EXCERPT Worldwide Enterprise Videoconferencing and Telepresence 2010-2014 Forecast

Jonathan Edwards

IN THIS EXCERPT
The content for this excerpt was taken directly from the Worldwide Enterprise Videoconferencing and Telepresence 20102014 Forecast, by Jonathan Edwards (Doc # 221356). All or parts of the following sections are included in this excerpt: IDC Opinion, In this Study, Situation Overview, Essential Guidance, Future Outlook, Tables 2 & 3, and Figures 1 & 2. A comprehensive list of key forecast assumptions was removed for the purpose of this excerpt.

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IDC OPINION
Enterprise videoconferencing has been through a number of hype cycles over the past few decades and has failed to become culturally integrated into the fabric of business processes and communications. However, IDC believes that only recently have the technologies delivered to end users' experiences worthy of initiating a videoconference over a phone call or conducting business across locations that in the past required travel. IDC believes the following three factors will shape the enterprise videoconferencing market over the next five years: Technology capability and market awareness. The ways in which we interact with video (be it YouTube content accessed on our iPhones or a Skype video call with a grandparent) are more abundant and advanced than ever. This trend is only accelerating as partnerships like Skype and HDTV manufacturer Panasonic form. From an enterprise standpoint, quality, productivity, and level of engagement per interaction over video are primary keys to usage and adoption, and only within the past three years has the technology become capable (epitomized by high-end telepresence systems) to deliver here. Furthermore, market awareness has never been greater as vendors like TANDBERG, Polycom, LifeSize, and Cisco have successfully catalyzed awareness and demonstrated the value of videoconferencing to their growing customer bases and to their strategic and channel partners. Bandwidth availability. The most significant impediment to videoconferencing adoption is bandwidth. Interviews with a major IT systems integrator/consultancy indicated that on average every $1 spent on videoconferencing requires roughly $3 on network upgrades. In comparison with IP telephony, which requires on average $0.80 for network upgrade on every $1 spent, the overall costs of investing in videoconferencing are high. Cisco alone has upgraded its network four times in roughly three years since rolling out companywide access to telepresence and other video endpoints.

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 Interoperability. While vendors like Polycom and TANDBERG have demonstrated videoconferencing and telepresence interoperability from an equipment standpoint for some time, interoperability between all forms of conferencing systems (Web conferencing, audioconferencing, etc.) will greatly impact the way enterprises evaluate the ROI of the application. There are multiple levels of interoperability that will take time to address, but all will significantly impact adoption and help accelerate the tenets of Metcalfe's law. These levels include system type to system type (e.g., Web based to telepresence), legacy to next generation, vendor to vendor, carrier network to carrier network, and business to business (B2B).

IN THIS STUDY
Methodology
The quantitative and qualitative information contained in this study results from IDC's ongoing videoconferencing research. Both primary and secondary sources of information were used in the development of this study. Primary sources include interviews with videoconferencing vendors and IDC survey data. Secondary sources include vendors' publicly registered financial statements, news releases, vendorprovided marketing material, and consultation with other IDC offices. All revenue figures are IDC estimates that refer only to videoconferencing equipment and exclude services (installation, professional, and managed). Considered videoconferencing equipment includes multipoint control units (MCUs), video codecs, gateways, cameras, screens, and associated audio components. These figures do not include PC/Web-based systems, Webcams, or videophones. The telepresence revenue, room/systems, and screens figures refer only to the highly immersive videoconferencing systems that deliver near-in-person experiences via HD video, wideband audio, echo cancellation, zero latency, and spatial relativity. These systems do not need to be installed as preconfigured room-based units but instead are tracked and forecast based on the experience the infrastructure delivers not the setting or the application. IDC expects the number of applications telepresence technology is brought to in the later years of this forecast will be the primary revenue drivers. These estimates were modeled based on primary and secondary research. Sources include but are not limited to vendor statements, vendor financials, briefings, press releases, interviews, conferences, and internal forecast models. Shipment information may have been provided by the vendor, when available. Note: All numbers in this document may not be exact due to rounding.

