Cisco calls videoconferencing shots with Tandberg deal

In what will undoubtedly be the biggest av deal of the year, Cisco is to buy the Norwegian videoconferencing manufacturer Tandberg for $3bn. The deal, despite some last-minute wrangling from a small band of Tandberg’s shareholders, is fully expected to be finalised by the deadline of 9 November.

But it has caused shockwaves in the sector, and raised two moot points. The first is how Cisco will quell the disruption caused by merging two very different channel models into one. The second is whether the largest remaining independent company in the sector, Polycom, will be the next to be snapped up. Names mentioned as potential suitors include Microsoft, Siemens and HP.

Polycom leads the sector currently, and some commentators feel it may benefit from the confusion caused in the channel by the deal. But the combination of Cisco’s financial muscle and Tandberg’s broad product and client range is likely to see the new company take the number one spot.

The biggest loser so far seems to be Radvision, because a substantial amount of its business comes from Cisco through OEM deals. Radvision shares fell 32 per cent on the day the deal was announced. With Tandberg providing identical services, it is only a matter of time before Cisco moves to cut costs and replaces a third-party supplier with its now in-house technology asset.

INDUSTRY REACTION TO THE DEAL

- Robert Stead EMEA marketing director, Polycom

Cisco’s reputation with standards is not great, so it would be a crying shame if Tandberg’s open standards approach was not maintained.

Is this a tipping point? No, but it’s probably an inflation point. One interesting point is where the companies’ telepresence products merge, because there is no obvious link between the bigger systems.

- Craig Molloy, chief executive, LifeSize

I’m a subscriber to the rising tide lifts all boats theory. One of the reasons Cisco bought Tandberg is the only place it had any success was in large enterprises, but the incumbent supplier of the room systems was oftenTandberg, and it wasn’t going to give up the telepresence real estate to Cisco and was getting beaten quite badly. So it’s an admission that Cisco’s strategy wasn’t working and it needed another product line.

- Ian Vickerage, managing director, Imago

For the industry, I think it’s positive.The only negative I can see is if Cisco decides to go proprietary. I think it’s unlikely but I wouldn’t rule it out. If you make Tandberg proprietary its revenues would drop dramatically. There is a 10 per cent possibility that Cisco will be like Microsoft and try to dominate the market by having its own standard and making everyone follow that but it would be disastrous if it did that.

- Stephen Epstein, chief marketing officer, Avistar

Cisco is very much focused on hardware and networks, so we can see why it saw Tandberg as appealing. The one area we find perplexing is that the Cisco strategy is all about hardware, even though it has acquired software companies, such as Webex, it has never made software core to its strategy. We wonder how some of Tandberg’s software products, such as Movi, will fit into Cisco’s strategy?

- Terry Dwyer, managing director, Mvision

Something happens in every marketplace that even after the change has happened you can see a clear differentiator at that point in time, and with Cisco’s money and power and the recognition that video is now a mainstream tool, this is that point. I think the smaller dealers will suffer, but it will promote positive consolidation, as there is so much capacity in this marketplace.

- Andy Wright, managing director, Aethra UK

The question is what is Cisco’s endgame? Cisco is not just in it to flog a few end points. I think the biggest disruption will come in the Tandberg channel itself, in the opening up of the product to more Cisco distributors. They will all want a piece of the action. The market will see some little changes. Polycom won’t double its business overnight and I don’t think Tandberg is going to lose business overnight.

WHAT THE PAPERS SAY

- New York Times

Sensing a more stabilised economy, the largest technology companies have started to put their massive cash war chests into action, acquiring companies once again.
It’s Cisco’s acquisition that jumps out because of its European flair. Tandberg is based in Oslo, and provided Cisco with a unique opportunity to use some of its $35 billion in cash. The vast majority – about $29 billion – of Cisco’s cash sits overseas. Cisco would have faced huge tax penalties to bring that money stateside if it wanted to buy another video-conferencing player like Polycom or LifeSize.

- Business Week

To succeed, Cisco will need to adjust its go-it-alone strategy. So far, Cisco’s TelePresence products only work with other Cisco TelePresence systems. The company took this approach in part because it wanted to control the entire experience, like Apple with its iPod, to banish customers’ memories of videoconferencing systems of the past.
But despite the company’s huge marketing push behind the technology, so far it has fewer than 500 customers. By packaging Tandberg’s tools with its widening panoply of communications tools, Cisco hopes to build an important set of video products of its own.

- Forbes

Investors in Tandberg knew it was just a matter of time before a big player like Cisco decided to bid for the independent video conferencing giant. But they’ll be doubly glad that the company hadn’t made its move until Tandberg’s shares rose to nearly twice their value from a year ago.

- Reuters

Cisco’s overture for Norway’s Tandberg puts US-based Polycom in play as it is the only public company now left in the video conferencing market. Polycom could also be gravitating toward selling itself as the threat of competing with a behemoth like Cisco looms large.

- Wall Street Journal

Cisco’s acquisition of Tandberg clears the picture on how the networking titan plans to drive mass adoption of its video-conferencing products.  Telepresence has been a pet project of chief executive John Chambers, who has called it the company’s fastest-growing emerging area. Yet despite the hype, it remains a niche product with a hefty price tag.
Coupling Cisco’s marketing reach with Tandberg’s ability to integrate different systems – whether they be a costly three-panel high-definition meeting room or a simple desktop program with webcam – across multiple vendors could make video conferencing more attractive to business customers and, eventually, to consumers.