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Videoconferencing Has a LifeSize Moment

"Telepresence" is helping the tiny startup—and giants like Cisco

When Colin Buechler left Dell (DELL) last year, he never thought he would end up at a videoconferencing company. Ever since AT&T (T) unveiled a videophone prototype at the 1964 World's Fair in New York, the technology has promised the moon but delivered mainly jittery pictures and out-of-synch audio. Buechler knew there was a videoconferencing system at Dell, but never bothered to use it. "I couldn't even tell you where it was," he says.

Then Buechler met up with Craig B. Malloy, CEO of startup LifeSize Communications, across town from Dell in Austin, Tex. As they talked, Malloy launched high-definition-quality video calls with business partners in Guatemala, Norway, and India, and Buechler was struck by the way these sharp images enhanced the whole interaction. He quickly signed on as LifeSize's senior marketing vice-president.

Buechler's timing looks smart. While TV pundits debate the reasons for Wall Street's sudden collapse, chief executives around the U.S. are steeling for a recession and scrutinizing costs. That includes travel expenses—providing a once-in-an-era opportunity for the $1.6 billion videoconferencing industry. Cisco Systems (CSCO), Polycom (PLCM), and Hewlett-Packard (HPQ) are seeing strong interest in their swank "telepresence" systems, which create the illusion of sitting in the same conference room with people in far-off locales. From Cisco, customers get specially furnished conference rooms, each costing as much as $300,000, with high-end equipment fit for a TV-studio. Customers shell out at least $5,000 a month for fast data pipes. Cisco's sales have doubled to more than 1,000 units since May, and sales could reach $1 billion by 2010. Says Marthin De Beer, head of Cisco's Emerging Technologies Group: "Telepresence is about putting your best salesman in front of your best customer in a matter of minutes."


LifeSize says it provides similar benefits at much lower prices. Combining its own HD cameras with some fancy video processing, the startup offers sharp pictures over ordinary Internet hardware for as little as $5,000—or up to $40,000 for full telepresence. Without massive network upgrades of the sort Cisco provides, LifeSize customers may notice some blurring when people move quickly. Even so, 4,000 customers ranging from giant Wal-Mart Stores (WMT) to tiny Web venture have purchased 15,000 systems. Telepresence, says Malloy, "is not just for the richest companies in the world."

LifeSize may soon have to share the low end of the market. Polycom has dropped its prices below $10,000 for some systems, and Cisco is also moving down market. Perhaps more important, Cisco has unveiled a sweeping new scheme to use telepresence in many business and consumer settings. A giant LCD screen at your bank, for example, might display mortgage rates and other data one moment, and at the flick of a button, conference you in with a mortgage broker.

LifeSize can't compete with Cisco in all such applications. But it gets good reviews from its customers. Activision (ATVI), the computer game maker, has placed 24 LifeSize systems in its offices in five countries. Information Technology Director Thomas Fenady says this allowed Activision to cut its travel budget by 20% and trim weeks off the game development cycle. Adena Regional Medical Center in Chillicothe, Ohio, has rigged up LifeSize systems for telemedicine, so its patients can be examined by experts at a larger hospital in Columbus. Business travelers could be the next big user base, says IDC analyst Nora Freedman. Hotel chains are likely to install lower-end systems so that road warriors can have more virtual face time with their families.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.

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