Almost 3 years ago, in October of 2006, I first wrote about Cisco's Telepresence technology which had just launched at that time, and how video conferencing that was virtually indistinguishable from reality was eventually going to sharply increase the productivity and living standards of corporate employees (image : Cisco).
At that time, Cisco and Hewlett Packard both launched full-room systems that cost over $300,000 per room. Since then, there has not been any price drop from either company, which is unheard of for a system with components subject to Moore's Law rates of price declines. This indicates that market demand has been high enough for both Cisco and HP to sustain pricing power and improve margins. Smaller companies like LifeSIze, Polycom, and Teleris have lower-end solutions for as little as $10,000, that have also been selling briskly, but have not yet dragged down the Cisco/HP price tier.
In a trend that could transform the way companies do business, Cisco Systems has slashed its annual travel budget by two-thirds — from $750 million to $240 million — by using similar conferencing technology to replace air travel and hotel bills for its vast workforce.
Likewise, Hewlett-Packard says it sliced 30 percent of its travel expenses from 2007 to 2008 — and expects even better results for 2009 — in large part because of its video conference technology.
If Cisco can chop its travel expenses by two-thirds, and save $500 million per year (which increases their annual profit by a not-insignificant 6-10%), then every other large corporation can save a similar magnitude of money. For corporations with very narrow operating margins, the savings could have a dramatic impact on operating earnings, and therefore stock price. The Fortune 500 alone (excluding airline and hotel companies) could collectively save $100 billion per year, in a wave set to begin immediately if either Cisco or HP drops the price of their solution, which may happen in a matter of months. We will soon see that for every $20 that corporations used to spend on air travel and hotels, they will instead be spending only $1 on videoconferencing expenses. This is gigantic gain in enterprise productivity.
Needless to say, high-margin airline revenue from flights between major business centers (such as San Francisco-Taipei or New York-London) will be slashed, and airlines will have to consolidate to fewer flights, making suitability for business travel even less flexible and losing even more passengers. Hotels will have to consolidate, and taxis and restaurants in business hubs will suffer as well. But these are merely the most obvious of disruptions. What is even more interesting are the less obvious ripple effects that only manifest a few years later, which are :
1) Employee Time and Hassle : Anyone who has had to travel to another continent for a Mon-Fri workweek trip knows that the process of taking a taxi to the airport, waiting 2 hours at the airport, the flight itself, and the ride to the final destination consumes most of the weekends on either side of the trip. Most senior executives log over 200,000 miles of flight per year. This is a huge drag on personal time and quality of life. Travel on weekdays consume productive time that the employer could benefit from, which for senior executives, could be worth thousands of dollars per hour. Furthermore, in an era of superviruses, we have already seen SARS, bird flu, and swine flu as global pandemic threats within the last few years. A reduction of business travel will slow down the rate at which such viruses can spread across the globe and make quarantines less inconvenient for business (although tourist travel and remaining business travel are still carriers of this).
2) Real Estate Prices in Expensive Areas : Home prices in Manhattan and Silicon Valley are presently 4X or more higher than a home of the same square footage 80 miles away. By 2015, the single-screen solution that Cisco sells for $80,000 today may cost as little as $2000, and those from LifeSize and others may be even cheaper, so hosting meetings with colleagues from a home office might be as easy as running a conference call. A good portion of employees who have small children may find it possible to do their jobs in a manner than requires them to go to their corporate office only once or twice a week. If even 20% of employees choose to flee the high-cost housing near their offices, the real estate prices in Manhattan and Silicon Valley will deflate significantly. While this is bad news for owners of real-estate in such areas, it is excellent news for new entrants, who will see an increase in their purchasing power. Best of all, working families may be able to afford to have children that they presently cannot finance.
