Telepresence gains traction; Is your network ready?

Can your network really handle unified communications and video intensive video applications like telepresence?

That question is one you should be asking yourself after Cisco's fourth quarter earnings conference call. Cisco reported net income of $1.9 billion, or 31 cents a share, on revenue of $9.4 billion for its fiscal fourth quarter and upped its outlook for the first quarter. Cisco handily topped expectations.

But more interesting were the tidbits sprinkled around by Cisco CEO John Chambers.

Cisco is clearly ahead of the curve when it comes to installing unified communications and video applications, but the strain on the network must be immense as gear needs to be added.

What gave me pause was this comment:

From an enterprise and commercial perspective, we expect that video applications such as telepresence and unified communications will continue to load networks and require upgrades to existing networks. Using Cisco -- granted as an aggressive example -- as we begin to implement unified communications, telepresence and other video applications across our entire company, our expectation of our network load is to grow at least 200% to 300% per year over the next several years.

It is our goal to be the leaders in implementation of collaborative business process change and the associated productivity enabled by Web 2.0 technologies and then take the Cisco experience and benefits and our products to our customers. Having said that, we are also seeing many of our customers in the service provider and enterprise area that are beginning to anticipate much larger growth in network loads.

Now let's document the subtext right away: Chambers wants you to buy more networking gear. But those upgrades don't come cheap, especially if you have to expand at Chambers' clip year after year.

If his network load projections are even in the ballpark, your budget will pay a heavy price to unify communications apps and use fancy video applications. Cisco has 110 telepresence systems deployed around the world and conducted 17,000 telepresence meetings in the first half of calendar 2007.

Next question: What's the business case going to look like? Telepresence will have some sort of travel cost/business productivity angle. Unified communications over an IP network will save dollars shelled out to telecom giants. But is a CFO really going to get all Web 2.0 happy if he has to spend heavily on high-end routers?

Chambers noted that two to 10 user telepresence sites gain "a number of efficiencies." Once you get to 50 to 100 user sites, there are bigger returns. For more on a potential business case, we have a few webcasts and white papers lying around.

To be sure somebody is buying Chambers' argument big time. Cisco and Juniper both had good quarters. And Cisco said that order growth for its high-end routers averaged 20 percent year over year for the first three quarters of fiscal 2007. In the fourth quarter that jumped to 30 percent year over year.

But when push comes to shove a little ROI is going to be needed to really get the unified communication and telepresence ball rolling among all enterprises.

Among other notable items from Cisco:

CEOs dig telepresence. Granted Chambers' customer sample is small, but CEOs seem to be driving early telepresence sales. He said:

In Q3, telepresence systems orders grew from the prior quarter by over 300%. In Q4, the number of telepresence systems grew by over 400% from Q3. The customer excitement and understanding about both the process change and the collaboration that telepresence enables has been dramatic. This is especially true at the CEO level, where CEOs not only grasp the effectiveness from a time and travel cost savings, but almost uniformly, they understand the value of the business transformation to their organizations. This is the first time in my career that I have seen this type of excitement and interest from CEOs for a technology. We now have telepresence orders from approximately 50 customers. These customers are realizing that the lifelike experience unique to telepresence is enabling business transformation that could drive both top and bottom line growth. Using Telepresence to create new products and services and enhancing their competitive positioning by leveraging expertise and speed execution and decision-making have become the key purchase drivers, even over the reduced travel cost that we know can be dramatic and often pay for the system in less than one year.

IT spending seems solid (this seems to be a recurring theme among technology vendors). Chambers said:

I know there have been a number of mixed views about the strength of the U.S. IT spending, especially in large accounts. Our U.S. business was very strong, but the balance was very good across all customer segments, with average growth rates in the upper teens. In fact, growth and balance across our customer segments in the U.S. was the best we have seen in a number of quarters.

But enterprise spending is very lumpy. In fact, spending patterns appear to change with the mood of the CFO. Chambers added:

The enterprise business, excluding federal, did see some major swings throughout the year. Q1 growth was in the low 20s, followed by Q2 and Q3 in mid single-digits, and Q4 with order growth rates year over year of approximately 12%. We expect the U.S. enterprise growth to be very lumpy, both by U.S. areas and industries moving forward.