SITUATION OVERVIEW
IDC predicted that 2009 would be the year of the great enterprise video experiment, and given the macroeconomic challenges that enterprises faced this year, the market was able to maintain 16.7% year-over-year growth. IDC considers this prediction to

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be validated by the success of Cisco (which claims 100% year-over-year growth in telepresence revenue), Polycom, and TANDBERG among others in 2009 as well as the increasing levels of interest in videoconferencing among enterprises validated by end-user interviews, surveys, and conversations with IT communications implementation consultants. In 2009, videoconferencing received a great amount of traction in the media and in marketing materials as a means to cut travel costs and scale human capital. Cisco has also pushed its telepresence line into the mainstream media, with equipment appearances on NBC's 30 Rock as well as in television commercials starring actress Ellen Page.

Industry Consolidation
2009 brought about vendor consolidation, most notably Cisco's October acquisition of TANDBERG (subject to close). This acquisition not only solidified Cisco's commitment to enterprise video beyond telepresence (particularly but not limited to conferencing) but also is indicative of where the market needs to go, namely the blurring of lines between low- and high-end videoconferencing system silos and the interoperability and interconnectivity between them. Couple TANDBERG with Cisco's WebEx assets, and the networking giant is now capable of offering end-to-end video/Web conferencing solutions. Another example is PC peripheral provider Logitech (a company with a market cap of nearly $3 billion) acquiring videoconferencing provider LifeSize on December 11, 2009, for $405 million. LifeSize was founded in 2003, currently serves over 9,000 customers in 80 countries, and is known for its affordable telepresence offerings. Logitech on the other hand has been a market leader in Webcams for years and in June 2009 announced its Web-based video call service Vid. While Vid is primarily targeted at consumers and as a complement to Logitech's Webcam business, Skype, Google, and ooVoo's Web-based videoconferencing services are used frequently for business use. Note: While Web-based videoconferencing services are not included in this IDC forecast, these services are aiding the adoption and visibility of videoconferencing overall and are therefore noteworthy. In contrast with Cisco, which acquired TANDBERG to move downstream from telepresence, Logitech will conversely attempt to move upward from PC-based video calling/conferencing. Polycom now remains the last major independent market player with a significant videoconferencing install base and an extensive product portfolio. IDC does not expect Polycom to be acquired in the near future as it can play the Cisco-alternative card now that TANDBERG is a Cisco asset and has formed a number of strategic partnerships to support its efforts against Cisco (partnerships include those with IBM, Siemens, Juniper, and BroadSoft). Moreover, some of Cisco's primary competitors in IT/networking (HP) and IP communications (Avaya) have been busy themselves (in 2009, HP acquired 3Com and Avaya acquired Nortel). HP appears to be the most likely suitor though, given the level of disruption in enterprise networking, the convergence of enterprise communications and collaboration applications, and the lucrative opportunities in enterprise video at stake; companies such as Dell and IBM have likely entertained the thought.

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Adoption Trends
Given the trending of an increasingly distributed workforce within a globally interdependent economy, the business case for videoconferencing has never been clearer. The need to reduce travel costs has been a primary driver of adoption in 2009, validating November 2008 (posteconomic crash) survey data from IDC's eVideo QuickPoll, which indicated that the number 1 reason for adopting videoconferencing was cost savings/avoidance followed by improving team collaboration, improving customer service, and improving employee work/life balance (sequentially). Because of the bandwidth requirements for videoconferencing, larger companies with higher network capacities have been the heaviest adopters of the application, especially the high-end telepresence systems. Larger companies tend to have a greater number of global locations as well, which makes videoconferencing a valuable way to connect distributed employees. Financial services, government, and healthcare have been the most prominent adopting verticals, though the education sector is showing dramatic increases in interest early in 2010. Beyond cutting travel costs, the soft ROI of scaling human capital across multiple locations in a highly engaging manner is cited as a primary benefit of videoconferencing. 23% of respondents to a recent IDC survey indicated that the top reason they find videoconferencing valuable is it increases the effectiveness of meetings. Though IDC has seen double-digit growth in videoconferencing revenue over the past three years, significant adoption barriers remain. Bandwidth remains a primary barrier to mass-market adoption, though Polycom for example recently announced its support for H.264 "High Profile" to deliver HD video starting at just 512Kbps. IDC expects coding and compression technology efficiencies to improve significantly within the forecast period. Beyond bandwidth, cultural adoption has proven to be one of the most difficult obstacles. Unlike Web and audioconferencing, videoconferencing has traditionally been supported by A/V staffs within enterprises and has not integrated with calendaring and scheduling systems for example, making it difficult for end users to reserve or even consider these resources in many cases. Multiple systems integrators and videoconferencing vendors have indicated to IDC that the ability to schedule a videoconference within Microsoft Outlook/Lotus Notes and/or reserve equipment within these applications is one of the initial applications if not the initial application integration customers are requesting. Another cultural barrier is getting employees to consider leveraging videoconferencing resources instead of traveling if and when possible. This aspect of cultural adoption takes time but will accelerate as the number of videoconferencing systems grows (including public sites). This issue should be handled at the C-level, and providing incentives is highly recommended. Other barriers include the inability to videoconference B2B currently in the ways businesses can via audio bridges and dedicated conference lines.