3) Passenger Aviation Technological Leap : Airlines and aircraft manufacturers have little recourse but to respond to these disruptions with innovations of their own, of which the only compelling possibility is to have each journey take far less time. It is apparent that there has been little improvement in the speed of passenger aircraft in the last 40 years. J. Storrs Hall at the Foresight Institute has an article up with a chart that shows the improvements and total flattening of the speed of passenger airline travel. The cost of staying below Mach 1 vs. being above it are very different, as much as 3X, which accounts for the sudden halt in speed gains just below the speed of sound after the early 1960s. However, the technologies of supersonic aircraft (which exist, of course, in military planes) are dropping in price, and it is possible that suborbital passenger flight could be available for the cost of a first-class ticket by 2025. The Ansari X-prize contest and Space Ship Two have already demonstrated early incarnations of what could scale up to larger planes. This will not reverse the video-conferencing trend, of course, but it will make the airlines more competitive for those interactions that have to be in person.
So we are about to see a cascade of disruptions pulsate through the global economy. While in 2009, you may have no choice but to take a 14-hour flight (each way) to Asia, in 2025, the similar situation may present you with a choice between handling the meeting with the videoconferencing system in your home office vs. taking a 2-hour suborbital flight to Asia.
This, my friends, is progress.
GK,
I have spent just spent 14 months working at a Video Conferencing company in Wales, UK. It's the biggest network of video conferencing endpoints/infrastructure in the UK if not Europe.
URL is: www.wvn.ac.uk
I don't doubt that you know what your talking about but having been in the industry for just over a year i can confirm that the trend is definitely set. I recently quoted for a solution and the cost of one Polycom Endpoint was £2,177. A year ago there was nothing on the market for even close that amount, this proves your (and my own) predictions that video conferencing is the way forward.
Aside from the fact that the prices are dropping the technology is advancing (Moore's law). I recently visited 4 main manufactures headquarters (Polycom, Lifesize, Tandberg and Sony) and some of the stuff they have in the pipelines is truly science fiction. Some of the things i saw ranged from 3D video conferencing to full video walls. These things are as little as 5 years away.
If you would like to talk further about video conferencing i would be happy to oblige!
So to echo your words: This is progress.
Posted by: Matt Collins | August 11, 2009 at 03:31 AM
Matt,
Do you have links for the 3D videoconferencing and full video walls?
Posted by: GK | August 11, 2009 at 11:02 AM
Gk,
My last post seems to have gone. Either it didn't post properly or you deleted it. If it's the latter may i ask why?
Thanks,
Matt
Posted by: Matt Collins | August 11, 2009 at 01:00 PM
Matt,
Nothing was deleted. Please re-post.
Posted by: GK | August 11, 2009 at 01:34 PM
That's quite weird then. My apologies!
In response to your question here is the link to the 3D telepresence solution from Sony. It's a plasma screen that's project using upwards. Although simple it is really effective. I have seen this product in action and it current retails for about £40,000. The effect is really something special, you do kinda forget that it's a video conference. You need need glasses to view either.
The link is: http://www.sony.co.uk/biz/view/ShowContent.action?logicalname=LP-2008-08-Telepresence-HUB-Art1&site=biz_en_GB
In regards to the video wall, it is something Tandberg have in the pipelines. I was informed it's on the road map for the next five years. I saw a pre production version and it was quite buggy. The fact it's even happening is an accomplishment in itself though.
The link is: http://www.tandberg.com/video-conferencing-learning-center/unified-communications.jsp
It's the last video out of the three. You might also like to view the second video as it provides a clear insight into where Tandberg want to go.
Could i just say that while i agree with your views about how it will effect the corporate world, i think you should also take the effects video conferencing will have on other areas. Mainly education because now schools with zero budget who get thier video conferencing kit paid for can take part in a whole load of things. A few examples that i have seen are:
-museums offer free content to schools via VC. They provide interactive sessions which are free. This is obviously a lot cheaper than taking a coach load of kids to and from a museum.
-Schools can now talk to the rest of the world. A classroom in the Uk can talk to a classroom in India. This allows people to exchange views on culture etc.
