Fear of flight apparently has Wall Street flocking to shares of videoconferencing companies.
When U.S. stock markets reopened Monday after missing four sessions, no technology companies got a bigger boost than makers and sellers of conferencing systems. In fact, shares of videoconferencing players Polycom, ACT Teleconferencing, Wire One Technologies and MCSi posted rare gains on Monday as shares of airline and online travel companies fell sharply.
Since the attacks on the World Trade Center and Pentagon last week, analysts have speculated that travel will be severely curbed.
New scenes of assault rifle-toting guards mixed with long queues of would-be passengers summed up the state of air travel in the wake of four hijackings and thousands of deaths. Flying will cost more, take longer and, regardless of the reality, feel more dangerous. That would be reason enough for executives to slash their travel budgets.
Enter videoconferencing.
"We believe that companies may begin to increase their use of video and audio conferencing in response to the more difficult travel situation," said Wells Fargo Van Kasper analyst J.P. Mark, who has a "buy" rating on Polycom, the largest company in the audio and videoconference market.
Polycom on Monday declined to comment on any possible sales increase spurred by the terrorist strikes. But a Polycom vice president last week said the hijackings would "have an impact" on the use of technology.
And a number of brokerages on Monday echoed Wells Fargo Van Kasper's view, including Prudential Securities, Thomas Weisel Partners and Pacific Growth Equities. Polycom, ACT Teleconferencing, Wire One Technologies and MCSi saw stock price gains ranging from 15 percent to 47 percent, after several reports suggesting that companies would use videoconferences in lieu of in-person meetings.
Monday's attention was rare for videoconferencing companies. Videoconferencing so far hasn't spread widely in corporations largely because executives like flying, said Ira Weinstein, of C-Tech Consulting in Marlboro, N.J. "It's that business-travel experience that a lot of executives choose not to give up," he said. "It's a bit of an ego thing, and now some people take their families with them on trips."
In addition, travel companies have far more resources to promote themselves. "Travel's a huge industry, while videoconferencing is tiny," Weinstein said.
Airlines long have feared videoconferencing would cut into business travel. The travel industry has tracked the cost of videoconferencing vs. flying, and their data indicate that when rates fall for the ISDN lines commonly used by videoconferences, air travel falls along with them, said Will Strauss, president of Forward Concepts, which carried out videoconferencing market research until recently. Market researchers from American Airlines used to get data from with Forward Concepts, Strauss said.
"Some of the folks who bought our videoconferencing research in the past were airlines," he said. "There is certainly a concern."
Yet those factors probably wouldn't be enough to drive long-term, sustained growth in conferencing systems. The industry has seen spikes in demand after previous terrorist activity, but they have always subsided as executives have gone back to flying.
But this time market research analysts believe the technology is good enough to keep some people grounded.
"If you have a system that's 4 or 5 years old, that's a dinosaur," said Andrew Davis, senior analyst and managing general partner with Brookline, Mass.-based Wainhouse Research. "The new systems today are very reliable. The horrendous events of last week will cause people to rethink a lot of (travel) decisions, but people should do videoconferencing anyway."
Where videoconference technology used to be clunky and difficult to install, a reliable system can be set up in an hour these days, Weinstein said. "If they can program a VCR, they can do a videoconference," he said.
The blinking "12:00" on innumerable video recorders around the country suggests that even that level of sophistication might be too much for many people, and analysts say ease of use can be improved. Still, conferencing systems are far easier to use than they were only a few years ago. And videoconferences work almost as consistently as the private branch exchange (PBX) networks used for traditional phones.
"Reliability is phenomenal," Weinstein said. "We're not at PBX levels, but we're getting there...I also don't know that we need to be (at phone reliability levels), because audio is always a fallback. I don't think I'd need the 99.999 (percent reliability of phones). I don't know if people would miss the fifth nine in the audio world."
Bandwidth blues
So why isn't videoconferencing a bigger hit? The quality of video meetings for individuals varies because of bandwidth. At this point, the Internet network--not the videoconference technology itself--is the biggest impediment to mass adoption of video calls, analysts said.
"It's a 'last mile' problem," Wainhouse's Davis said. "The barrier to the consumer is the network."
But corporations can achieve reliable quality because many of them built their own networks, or can afford ISDN lines. And videoconferences should appeal to businesses in a weak economy, because they save money for companies whose employees travel often, proponents argue.
A WorldCom study in 1998 concluded that the average meeting with five people would cost $8,000 less with a videoconference, compared with flying four of the participants to the fifth person's office. To be sure, a large communications carrier like WorldCom is biased on the value of videoconferencing, but much of the study's information came from the travel industry's own data, Weinstein said.
A videoconference system that could accommodate that five-person meeting would cost roughly $100,000, Weinstein said. Assuming WorldCom's estimate is accurate, that means the system would pay for itself after 13 sessions.
"Basically, you can pay for a system in a few weeks in some cases," Davis said.
Most businesses that do use videoconferencing aren't trying to save money, but rather time. Meetings over video systems tend to be shorter and more focused than audio conferences, Weinstein said.
Gauging market penetration is difficult because it's hard to determine how many employees are using a company's videoconference systems. There are fewer than 100,000 video systems installed for conference rooms, Davis said, adding that he estimates that no more than 3 percent of the conference-room market has video systems. He guessed that the total videoconference industry in the fourth quarter would grow 35 percent from the third, with demand largely fueled by air trepidation.
"I think the impact will be huge," Davis said. "There's going to be a lot of motivation for business to look for an alternative to flying."
Camera shy
Much of the resistance to video meetings these days is psychological. People simply aren't used to talking to a camera.
"The fear people have of being in front of a camera is what we have to overcome," Weinstein said. "These companies have good technology, but they haven't gotten the word out."
Conferencing will never completely replace live meetings, however. First-time sales calls, for instance, are probably better handled in person, analysts said.
"Videoconferences are the maintenance visit, the second sales call, the employee review after the employee has already met with his direct manager," Weinstein said. "It's not a replacement for travel, but an alternative."