Cisco: Happy to be the Lamborghini of teleconferencing

June 14, 2011: 11:28 AM ET
Cisco Systems Building 2 at the San Jose, Cali...
Image: Gary King

Buyers of Cisco Systems' (CSCO) high-end videoconferencing solution, TelePresence, tend to be deep-pocketed enterprises like SAP (SAP AG) and Bank of America (BANK). Why? It costs about $300,000 to set up the screens, cameras, infrastructure, lights and furniture necessary to TelePresence-enable just one room.

So it's no surprise that smaller players--like newcomer Vidyo--are trying to undercut Cisco. Last week the New Jersey-based startup introduced a lower-cost telepresence solution for the masses called VidyoPanorama. According to the company, VidyoPanorama will support as many as 20 screens at a time (meaning employees from 20 different locations can participate in a simultaneous video conference) for as little as 10% of the cost of current telepresence systems like Cisco's.

Not to be outdone, Cisco responded on Tuesday morning with a flurry of telepresence-related announcements, including the "Telepresence Everywhere" endpoint, a new product that will allow customers to more easily telepresence-enable multiple rooms.

"Price is always relevant to customers, but this market is rapidly moving beyond price to focus on ease-of-use, ease-of-integration and ease-of-interoperability," David McCulloch, a Cisco spokesperson, wrote to Fortune in an email. "As the number one telepresence vendor by a big share, we feel really good about our leadership in all three areas."

Telepresence is part of Cisco's collaboration business, which has been growing at about 25% or more during the last five quarters and is on pace to bring in $4 billion in revenues this year. Meanwhile, the networking company's stock has plummeted to about $15, and CEO John Chambers recently said the company needs to refocus its portfolio of products. But it's unlikely that Cisco's collaboration business is going to be sold off. The company has bet big on telepresence—it's one of the few bright spots in its string of failed attempts to diversify (it recently shuttered its Flip video camera business).

According to McCulloch, Cisco's spokesperson, Vidyo "conveniently compares its offerings to Cisco's top-of-the-range flagship product." TelePresence is costly, but Cisco says it offers a videoconferencing desktop solution (the fruits of its 2009 acquisition of Tandberg) starting at about $300. And it's likely Cisco will keep coming out with cheaper, more flexible versions of TelePresence in the near future. After all, there are only so many companies able to shell out $300,000 for a videoconferencing system.

Vidyo's founder, Ofer Shapiro, says his company's not just competing on price. With $74 million in venture backing, Vidyo has developed a telepresence system that will allow up to 20 screens instead of the usual three- or four-screen solution. The company also says it uses bandwidth more efficiently and doesn't require any special, costly networks to be deployed.

But, bottom line, price is Vidyo's big differentiator.

"They [Cisco] are selling Rolls-Royces and Lamborghinis," says Shapiro, Vidyo's founder and CEO. "We're selling the Hondas and Acuras."

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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