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FUTURE OUTLOOK
The future is bright for videoconferencing vendors, but a number of recently established business models and go-to-market strategies that have yet to be proven may or may not accelerate the pace of adoption. For example, Tata Communications launched its telepresence managed service and public room offering in 2008. Tata Communications' goal is to remove the high capex of telepresence by offering onsite but Tata Communicationsmanaged equipment and telepresence services as well as public/shared telepresence facilities at hotels and other locations. Tata will also host a telepresence directory listing businesses capable of meeting over telepresence (on- or offsite). While Tata Communications' telepresence business is in its infancy with just 10 public rooms to date and only a handful of managed service clients, the prospect of lowering cost barriers to adoption, establishing a global network of connected telepresence systems, and offering telepresence as a managed service with no equipment purchases required is promising. Even more encouraging is Tata Communications' telepresence advisory services it couples with its managed services. Tata Communications, with its partners CWT and AmEx, has demonstrated the ability to help customers drive user adoption and create bottom-line cost savings by layering travel schedules, most commonly collaborating/conferencing city pairings and other data to come up with the most strategic ways in which telepresence can be leveraged within a business. Cisco has also established a hosted telepresence directory that according to Tata Communications will be cross-listed with the telepresence directory Tata Communications itself hosts. Cisco also has established a SIP-like standard it is calling TIP for enabling telepresence-to-telepresence interoperability at the necessary QoS levels. Cisco demonstrated WebEx/telepresence interoperability at its Collaboration Summit as well, and the extent to which these two solutions can accelerate the adoption of one another remains unknown. Integration between audio, Web, and videoconferencing as well as with application sharing and whiteboarding functionality is already happening, but it will take three to five years before these are fully integrated turnkey solutions. Another area of this market that has yet to be proven is the extent to which videoconferencing equipment will be leveraged for applications like digital signage, rich media content streaming, and application sharing. Yet another is how integral video will become from a content and knowledge sharing perspective in the way YouTube has on the public Web. Depending on the size and speed of demand for video applications beyond conferencing, the ways in which videoconferencing equipment is deployed and leveraged change the way enterprises will evaluate the ROI of these offerings. IDC does expect the number of applications video/telepresence is brought to over the next five years to dramatically increase beyond the conference room setting. In the outer years of this forecast, IDC anticipates HD video and telepresence technology to be present in, for example, retail banks, fast-food drive-thrus, and concierge services of all kinds.

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At CES 2010, both Polycom (with partner IBM) and Cisco demonstrated home telepresence solutions. Cisco will enter U.S. home telepresence field trials this spring, with Verizon as an early partner, and field trials in France will start later in 2010, with France Telecom as Cisco's early partner. If home-videoconferencing/telepresence systems become prevalently accessible (e.g., Skype on Panasonic televisions or Cisco/Polycomtype offerings), the ways in which consumers can interact with businesses, family, and friends from the home changes as well.

Forecast and Assumptions

Table 2 shows worldwide videoconferencing revenue and endpoints, and Figure 1 shows videoconferencing revenue, for 20092014. Table 3 shows worldwide telepresence-only revenue, number of telepresence rooms/systems, room/system install base, and number of screens, and Figure 2 shows telepresence-only revenue, for 20092014.

