First Cisco Systems decided to buy Norwegian video conferencing equipment maker Tandberg for about $3 billion. This week, Logitech, a Swiss computer peripherals maker, acquired LifeSize, an Austin-based private company, for about $405 million in cash. The two deals have brought the fast-growing but often overlooked video conferencing market into sharp focus. And that is good news for Polycom, a Pleasanton (Calif.)-based conferencing equipment maker, CEO Bob Hagerty boasts. Here is why:
Hagerty said he thinks his company's independent status will make it a preferred partner for giants such as Microsoft (MSFT), IBM (IBM), Avaya and Hewlett-Packard (HP), as they duke it out with Cisco (CSCO) and Logitech (LOGI). The stock market seems to agree with him: Polycom stock is up 9% this month and up 77% for the year to date. When I asked Hagerty if this makes him takeover bait, he predictably dodged my question.
The simultaneous growth of pervasive broadband, improved compression codecs, distributed work forces, and shrinking travel budgets are brewing a perfect storm for the video conferencing market. "Bandwidth today is adequate, and we will soon be able to make HD video calls on a 500kbps connection," he said. Hagerty believes that is going to help the use of video conferencing explode.
For a company like Polycom, the future might involve offering cloud-based services that could handle video originating from multiple locations using a central service. From low-cost end points to high-end telepresence systems, video-based collaboration is going to be a standard, he argued. And this is good news, not just for him but also for his rivals.
Hagerty didn't pull any punches in his comments about Cisco. "Cisco [uses] a lot of words, but [there] is not much clarity on what products they will focus on," he said in an interview. While Tandberg's offerings are more standards-based, Cisco's flagship telepresence products are proprietary in nature, Hagerty said.
"In the collaboration space, we are a great brand," he said. "Frankly, it is great to be us … We are the last standing independent company of scale." He is betting his close relationships with Avaya, Microsoft. and others such as IBM—all enemies of Cisco—are going to help his company. In addition, Polycom thinks working with service providers, including phone companies, is a good way to make video conferencing available as a service.
Despite his bravado, Hagerty needs to worry about both Cisco and Logitech. These are two companies with deep pockets and deeper sales forces. They are desperate to make a splash in this market and are going to aggressively compete with Polycom. As I am one of those folks who always expects the worst—it must be my age—I believe that when there are multiple parties competing for domination of the same market, someone is left bleeding. Polycom is betting that the company's friends will prevent it from being laid out on the mat.
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