Cisco-Tandberg Competitors Circle The Wagons

Cisco's completed acquisition of Tandberg will shift the balance of power in the video conferencing space, as it vaults Cisco to the position of No. 1 market share leader.

But Polycom, LifeSize and Vidyo -- not to mention a host of other competitors -- have a bone to pick with anyone who suggests they should just roll over and prepare for a Cisco-ruled video kingdom.

All three have made significant investments in channel programs and strengthened their channel leadership. Don't count on any of them to step aside.

Polycom

Perhaps no single vendor or video conferencing channel is more immediately threatened by Cisco-Tandberg than Polycom. Once the dominant vendor in the space, Polycom lost global market share to Tandberg in recent years -- Wainhouse Research put them at 34 percent and 43 percent, respectively, for 2009 -- and, according to longtime Polycom VARs, let its channel programs become stagnant, even outmoded.

But Polycom began a channel transformation in mid-2009, and it started with new blood, including Vice President of Channels Ron Myers, a former Tandberg vice president of Canada sales; Executive Vice President of Global Field Operations Andy Miller, a former Cisco and Tandberg executive himself; and Vice President of Global Channel Marketing Maurizio Capuzzo, a veteran of IPC, Avaya, Symbol, Ingram Micro, HP and Novell.

Addressing the partner base was one of the first priorities, said Myers, who along with Capuzzo and others helped architect Polycom's new channel program, Polycom Choice, which offers tiered levels of partnership and promises better rewards for Polycom partners that have certifications or specialize in particular vertical markets.

Internally, Polycom previously had separate channel teams for its voice and video practices, something that changed immediately with the new executives in place.

"When Maurizio and I came here, the program hadn't evolved in six years," Myers said. "There was a certain amount of entitlement in the channel, and any time you introduce something new, you create quite a bit of emotion. But we're investing so heavily in our organization now that we needed our program to transform into a model that partners can embrace and grow with. Our goal is to overcommunicate to partners now."

Next: Polycom Sees Benefits

The benefits have been immediate, Myers said. Polycom is seeing three times the number of deal registrations it did a year ago, he said, and is looking at ways to help VARs earn more services opportunities.

All the while, Polycom has also continued to expand its strategic partnerships with everyone from Avaya and Siemens to Microsoft, HP, Juniper and the Asterisk developer community.

"It's a dual strategic approach," offered Capuzzo. "One lever is the program, with the overall possibility for partners to make more money with us. The other is our alliances through the Polycom Open Collaboration Network. We've seen good momentum, especially given the convergence in this market."

Both big investments -- better channel relationships and stronger ties with the vendor community -- will help it better position itself. But will it be enough?

"They're going to face a level of competition like they've never faced before," said Ira Weinstein, senior analyst at Wainhouse Research. "If I'm a Polycom partenr, I'm now going to face Cisco instead of Tandberg, and I'm not sure, from Polycom's perspective, if it's possible to do enough. But they're working to strengthen those existing channel programs and partner with big names. If I'm going to compete with Cisco, I want to partner with IBM, for example."

According to Myers, having a behemoth like Cisco fully in the space means that Polycom, despite its longevity and brand recognition, might be viewed as an alternative.

It's also being viewed as an acquisition target, and in recent weeks, reports have surfaced that London private equity firm Apax Partners and Siemens Enterprise Communications parent The Gores Group were both potential suitors. (Most recently came reports that Polycom has hired Morgan Stanley to help it look at options and hunt for a buyer.)

At the very least, Myers argued, Polycom is getting more looks from existing Tandberg partners concerned that their margins are about to evaporate with so much more potential exposure.

"They know they'll now be competing against 30 Cisco gold partners in their area that may have video SKUs on their price list," Myers said. "We're getting more views with Tandberg-centric relationships. With the branding Cisco has created around telepresencce, the customer can now look at Polycom as an alternative. They'll look to us. We're getting a lot more consideration. Polycom is no longer on the defensive."

Next: LifeSize Muscles Up LifeSize Communications

It will be LifeSize and the smaller players that benefit most from channel turmoil stemming from Cisco-Tandberg, Wainhouse's Weinstein argued.

With so many Cisco VARs out there already -- and many of the most lucrative videoconferencing deployments for both Cisco and Polycom poised to go to large VARs and integrators -- it's smaller solution providers that may be looking elsewhere as a way to separate themselves from the pack.

"If I'm a sub-$10 million video conferencing reseller, I'll have a lot of Cisco partners to compete with," Weinstein explained. "So maybe I find some success looking to Logitech-LifeSize, or to Radvision, or to places that weren't previously my primary area of interest because there's less competition for those products."

