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Can Cisco be a video star?

Company execs say push into videoconferencing pivotal to Cisco's future, but analysts are skeptical.

Cisco Systems, the "plumber of the Internet," is taking a bold step into the video market--a move executives believe will define the future of the company.

On Monday, the networking giant unveiled a videoconferencing package called Cisco TelePresence Meeting. It's designed to bring a new level of quality to videoconferencing, so that participants feel like they are actually sitting in the same room with people who may be half way around the world. The product is slated to be available in December.

For executives at the company, best-known for making the equipment that shuttles packets virtually through cyberspace, the launch of the new videoconferencing platform is more than just another product announcement.

They believe that Cisco's high-definition, two-way video technology marks a pivotal juncture in the company's evolution, as it tries to transform itself from a successful, but often overlooked, supplier of infrastructure equipment into a video and communications powerhouse.

"This is the biggest product launch we've done since the introduction of the IP router," said Marthin DeBeer, general manager of Cisco's emerging markets technology group. "We believe telepresence technology can touch all of our customer segments. It's the greatest example so far of our mission, which is to change the way people work, live and play."

While the videoconferencing product today is designed for large companies, Cisco has ambitions to integrate it into consumer set-top boxes. That means grandmas, as well as company chiefs, will be able to stay connected with the people they care about while experiencing live video chats in crisp high-definition. Cisco CEO John Chambers has said that he expects the videoconferencing market to generate $1 billion in annual revenue within the next five years.

Cisco TelePresence

Whether the technology will live up to its hype is still unclear, but many analysts are skeptical.

"I know that John Chambers and everyone else at Cisco is incredibly excited about this technology," said Ellen Daley, an analyst at Forrester Research. "But IP routers changed how everyone communicates. The telepresence solution is cool, but it's expensive. And it won't bring virtual meetings to the masses."

Two versions
Cisco is offering two versions of the product. TelePresence 3000 is meant for meetings of 12 people or more, around a virtual table. The total package requires a dedicated room that comes equipped with three flat-panel, high-definition TVs, each supporting 1080p resolution. (1080 represents 1,080 lines of vertical resolution, while the letter p stands for progressive, or noninterlaced, scan. Today's most popular high-definition TVs are 720p resolution.) It also requires a semicircular table, microphone-speakers and cameras. The idea is that people will virtually sit across from each other and interact as if they are in the same room.

There is also a stripped-down version, Cisco TelePresence 1000, which needs only a single flat-panel screen. It's designed for small group meetings and for one-on-one conversations. DeBeer--who uses this version of the product to allow his assistant to telecommute from Richardson, Texas, to San Jose, Calif.--also sees this version of the product working well in retail stores. For example, an expert for BestBuy could virtually connect with shoppers in stores at a moment's notice, or a doctor in a medical office could call up a specialist for a consultation on a patient.

As Daley pointed out, all this high-definition technology doesn't come cheap. The single-screen version costs about $79,000, and the conference room version costs $299,000. Those prices include all the necessary equipment and installation.

And that's not all. Because the high-definition video requires a super-fast IP connection with a low level of latency, businesses will be required to subscribe to a premium data service from a telecommunications carrier. Verizon Communications and AT&T each announced services on Monday that will support Cisco's TelePresence products. The cost of these data services, which DeBeer said should provide at least 10 gigabits per second of bandwidth, will likely be between $3,000 and $5,000 per month for each telepresence-enabled room.

But Cisco's videoconferencing package is considerably less expensive than competing products from Hewlett-Packard and others. HP launched its videoconferencing product, Halo, a year ago. Like Telepresence 3000, Halo requires a special room with three high-definition screens and a full array of audio and visual equipment. HP's set-up costs $425,000. HP also manages the data service for its customers, charging $18,000 per month for each data connection.

"There is no question that HP's solution is expensive," Daley said. "At least Cisco's is cheaper, and they can also tie nicely in with their unified communications platform. But I still only see this as something that will be used in the executive suite and not by average workers."

"I still only see this as something that will be used in the executive suite and not by average workers."
--Ellen Daley, analyst, Forrester Research

But Cisco and its partners, like AT&T, insist that videoconferencing hardware and service pay for themselves. Companies can cut travel expenses and operate more efficiently because more people are in the office instead of on the road, they argue.

"It won't replace business travel completely," DeBeer said. "But if I am Daimler-Benz buying Chrysler, it would probably cut down on the number of times I had to fly planeloads of people back and forth between Detroit and Germany."

Joe Weinman, a strategy and emerging services vice president at AT&T, backed that notion. He said companies spend hundreds of thousands of dollars on travel expenses each month. Reducing that travel even by a fraction can translate into significant savings.

"When I go on a trip, I can easily spend $1,000 to $2,000 just on airfare," he said. "We're at a tipping point, where the high-definition video technology is so good that virtual meetings are worthwhile. So eliminating even some of this travel, companies can make back what they spend on the equipment and service pretty quickly."

Consumer pitch
Cisco also plans to tweak its technology for consumers. Within the next two years, Telepresence should be integrated into set-top box technology that the company acquired in its purchase of Scientific Atlanta, DeBeer said.

While other forms of interactive communications--like e-mail, instant messaging and SMS text messaging--have all become popular with consumers, video communications haven't found an audience, according to Jupiter Research. In a recent study published by Joe Laszlo, an analyst at Jupiter, he found that 40 percent of broadband consumers use IM regularly; 19 percent use IM voice chat; and only 5 percent use Internet video chat tools.

Laszlo said one reason people seem less interested in video chat is that most people multitask when they are talking on the phone or instant messaging. That's harder to do when the person you're talking to is looking at you, or when you have to be sitting in front of a camera.

Aside from basic behavioral barriers, Cisco will also have to address the cost issue. The technology in its current form is very expensive, and its costs will have to fall dramatically in order for it to be a viable addition in a consumer device.

In addition, because telepresence requires a high-speed data connection and a high-definition screen, the market is also dependent on the number of people who subscribe to very fast broadband services and have HD TVs able to support video conferencing. One of today's most popular flat-screen HD TVs, made by Samsung, costs about $1,400. An ultraHD TV with 1080p resolution costs about $3,722.

"Everybody has those specific instances where video would be a great thing to have," Laszlo said. "But those moments are limited and probably won't justify the cost of buying the hardware or subscribing to a new service. And if the resolution is really that good, do you really want people seeing that you haven't dusted your bookshelf in weeks?"