Not Your Grandfather's Video Conferencing Industry AnymoreNot Your Grandfather's Video Conferencing Industry Anymore
Multiple factors have converged to drive adoption while also shifting the revenue opportunity.
October 25, 2018
Video collaboration is booming in the enterprise -- at long last. Fully appreciating what that means takes understanding where we've come from and what the market looks like presently.
Background
What was the industry like from 1985-2008?
Because of the complexity behind real-time audio and video compression, in its early days video conferencing required expensive, hard-to-program, hard-to-maintain "heavy iron." Customers could only cost-justify deployments for shared conference rooms. The technology was also complex, leaving ample room for systems integrators and channel partners to provide added value via a variety of professional and support services.
Those who remember the early years will recognize supplier names like BT, CLI, Hitachi, Intel, Panasonic, PictureTel, Sony, VTEL, and Zydacron. But by the turn of the 21st century, with never-ending development costs and limited market penetration, the vendor community was limited, essentially dominated by the likes of Cisco, Polycom (now part of Plantronics), Radvision (acquired by Avaya in 2012), and Tandberg (acquired by Cisco in 2010).
What factors have driven change since 2007/2008?
The big story here is the increasing power of the Intel X86 architecture largely due to instruction set improvements, support for multithreading, and the arrival of multicore processors, among other advances. Beginning a decade ago, the X86 solution could drive high-definition endpoints and transcoding CPUs with performance that finally met customer expectations. Hence, we now have what we deem software endpoints, an industry term describing solutions that run on X86 devices rather than on hardware-based devices relying on digital signal processors (DSPs). (All software, of course, needs hardware.)
The software endpoint, in turn, opened a huge market opportunity for audio and video peripherals to attach to everyday PCs. We also have software multipoint control units (MCUs), deployable in the cloud running on industry-standard servers and capable of powering video conference-as-a-service (VCaaS) providers. Lastly, the X86 has made possible the shift from video conferencing as a stand-alone application to video conferencing as an add-on feature to applications like Cisco Webex, Microsoft Skype for Business, and a host of UCaaS solutions from 8x8, RingCentral, Vonage, and dozens more. How much these add-on features contribute to the size of the video conferencing market is a debatable point.
What do endpoint systems look like today?
Video conferencing endpoints today fall into two broad categories: group and personal. Group systems are intended for shared meeting spaces (conference rooms of varying sizes); personal systems (based on computers, smart phones, tablets) are used by individuals in offices, cubicles, hotspots, or coffee houses, etc. The endpoint device itself may be an appliance dedicated to the visual communications function or a general-purpose system with either native (embedded camera, microphone, speakers) or add-on audio/video capabilities.
What does video conferencing infrastructure look like today?
Video conferencing infrastructure components such as MCUs, gateways, firewall traversal devices, and so on are key to connectivity and multiparty conferences. Companies can deploy infrastructure for internal use (typically on their own networks) or give users access to the functions via a subscription to a video conferencing service.
How Big Is the Video Conferencing Market?
This is a common question asked of an analyst firm. In days of old, it was relatively easy to size the video conferencing market by collecting data from a small number of endpoint and infrastructure equipment vendors and a few service providers. The number of units shipped each quarter was small (less than 35,000) and the average selling price was high, so records were accurate.
Today, the situation is quite different. Enterprises with dozens or scores of group systems deployed in meeting rooms have thousands or tens of thousands of individuals using their personal devices for visual communications. Some of these users have purchased audio/video add-on devices, but many have not. Many users subscribe to a free VCaaS service; many others to a non-free service, and increasingly, more workers and consumers are using more than one service. In my own case, I have clients for more than four VCaaS providers on my laptop and smartphone. We have surveyed users who make two video calls a month while others report participating in four to six per day. Several VCaaS providers report revenue growth rates in excess of 100% and subscriber (user) growth rates that are even higher, but the correlation with overall market growth is far from clear.
Continue to Page 2 for a quick look at available data and conclusions
Continued from Page 1
A Quick Look at Some Available Data
At Recon Research, our database includes 18 vendors that supply group video systems, five suppliers of video infrastructure gear, and 10 specialized video conferencing service providers, many of whose services are resold by numerous channel partners and integrators. In addition, as mentioned above, numerous UCaaS vendors provide video conferencing as a feature of their basic service. Of these 33 or so vendors, only four provide publicly available data, and only one provides us with data -- and then only under a non-disclosure agreement. So we don't claim that the following is representative of the overall market, but the four vendors are no doubt among the most significant.
Cisco: Endpoint revenues have grown at a rate higher than that for units, indicating a rising average selling price (ASP) both worldwide and in our North America breakout. Since system prices have generally been steady or declining, the change is more likely due to a product mix shift as the company has introduced several innovative and sexy room systems. Infrastructure revenues are on the decline, a continuation of a long-term (but not monotonic) trend.
Polycom: Endpoint revenues have grown at a rate lower than that for units, again more likely to a product mix shift than to anything else. Note that for both Polycom and Cisco, growth overall is positive, a factor that is often lost in the fog surrounding personal systems and VCaaS subscriber news. Polycom's ASP for room systems is significantly below that of Cisco. Polycom's infrastructure revenues continue their overall decline, although the change reported in North America is little more than a rounding error.
Huawei: While this company does near zero business in North America, it has a strong presence elsewhere and in fact is larger than Polycom from a room systems revenue perspective. Nevertheless, video conferencing overall is almost a rounding error in the company's overall financial picture. A surprising fact to many observers is that Huawei's ASP is the highest of the three leading vendors. Like Cisco and Polycom, the company's infrastructure business is on the decline, although at a slower pace.
Logitech: This company doesn't make stand-alone video conferencing systems (at least not yet). Rather, Logitech focuses on group add-on products that make computers more suitable for conference room communications systems. Logitech has moved steadily upmarket over the past three years, from sophisticated webcams to pan-tilt-zoom cameras and all-in-one audio video peripherals for small and medium meeting spaces. The company reports its revenues in nine categories, one being "visual collaboration," which excludes webcams. The growth rate for Q2 supports our conclusion below.
Conclusions
Visual communications is exploding; the market is shifting from room- to personal-focused, but at the same time the market for room systems isn't going away any time soon as companies deploy more collaboration-enabled small meeting rooms. Based on data from Logitech and anecdotal data from others, the market for audio-video communications peripherals is exploding. The infrastructure market, on the other hand, has shifted from hardware to software and from CPE to services of various types, leading to an overall decline in reported revenues but huge increases in the number of users.
The bottom line: putting a specific number on the size of today's video conferencing market is an exercise in futility.
Andrew W. Davis is a contributing analyst with Recon Research, and an amateur historian focusing on the video conferencing industry from 1945 to the present day.