For LifeSize, however, merely attracting new VARs won't be enough.

Joe Vitalone, vice president of sales for the Americas, said that LifeSize's goal is to successfully bring HD, telepresence and video conferencing prices down far enough that Cisco and Tandberg can't effectively compete with their offerings.

"Cisco's acquisition was a major statement by Chambers, no doubt. If this were poker, he wouldn't be all in, but he is throwing in a lot of chips," Vitalone said. "But I believe that the industry is going to do better, cheaper, faster products. We're going to democratize videoconferencing for the masses. We don't think that HD should cost $200,000. We don't think HD should cost $50,000. So we like the fact that they're in the space now, validating what we do. We're in a nice position."

LifeSize, says Vitalone, offers partners 25 to 30 percent of gross margins on its video products. The goal with the lower pricing, he explained, is to field thousands of LifeSize endpoints and then let those partners design and offer services, bridges and other forms of value-add on top of them.

Logitech's acquisition of LifeSize helps that goal, Vitalone said, because of Logitech's experience with consumer and low-end video end points. Logitech, plus the introduction of Skype integration for LifeSize's own midmarket products -- an announcement expected in a few months, Vitalone said -- gives LifeSize a wide range of end point options, from consumer to enterprise.

"Our margin level is very attractive," he said. "We've seen some Tandberg partners sense what's coming. They've built their business on higher margins, right? We've added a lot of partners that are retail-oriented, and also added some major distributors that are going to bring serious bench strength."

Vitalone has a long history in the space. He helped architect channel programs at Polycom in the early 2000s as its vice president of sales and business development, when, at the time, Polycom enjoyed 75 percent market share of audio speaker phones and 56 percent market share for videoconferencing products.

Most recently, he was vice president of North America sales for ShoreTel -- a seat, he said, that gave him deeper knowledge and greater visibility into video's role in the expanding unified communications market and how VARs sell in that market.

"Ask major Fortune 1000 companies which way they think the video conferencing industry is going to go. Ninety-nine-point-nine percent of them will say it's going to be commoditized," Vitalone said. "We're going to lead that effort. We're going to drive the cost out of this but not to the point where partners can't make a significant living doing it."Vidyo

If there's another competitor in the video conferencing space making enough waves to get the attention of the incumbent players, it's Vidyo, which emerged from stealth mode in 2007 and has nudged its way into the channel with software-based video conferencing products growing in popularity.

For Rob Hughes, senior vice president of worldwide sales and support at Vidyo, the time is right for the company to snag new channel partners.

"A very large segment of the Cisco population is going to have a video product to sell in the not-too-distant future. That's the part I think is exciting, becuase we have a channel program developed from the very beginning that had a very significant emphasis on maintaining healthy margins," Hughes said. "It's not something new we have to scramble to invent just because Cisco is involved. You get Tandberg channels that had some problems with margins already, and now that's going to be accelerated."

"Vidyo is the most profitable video product they could sell," Hughes added. "Let's just say we don't think that resellers are happy making just the regular 10 to 12 points on what they sell for us."

So far, Vidyo's channel expansion has been deliberately paced: not slow, but not a saturation. Hughes said the company is looking to attract VARs who understand video in the context of the greater UC play, and look at video solutions for their value-adds, not their gear sales.

"I don't see big growth in the numbers of videoconferencing specialist VARs," Hughes said. "Most of the growth will come from hardware-oriented or software-oriented IP telephony VARs. We're starting to talk to the guys who are more desktop-centric about video communications."

Like his friend, LifeSize's Vitalone, Hughes is a well-traveled video conferencing channel executive, having come to Vidyo from Lifesize, and before that Radvision and VSGi. He is also a former vice president of North American channel sales at Polycom.

Hughes and Vitalone have different views from their respective perches -- Hughes sees software- and Web-based video conferencing tools as the wave of the future, Vitalone favors LifeSize's solid state architecture and believes people want appliances in their video infrastructure -- but both agree the Polycom and Tandberg channels are ripe for the picking.

That transformation, each suggested in separate interviews, will be gradual.

"Channels are very conservative. They're not likely to go pulling the plug on stuff super quickly," Hughes said. "The most immediate impact that we've had was the announcement about Sony pulling out of channel marketing in Europe. A lot of those guys were selling Sony specifically to not be selling Tandberg and Polycom, both of which are very broadly distributed in Europe. A lot of guys come to us and say, we don't just want to be another Polycom channel. We want options."