TABLE 2
Worldwide Enterprise Videoconferencing Revenue and Endpoints, 2009 2014
2009 Videoconferencing revenue ($M) Growth (%) Endpoints (000) Growth (%) Note: See Table 1 for key forecast assumptions.
Source: IDC, 2010

2010 2,742 45.0 300 37.4

2011 3,877 41.4 405 35.0

2012 5,308 36.9 533 31.5

2013 6,947 30.9 686 28.9

2014 8,755 26.0 845 23.2

1,892 16.7 218 5.4

FIGURE 1
Worldwide Enterprise Videoconferencing Revenue, 2009 2014

10 9 8 7 6 5 4 3 2 1 0 2009 2010 2011 2012 2013 2014

Source: IDC, 2010

($B)

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TABLE 3
Worldwide Enterprise Telepresence-Only Revenue, Number of Telepresence Rooms/Systems, Room/System Install Base, and Number of Screens, 2009 2014
2009 Telepresence-only revenue ($M) Growth (%) Telepresence rooms/systems (000) Growth (%) Room/system install base (000) Number of screens (000) 581 84.0 4 112.0 5 8 2010 1,019 75.4 7 92.8 12 13 2011 1,678 64.7 13 77.2 25 21 2012 2,594 54.6 21 67.6 46 32 2013 3,670 41.5 33 56.3 79 43 2014 4,789 30.5 49 48.4 127 64

Note: See Table 1 for key forecast assumptions.

Source: IDC, 2010

FIGURE 2
Worldwide Enterprise Telepresence-Only Revenue, 20092014

6 5 4

($B)

3 2 1 0 2009 2010 2011 2012 2013 2014

Source: IDC, 2010

Market Context
In videoconferencing and telepresence, the market is in the midst of a transition from meeting over video as an option of last resort to an alternative that's preferred

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over traveling. While telepresence systems carry significant price tags for deployment and operation for example, the cultural shift toward video as a good enough "across the table" replacement for in-person meetings will accelerate swiftly through the next decade. The extent to which video calling/conferencing can become an impromptu communication tool in the way instant messaging (IM) and voice are is unlikely in the next five years. IDC expects the usage of videoconferencing to be primarily driven by scheduled meetings, corporate communications, and training activities.

ESSENTIAL GUIDANCE
IDC believes videoconferencing vendors must do more to maximize the number of capable endpoints. Integration with legacy systems as well as with commonly used Web conferencing systems and collaboration tools like instant messaging clients dramatically increases the value of these systems and demonstrates to clients a commitment to enterprise unified communications and collaboration (UC&C), not just video. Vendors should also help their customers drive usage via usage behavior analysis and best practices. Polycom for example has taken a leadership role in articulating the value of integrating video into UC&C environments and is focused on delivering visual functionality to multivendor UC&C environments. Enterprises should demand high- to low-end integrateable solutions that do not create application or technology silos. As communications infrastructure components converge, the last thing any enterprise should consider is placing videoconferencing systems and equipment on an island. Phased pilot deployments are also recommended to ensure that investments in videoconferencing are rolled out appropriately to the right locations and to the right business units. Furthermore, the adoption of videoconferencing is accelerating just as all things enterprise communications are quickly becoming IT assets. Therefore, enterprises must consider videoconferencing in the same context as larger IT initiatives including virtualization, unified communications, and how video will be used beyond conferencing.

LE ARN MORE
Related Research
Tandberg Acquisition Puts Cisco's Money Where Its Vision Lies (IDC #lcUS22028909, October 2009) Video in the Enterprise Proliferates: An Updated Snapshot of Current and Planned Adoption (IDC #219871, September 2009) Will 2009 Become the "Year of the Great Enterprise Video Experiment"? (IDC #lcUS21762909, March 2009)

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Synopsis
This IDC study discusses the worldwide enterprise videoconferencing and telepresence market. Enterprise videoconferencing revenue is slated for double-digit growth through 2014, with an IDC-estimated CAGR of 36%. Despite previous hype cycles that have produced inflated forecasts of this market, IDC believes that only recently have enterprise networks and videoconferencing technology (epitomized by telepresence systems) been capable of delivering experiences worthy of initiating a videoconference over a phone call or hopping on a plane. In a suffering economy, videoconferencing gained much traction in 2009, and IDC expects significant growth of this market over the next five years. "IDC predicted that 2009 would be the year of the great enterprise video experiment, and despite difficult economic conditions, the worldwide market for videoconferencing and telepresence grew 17% year over year and will eclipse the $5 billion mark in 2012." Jonathan Edwards, research analyst, IDC's Unified Communications and Enterprise Communications Infrastructure programs.

Copyright Notice
This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2010 IDC. Reproduction is forbidden unless authorized. All rights reserved.

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