Cisco Joins High-End Videoconference Fray

A growing number of players are competing in the potentially lucrative telepresence market that brings uncanny intimacy to remote meetings

by Louise Lee

Picture this: You're in a videoconference with the boss. He's 3,000 miles away, but onscreen he looks so lifelike, and life-size, that he may as well be in the room. When he speaks, his lips and face move in sync with the image. When a co-worker sitting next to the boss interrupts your remarks, you turn to look her in the eye—her voice is clear, and it's coming from her mouth, not some scratchy speaker. Most amazing of all, you're all able to interrupt each other, just like in real life.

For anyone who has suffered through the standard stop-and-start videoconferencing experience, this is a dream come true. It's also a darned impressive product demo. "Make no mistake about it; this is cool," crowed John T. Chambers, chief executive officer of Cisco Systems (CSCO), as he rolled out the company's TelePresence Meeting system on Oct. 23.

Being There

With that launch, Cisco became the latest in a small wave of companies to jump in with superhigh-quality, and superpricey, videoconferencing setups. These systems claim to deliver the holy grail for techies: a videoconference that all but puts you in the room with the folks on the other end of the line.

These so-called telepresence systems aren't for everyone. They can cost as much as $425,000, plus $18,000 a month per conference room for operating costs, in the case of the Halo Collaboration Studio, launched in May by Hewlett-Packard (HPQ). In May, Polycom (PLCM), a major supplier of traditional videoconferencing equipment, introduced its ultrapremium RPX product for $249,000. As for Cisco's product, be ready to pony up as much as $299,000 for the hardware itself, plus $40,000 for "planning and design" and as much as $3,500 a month for maintenance. On top of those costs, customers need to install cables, switches, and other heavy-duty network equipment to accommodate the flood of audio and video bits.

To achieve the desired illusion of all conferees being in the same room, each vendor makes its videoconferencing rooms look alike, using the same semicircular conference tables illuminated by the same type of light bulbs and surrounded by identical wall colors. Participants sit at the table facing video displays, which have cameras set just above or around the screen. Wachovia (WB) plans to use a Cisco system to let trading managers in London, Hong Kong, and the bank's Charlotte (N.C.) headquarters share data and discuss trading strategies. George E. Mattingly, senior vice-president for computing at Wachovia, calls the system "revolutionary." He adds, "It is no longer a case of looking at fuzzy images in a faraway room. It really is like being there."

Bandwidth Hog

But is telepresence really anything more than a luxurious hog of bandwidth? Many of today's conventional videoconferencing setups using regular video displays offer a satisfactory experience, analysts say. Add high-definition video, and the people and images look that much better. A good high-definition system "can provide 95% of the experience of telepresence at 25% of the cost," says Andrew Davis, an analyst at Wainhouse Research. Of the highest-priced setups, he concludes: "There will be a market for these, but it will not be big."

Still, traditional video conferencing systems don't create the feeling of being there that the newfangled telepresence systems do with their more sophisticated acoustics, higher data-transmission speeds, and room design. And a handful of big—and deep-pocketed—companies are biting. As of September, HP had sold more than 40 Halo systems to firms including Advanced Micro Devices (AMD), Novartis (NVS), and PepsiCo (PEP). HP designed Halo with help from movie studio DreamWorks Animation SKG (DWA), which provided advice on camera placement, lighting, and acoustics. HP expects to sell Halo systems in "the triple digits" next year, says marketing manager Ray Siuta.

Broader Uses

The most expensive systems still make up just a tiny fraction of videoconferencing sales, which is one of the faster-growing areas of tech spending. Companies and other organizations forked over $1.1 billion last year on all videoconference equipment, says Roopam Jain, an analyst at researcher Frost & Sullivan. She expects spending to rise by an average of 22% a year through 2010.

For suppliers, the real payoff may come years from now. They're betting that in time the technology, like computers, will trickle down to a broad range of uses. Hotels and airport lounges might want systems, as may universities that offer distance learning. Doctors could use them for patient consultations. And if hardware prices fall far enough, and more consumers install broadband connections at home, "we can see this in upper-middle-class homes in the next three to five years," insists Chambers. At least his home, anyway.

Lee is a correspondent in BusinessWeek's Silicon Valley bureau
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