For Polycom, being independent and nimble has its perks when competing with far larger rival Cisco in telepresence systems.
When we last checked in with Polycom the company looked like an inevitable takeover target. After all, the video conferencing market consolidated quickly. Cisco bought Tandberg. Logitech bought Lifesize. Polycom had to be acquired right? Wrong.
A funny thing happened on Polycom's alleged road to becoming roadkill. The company made former Cisco executive and Tandberg CEO Andrew Miller as CEO almost a year ago. Then Polycom played up its independent status and forged partnership with damn near every company that goes toe-to-toe with Cisco.
The moves paid off as Polycom topped earnings and revenue targets every quarter in 2010. The stock chart tells the tale:
Meanwhile, Cisco's acquisition of Tandberg, which theoretically should have squashed Polycom, worked out in the company's favor. Cisco had to submit Telepresence Interoperability Protocol (TIP) to the International Multimedia Telecommunications Consortium (IMTC) as a condition to complete its Tandberg purchase. Polycom then used that software to allow its systems to talk to Cisco's beginning in the second quarter. Without the Tandberg purchase, Cisco wouldn't have submitted that protocol for free. Cisco and Polycom are now working on interoperability standards called CLUE through the Internet Engineering Task Force. Now that telepresence systems can communicate the market opens up a bit.
Polycom competition today: Miller said that Polycom primarily competes with Cisco and its Tandberg unit. After all, 70 percent of Polycom's revenue skews to large enterprises. SMB, defined as 1,000 or fewer employees, is the remainder.
Why go with Polycom? "There are four things I always talk about," said Miller. "Cisco is proprietary and we interoperate with existing platforms such as Microsoft's SharePoint or Lync and IBM's Sametime. We natively integrate with those technologies." Miller added that bandwidth costs are also a big part of the Polycom pitch. "Bandwidth is 70 percent of TCO (total cost of ownership) and we use 38 percent to 50 percent less bandwidth than Cisco," said Miller. In addition, Polycom systems can talk to Cisco's. "Customers can have mixed environments," he said. And the final point is travel savings and increasingly collaboration and productivity.
The ROI case for telepresence: Miller said the travel case for telepresence is obvious, but increasingly "the ROI revolves around productivity." The next generation of workers is going to want more telepresence. "The next generation (of workers) are Facetime and Skype users," explained Miller. "They want to have a more visual experience. There's a collaboration and productivity improvement with telepresence. That first meeting or dinner is face to face, but once relationships are formed telepresence is used to conduct meetings."
At Polycom, there's a travel policy that requires agents to ask an employee whether a trip can be eliminated with telepresence. Miller said Polycom has cut 28 percent of its travel and expense budget using its own technology. Polycom has partnered with Regus, an office rental company, to install telepresence systems. Now an employee can conduct a meeting via telepresence at any Regus location. Regus can rent these telepresence locations out. "I use them all the time," said Miller. "More companies are going to do this and require management approval for travel."
Miller said the Microsoft-Polycom partnership around Lync "has been great for both sides." "Partnerships are great when both parties need each other," he said. On the Microsoft side, Polycom brings high-def video calls into the PC. On the Polycom side, Miller gets his technology into Lync, Outlook and other tools natively. In addition, both parties complement each other. Microsoft's salesforce isn't trained to compete on infrastructure deals and Polycom can help there. Polycom gets access to Microsoft's much larger salesforce. With Polycom, Microsoft is much more competitive against Cisco, said Miller. And with the Lync deal, Miller said "we saw the influence revenue pipeline build." Miller expects to see material revenue from the Microsoft Lync partnership in 2012.
Verticals ripe for telepresence. Miller said more than 50 percent of Polycom's business comes from vertical markets. Health care, education and government are the biggest verticals for Polycom. On the Federal government side of the equation, Polycom is used for command and control in the military as well as the FBI, Department of Justice and intelligence gathering.
What's the mobility strategy? Polycom's approach will primarily revolve around businesses and being platform agnostic. Its first tablet effort revolves around a deal with Samsung to embed the company’s software natively on the Galaxy Tab. Android is an initial focus followed by Research in Motion and Microsoft Windows Phone 7 via a Nokia deal. What about the iPad? Miller said that Apple won't go for a native installation so Polycom will have an app. "We're going to be vendor agnostic and enable mobile platforms tap back into the enterprise," said Miller. If Polycom can work on every platform not named Apple, perhaps the company will be able to do more than just an app. The rub: Apple has Facetime. "The consumer will be the one that ultimately voices the opinion about platforms," said Miller. "if we can make more headway with other pad providers and open protocols maybe the situation will be solved.
The consumer strategy. The company's strategy is to target consumers via Polycom enabled services sold through carriers, said Miller. "We don't believe in doing into Best buy and trying to sell boxes," said Miller. He specifically mentioned Cisco's Umi as an example of what not to do. Umi was too expensive and consumers aren't going to pay the prices Cisco wants. When the time comes, Polycom will aim to be embedded on game consoles, embedded cameras on TVs and other vehicles. "We will be able to be served through a carrier or pad type device," explained Miller.
However, Miller was clear that the consumer was not a top issue for Polycom---at least for now. "The enterprise space is only 10 percent penetrated (with telepresence)," said Miller. "The consumer is low margin. I don't want to lock out the consumer---if he takes his mobile pad home and plugs back into corporate---but our approach is to be more rational about the consumer around the corporate continuum."
Skype: Friend or foe. While Cisco is the competition today, the future is likely to feature "new disruptive over the top players" like Skype or Google. "We have some decisions to make: Become interoperable with Skype or compete," said Miller. "Skype is still an island. It doesn't have security, breadth or the ability to integrate. It provides a free service and moving to the SMB space isn't an easy path." Miller added that Polycom and Skype have had executive meetings. "Skype has been cordial about the proper approach," said Miller. "For some businesses Skype may be good enough. There's lots of room for competition."
Unified communications: Are we there yet? Miller acknowledged that the tech industry has been talking about unified communications for years, but the tipping point has arrived as standard definition video moves to high definition. Another key point: Polycom and Cisco systems can comingle now. That move changes everything because interoperability goes away as an issue. "Unified communications is here now without the barrier of interoperability," said Miller. "Enterprises will buy more now that these systems actually talk to each other."