-Guest lecturers are alot easier to persuade to do a talk if they can do it over VC in the comfort of thier own school, college etc. This also includes guest speakers from other areas and industries.
I think another area that video conferencing is set to boom is in Medical applications. Cisco are rolling out a project called TeleMedecine.
Please see the link: http://newsroom.cisco.com/dlls/2009/prod_071509.html
We are also seeing companies move into Unified Communications and there is also a lot of push for desktop conferencing and consumer end conferencing. See the link below about the new Samsung Radvision venture.
http://www.radvision.com/Products/Video-Products/Desktop-Video-Communications/SCOPIA-VC240/default.htm
We shoulnt forget the importance of face to face meetings and experiences but video conferencing is set to change the way we communicate. Information links are cheap and oil is expensive.
Don't you just love the way everything is falling like dominos at the moment? I mean it's almost too weird the way the worlds changing.
Sorry for rambling but i hope its informative!
Matt
Posted by: Matt Collins | August 11, 2009 at 02:22 PM
I need to apologise for the crappy grammar in the first paragraph. It should read:
In response to your question here is the link to the 3D telepresence solution from Sony. It's a plasma screen that's projected upwards into a sort of booth. Although simple it is really effective. I have seen this product in action and it currently retails for about £40,000. The effect is really something special, you do kinda forget that it's a video conference. You don't need glasses to view either.
Thanks,
Matt
Posted by: Matt Collins | August 11, 2009 at 02:26 PM
Problem with Video conferencing is that you can´t say anything off the record or can talk about something else during lunch which in my opinion is the most important reason for a conference. Also the feeling is different. Seeing a picture in a museum is so different from seeing it in the classroom even if the screen shows it better (likely to be true in a few years)
Posted by: Charly | August 11, 2009 at 04:23 PM
Charly,
Your 'off the record' point is equally applicable to the use of a telephone.
Everyone who is actually using Telepresence and other VC tools for business interactions is giving it stunning reviews.
Posted by: GK | August 11, 2009 at 04:27 PM
Telephone is one to one and became mainstream in a time were not every call could be stored for economic reasons.
Video conferencing is many to many and you claim is now becoming mainstream. A time where hard disk storage is cheap enough to store every call a company makes. Storage and the more than 2 persons is the reason why off the record doesn't work that well with video conferencing.
This is not to say that video conferencing will not be a success but it won't be life changing
Posted by: Charly | August 12, 2009 at 08:31 AM
Charly,
Conference calls on the telephone are already 'many to many'.
It appears that you are not actually using telepresence on a daily basis. Virtually anyone who does says that it is life-changing.
Posted by: GK | August 12, 2009 at 10:03 AM
But the great majority of telephone calls are one to one.
Posted by: Charly | August 12, 2009 at 10:35 AM
But the most important calls (such as earnings announcements) are with dozens or even hundreds of listeners/participants.
Email is also stored permanently, but businesses adapted to email completely.
Posted by: GK | August 12, 2009 at 10:59 AM
GK,
Did you take a look at those links? Any thoughts?
M
Posted by: Matt Collins | August 12, 2009 at 04:29 PM
Matt Collins,
How big is Tandberg, in terms of employees, revenue, and market share? Their HQ is in Norway, correct?
Any thoughts on Cisco acquiring Tandberg down the line?
Posted by: GK | August 12, 2009 at 07:19 PM
GK,
Please find the Tandberg Q4 results:
http://www.tandberg.com/collateral/ir/qr_2008_q4.pdf
I'm not sure about employee numbers but they have a head office in Norway and other big office's in New York and London. They really are moving forward and delivering some high quality products.
As far as take over is concerened i'm not sure about Cisco. There have been rumours this year about Tanberg being taken over by an investment firm called Silver Lake. I'm not sure if youve heard of them but they are quite a big investor in high end tech. If they added Tandberg to thier portfolio it would be quite a formidable line up.
