Videoconferencing has always promised more than it delivered. The idea of long-distance learning or telemedicine or even communicating with employees on different continents via a videolink has been around for two decades. But it never caught on.
The first videoconferencing systems were ungainly, weighing 300 pounds or more, and expensive, costing at least $500,000. The jerky picture quality and out-of-sync audio was somewhat closer to 1950s television than a cutting edge technological breakthrough. You needed telephone lines with a wide bandwidth on both ends of a connection (see The race for speed
), and if you wanted a group of people to be able to communicate, you needed to buy or lease a bridging system (see Bridging calls
).
However, the $1 billion videoconferencing market is on the verge of a major transformation with the introduction of a new lightweight model costing only $6,000, by
Polycom's founder, 36-year-old Brian Hinman, is an old hand in the industry. In 1984 as a 22-year-old graduate student in Electrical Engineering and Computer Science at MIT, Hinman cofounded Andover, Mass.-based PictureTel. PictureTel produced a videoconferencing unit made up of an electronics box about the size of a VCR that fit on the bottom of a cart for easy transportation. That unit sold for around $75,000 and PictureTel quickly dominated the videoconferencing market, edging out others including Compression Labs Inc. and VideoTelecom, which have since changed their names to CLI and VTEL, respectively. (VTEL just purchased CLI in May 1997.)
But Hinman's interest was piqued by another emerging tool of the businessworld: the speakerphone.
Getting little support from his colleagues at PictureTel, who favored the video market, Hinman quit and in 1990 set up Polycom, using $400,000 of his own money and another $100,000 from friends as seed money. Oak Investment Partners and Accel Partners contributed the lion's share of $3 million in venture capital subsequently obtained.
Two years later, Hinman unveiled his brainchild, SoundStation, a radical speakerphone that offered full duplex audio--this way both parties could speak at the same time and both could be heard. SoundStation quickly became the leading brand in the market and today is still number one.
Small is better
Hinman's former company meanwhile kept improving its videoconferencing system and in 1996 introduced SwiftSite, a smaller machine that sold for around $12,000. Although portable and including a tracking camera, it could not deliver a television-quality picture. PictureTel aimed the new model at medium-size businesses, to supplement its $50,000 high-end product, which was aimed at Forbes 500 companies. The high-end model came with its own large-screen TV monitor and a high-fidelity speaker system. It could deliver a great picture.
But something strange happened that PictureTel didn't expect--SwiftSite became popular at the expense of its more expensive models. "Smaller machines stole the sales of the higher-end systems," says Elliot Gold, industry analyst at the Telespan Publishing Corp. In less than six months, SwiftSite's sales amounted to 10% of the videoconferencing market (excluding desktop systems).
Hinman decided to jump back into the videoconferencing fray and go head-to-head with his former colleagues. He decided to buy a smaller rival and incorporate its technology into his own systems.
Last January, Polycom acquired Austin, Tex.-based ViaVideo for $54 million to obtain the company's chief product, ViewStation, which offered a number of improvements that were already embedded. For example, a ViewStation comes with an echo canceler, a scan converter that electronically converts data from the web into video, and an embedded web server--at no extra cost. Even better, the 6-pound machine can be plugged into any TV set, and costs only $6,000.
More impressive is ViewStation's first commercial application of the Philips TM 1000 multimedia chip, which is capable of performing a half-billion operations a second. The unit uses two of these chips and delivers 15 frames per second at 128kbps over only two digital phone lines or one ISDN circuit. This is slightly above the industry's average speed.
Hinman has already inked deals with telecoms and telecommunication equipment makers like WorldCom, View Tech (the largest resellers of videoconferencing products in the U.S.) and 3M to be part of his distribution channel.
"It's flying out as fast as we can get it in," says Richard Reiss, the president of All Communications, a New Jersey reseller of videoconferencing equipment. After several hitches, an upgrade due in April will deliver 30 frames per second, or television-quality pictures, at a retail price of $9,000. Compare that with PictureTel's $50,000 system.
Since going public in April 1996 at $9 a share, Polycom's stock price has edged higher to $11.25. However, market domination in audio has not yielded much profit for Polycom, which has been bleeding red ink thanks to its heavy research and development costs. Last year, Polycom lost $1.1 million on revenues of $47 million.
But Polycom has a long way to go to crack PictureTel's 64% market share. In fact this area could be about to undergo a major price war if new models are introduced by Sony, Tandberg, British Telecom and Mitsubishi.
Prices are bound to fall, too. Microsoft lurks about with NetMeeting, software which, along with a video capture card and a camera, allows you to send and receive video images over the PC. Also looming on the horizon are web-cams that--together with your PC and $250 in software--can deliver cheap, digital frames with decent resolution.
Polycom made its name and went to the top with its SoundStation speakerphone. Now it's trying to do the same with ViewStation. But can it survive a price war? Stay tuned.