Networking giant Cisco set to shake-up video conferencing sector with plan to acquire Norwegian collaboration specialist Tandberg.
US network equipment maker Cisco revealed plans to acquire Norwegian video conferencing specialist Tandberg for $3 billion recently, in a deal that looks set to shake-up the fast growing video conferencing sector.
The proposed deal, which has been endorsed by Tandberg’s board of directors, is expected to close in the first half of 2010.
The acquisition could allow Cisco to take a lead in the video conferencing sector, which has traditionally been dominated by Tandberg and its US rival Polycom, by combining Tandberg’s open source technology with Cisco’s enormous cash reserves and marketing clout.
While Cisco has invested heavily in its high end telepresence offering in recent years, it lacks the lower end desktop video conferencing products necessary to help gain traction in a fast growing sector estimated to be worth $34 billion.
Cisco is also expected to benefit from Tandberg’s standards-based video conferencing technology, which is fully interoperable with standards-based equipment from rival vendors.
“This interoperability will benefit Cisco’s customers, but also competitors and partners by accelerating customer interest in video collaboration globally,” the company said.
John Chambers, CEO, Cisco also cited a “shared vision” for collaboration and video conferencing technologies as one factor behind the proposed deal.
“Cisco and Tandberg have remarkably similar cultures and a shared vision to change the way the world works through collaboration and video communications technologies,” he said.
“Collaboration is a $34 billion market and is growing rapidly—enabled by networked Web 2.0 technologies. This acquisition showcases Cisco’s financial strength and ability to quickly capture key market transitions for growth,” he added.
Richard Mahony, practice leader at advisory and consulting firm Ovum, said that the proposed acquisition appears to be a smart move for Cisco that will give the company about two-thirds of the telepresence market.
“We think this is a smart deal for Cisco. Tandberg has the full toy box for videoconferencing systems. And while Cisco has made a big noise with Cisco TelePresence since it launched in 2006, videoconferencing is much more than big-screen suites – which make up only 25% of the market,” he said.
However, a few doubts remain about how Cisco will integrate its own telepresence system and that of Tandberg, with some industry analysts speculating that Cisco could replace its own systems with Tandberg’s.
With Cisco’s revenues traditionally heavily weighted towards services, Ovum also points to an apparent lack of “service architectures and service support” that Cisco will be able to gain from the acquisition. “Strategically, the big question is where the services are. All of Cisco’s product development news is around service architectures and service support, and this isn’t,” Mahoney said.
“Services account for 16% of Tandberg’s revenues, and while Cisco CEO John Chambers purred at the near-50% service ‘attachment rate’ in telepresence, that’s only at the top end of business video communications. Also, for fellow CEO Fredrik Halvorsen, service attachment is probably a new term; for him service is something that’s included in the package.
“The two will need to sort out what’s important here – more box-shifting, or an earth-moving shift to service packages on video,” Mahoney said.
Ovum added that there has also been a lack of detail from Cisco about how it intends to “alter the motivation” for the use of videoconferencing technology other than to help organisations save money. However, it does seem clear that Cisco will try to push video conferencing technology to all layers of enterprise to drive sales.
“Cisco will put its weight behind the service provider in the telco channel to more aggressively push video at all layers of the enterprise. That said, Cisco does have a record for successful execution,” Ovum said.
While many industry insiders might have expected US video conferencing specialist Polycom to be nervous about the proposed tie-up between Tandberg and Cisco, the company appears to be genuinely optimistic, and even welcomes the deal.
Steve Leyland, Polycom’s general manager for Europe, the Middle East and Africa, said when Cisco started marketing its telepresence system a few years ago, it “really expanded the market and raised the awareness”, which benefited the whole industry. He added that the proposed acquisition is positive for Polycom for a number of reasons.
“If a company like Cisco is prepared to invest $3 billion in this acquisition, it validates the market segment we are in and further raises awareness,” he said. “It will also make Polycom the only independent company left in the market.”
While acquisitions may be complicated affairs, it is likely that Tandberg and its rivals will continue to enjoy strong demand for their products, with Ovum stating that videoconferencing has been among the most resilient of all communications technologies during the economic downturn.
Indeed, according to Ovum, the requirement for inter-company conferencing is increasing. “We expect revenues from equipment and services will reach $892 million in 2011 before tailing off as the global MNC rush to deploy loses pace,” the organisation said.For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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