Link: http://www.silverlake.com/partners/content.php?page=investments
As far as i'm concerned Tandberg are definitely one to watch in the next few years. They are showing huge market growth and have the product portfolio to back it up. I should also mention their telepresence solution retails at about £400,000. Equally matched to that of its competitors.
You should also read this:
http://www.lightreading.com/document.asp?doc_id=161447
It has a few more details about Tandberg as a company.
I'm intrigued as to why you asked if Cisco would acquire them down the line? Personally i think they might eventually overtake Cisco.
M
Posted by: Matt Collins | August 13, 2009 at 02:31 AM
Matt,
But if Tandberg is a public company (on the Oslo exchange), why would Silver Lake take them over? To go private?
Posted by: GK | August 13, 2009 at 02:24 PM
GK,
I decided not to keep spamming your comments section so I created a blog with my thoughts about this matter. Please give it a read and tell me what you think.
http://communicationsfuture.blogspot.com/
M
Posted by: Matt Collins | August 13, 2009 at 03:30 PM
Matt,
But why would Tandberg go for a private buyout, if it is already public and growing quickly?
Posted by: GK | August 15, 2009 at 11:56 AM
GK,
I hope you read my blog on the subject. Which explains why Silver Lake would want to proceed.
As far as Tandberg are concerned i think Silver Lake are offering them more than the company is actually worth. It's aweird one though.
What are your thoughts?
M
Posted by: Matt Collins | August 15, 2009 at 01:04 PM
Matt,
I think Tandberg being acquired by a larger company is a better idea.
Regarding standards/interoperability, when will the various systems from HP, Cisco, and others interoperate? Without interoperation, it won't really be the killer ap that slashes business travel.
Posted by: GK | August 15, 2009 at 03:44 PM
GK,
Interop between video conferencing systems is already a golden rule between manufacturers. You might get the odd codec that doesn't play nice with another brand but it is very rare.
Interop between Telepresence systems is another kettle of fish. Companies are making too much money selling bespoke systems. Maybe when people ask for it they will make it happen.
I'm not sure if your familiar with telepresence but in essence all they consist of is:
-3 screens
-3 standard codecs (one for each screen)
-one 'Telepresence server'
The server stitches the 3 codecs images together and sends the media down the pipe to the far end. It then displays the appropriate codecs image on the appropriate screen at the far end.
As far as i'm aware they still use H.323 for communications so all that needs to be done as far as interop is concerend is to make the servers play nice. The problem arises because each manufacturer has a different way of laying out the room and cameras etc.
As far as the killer ap is concerned it will be video conferencing just maybe not in the form that we think of it. It will be bundled into a complete package. Unified communications is DEFINITELY the way things are heading.
See Cisco Unified Comms: http://www.youtube.com/watch?v=h8Lq9X0Qv94
Microsoft also: http://www.youtube.com/watch?v=IKqlv3FQbmg&feature=fvw
I already showed you Tandbergs offerings. This is the future my friend.
M
Posted by: Matt Collins | August 16, 2009 at 03:22 PM
Email is an improved version of the letter and letters were already stored so it doesn't need a mental changes.
Airlines would love telepresence. People don't mind commuting by plane if they only need to be in the office ones a week
Posted by: Charly | August 18, 2009 at 04:18 PM
GK,
It's been a while since we last spoke. As ever you were right about Tandberg. They have just been taken over my Cisco.
http://online.wsj.com/article/BT-CO-20091001-703718.html
Cheers,
Matt
Posted by: Matt Collins | October 01, 2009 at 03:26 AM
Matt,
I was right about that (7 weeks in advance), wasn't I?
I guess that is why I am The Futurist.
-GK
Posted by: GK | October 01, 2009 at 01:50 PM
The world is getting closer every day. People who was far away are now becoming closer and closer every day. Teleconferencing has been and is the waive of the future. I get excited with the prospect that everyone will soon have the capability to see someone while you're talking to them.
Posted by: Become a Alpha Male | November 07, 2010 at 12:16 AM