The problem with video conferencing - and a $7,000 solution

January 30, 2008: 6:00 AM ET

By Michael V. Copeland

PALM DESERT, Calif. -- Video conferencing, along with 3D monitors and flying cars, is one of those things we've been promised for years, but have yet to get our mass-market hands on. At the high-end, Polycom (PLCM), Cisco (CSCO) and other specialty manufacturers offer dedicated video conferencing gear that looks great, but is monstrously expensive, often costing tens of thousands of dollars, if not hundreds of thousands, once the dedicated networking and data equipment is bought and installed. At the low-end are free or mostly free services, like Apple's (AAPL) iChat, Skype (EBAY) Video, and various flavors of video chat riding on top of instant messaging. The problem with these is not the price, it's the quality. The video is jerky, the audio doesn't synch, and sessions either don't connect at all (this happens to me with iChat all the time) or drop out just when you are about to display a new tattoo or a new grandchild.

At the DEMO startup conference on Tuesday, Hackensack, N.J-based Vidyo offered something in the middle. A high quality video-conferencing system that you can install and get running for $7,000. At the core is a $6,000 Vidyo router that you put in your server rack and connect to a broadband Internet connection. The system adapts to the highest quality the gear at each end point can handle, ranging from high-definition cameras to cheap web cams. So you might have HD in a conference room, and VGA from a home office, for example.Each site, or port as the company refers to it, that you connect to the router costs an additional $1,000 a year. So if you have two offices you need one extra port, but since it's just a software connection you can add as many ports as you need. All that is required is a broadband connection. The $1,000 subscription is really a pricey seat fee. And it will add up if you decide to connect your dozen regional sales offices. The ports are fluid; they can range from one site to another, one home office to another, say, as needed all via a web-based system.

At a minimum of $7,000, this is clearly aimed at taking on higher-end video systems for corporate users. And Vidyo is a great alternative for small and medium-sized businesses that have been hankering for good quality video conferencing but couldn't afford it. My guess, however, is that the pricing comes down fast. How long will it take for that Vidyo router (or something reverse engineered in Asia) to get to $1,500 bucks? And with no additional service fees for additional ports? Fast.The reason is Vidyo is also competing with free offerings, which while offering poor quality now, are rapidly approaching "good enough." Once free, or almost-free services hit that point where they are "good enough" for most things, $7,000 looks like a whole lot of money to pay, never mind hundreds of thousands of dollars. Video-conferencing has long been held out as a $1 billion market poised to explode to a multi-billion-dollar market. It won't happen until high quality video gets cheap. Vidyo is a big step toward busting the market wide-open, it's still not cheap enough, but it's getting close.

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About This Author
Michael Copeland
Michael Copeland

Michael V. Copeland joined FORTUNE as a senior writer in September 2007. Copeland has covered everything from electric cars to e-readers. He is a creator of Tech Mate, an irreverent video series in which he debates (and skewers) digital issues of the day. Before joining FORTUNE, Copeland was a senior writer at Business 2.0. Copeland graduated from the University of Pennsylvania.

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