inexpensive desktop conferencing and webconferencing end points.
Over a four year period, says Davis, the revenue growth rate for the group videoconferencing sector was running at 22 per cent, while the growth rate for end point unit sales was running at 23 per cent. In 2007 those rates soared to 39 per cent (revenues) and 30 per cent (units). ‘There is reason to think this pattern will now continue,' Davis added.
Narrowing his analysis down to geographical markets, Davis pointed out that historically North America has accounted for around 40 percent of vc sales, while EMAE has accounted for another 30 per cent and Asia Pacific sales have been consistently around
20 per cent of the total. That also changed in 2007, with the North America share of the world market dipping and the EMEA share rising to 35 per cent apiece.
Outside North America, China is the world's biggest single buyer in 2007, taking 50,000 units, while the UK came next at 30,000 units. It was followed in EMEA by, in order, the
Nordic countries, Germany, France, Russia and Italy.
The increased sales of end point units have been accompanied by higher and higher spends on the video infrastructure - mainly multipoint control units (MCUs) and networks - needed to support conferencing. Starting at around $45m per quarter at the beginning of 2006, world infrastructure investment revenues had doubled to $90m in Q4 2007, $65m of which was spent on MCUs.
There are serious business drivers behind that growth, says Davis, including business pressures that are driving the need for both individual workers and teams. Factors include the trend towards dispersed teams and global partnerships, cost cutting, a focus on quality of life and employee retention, and acknowledgement of ‘the huge inefficiencies and inconveniences in business travel'. It also helps that ‘Cisco and Microsoft have been educating the market and high definition is exciting the market'.
Those are all what Davis calls ‘normal' business drivers. The ‘abnormal' business drivers grouped under travel avoidance can be added into the mix. They include not just savings on travel costs, but also environmental policies, fear of terrorism, health scares and the desire for family life.It's in that context that telepresence and HD are making their market presence felt. Wainhouse views the videoconferencing market as four interlocking segments - telepresence at the top, then room conferencing, desktop conferencing and consumer conferencing.

The telepresence effect
Telepresence, says Davis, has ignited enthusiasm and interest in the whole market by showing how good
videoconferencing can be, demonstrating the importance of good room design and getting the attention of chief executives. But the telepresence ‘essences' of high quality audio and video, life-size images and eye contact can all the done with well-designed videoconferencing systems.
At the other market extreme, personal (or desktop) vc has not yet developed to its potential, despite the push behind it being orchestrated by big name companies such as IBM, Siemens, Cisco, Microsoft, Avaya and Nortel. Partly, says Davis, that's because of network and bandwidth concerns, but he argues that ‘change is inevitable, facilities managers and now seeing demand from users as well as vendor push, video is being integrated into unified communications (UC) and UC is being integrated into enterprise workflows.' Most importantly, ‘next generation workers will be video savvy'.
Looking to the future, Davis maintains that five important things will happen over the next few years. By the end of 2008 we will see the emergence of combined solutions covering voice, video and web; by 2009 we will see telepresence to desktop interoperability; by 2009 there will be an increased overlap between, or merging or, telepresence and videoconferencing; by 2010 the focus will be on inter-company communications; and by 2010 we will see industry consolidation.
We are on our way, he says, towards a videoconferencing utopia in which ‘videoconferencing will be less about cost reduction and more about collaboration and getting things done faster, and vc will become ubiquitous when it becomes a useful tool to drive sales.'
The reality, however, is different. Currently the three biggest drivers are the same one repeated three times - ‘reduce time and costs wasted by business travel'. n