The Video Vision: Is Cisco-Tandberg Good For The Channel?

Consolidation in hot networking markets is nothing new, but Cisco's $3.3 billion acquisition of Tandberg, completed Monday, is the type of power play that can reshape an entire segment.

With a single, savvy pickup, Cisco will now command, by most estimates, the No. 1 worldwide market share for video conferencing, adding to its already exceptional, but gap-filled video portfolio, and expanding opportunities for its galaxy of solution providers.

Is that a good thing? Depends on who you ask.

Solution providers devoted to Cisco and video and UC see hot opportunity. They also wonder -- sometimes very loudly -- about whether having so much Tandberg exposure in the hands of so many Cisco VARs means that lucrative video conferencing margins are a thing of the past. Cisco is known for many things. Fat margins are not one of them. Is it that margins will disappear or that video conferencing VARs need to adjust their approach?

The New World Of Video?

Networking and infrastructure solution providers are being told left and right that video is a brave new world: much talked about in the past decade, and finally an explosive growth opportunity thanks to video's role in unified communications, the affordability and interoperability of video solutions, and the expansion of services opportunities around video, even as the resale of video hardware and end points has slipped out of fashion in line with video gear becoming commoditized.

The market is undoubtedly heating up. Gartner holds that the video conferencing services market alone is expected to reach about $3.9 billion by 2013, with a compound annual growth rate of about 24 percent from 2008 to 2013.

Sales of telepresence hardware, even with the general term "telepresence" loosely defined, are also on the rise -- $567 million in 2009, and projected to be $2.7 billion by 2015, according to ABI Research. And the power of videoconferencing was once again in the news this week, following the countless meeting snafus and travel headaches caused by the volcanic eruption in Iceland.

Cisco sees its role in all of this as the grand enabler. Cisco CEO John Chambers and his lieutenants have long-extolled the virtues of video, which according to Cisco is seeing growth everywhere from consumer video cameras to boardroom-ready TelePresence deployments, and in the services and infrastructure requirements for all points in between.

"Services make it successful and the network infrastructure makes organizations video-ready," said David Hsieh, vice president of marketing for emerging technologies at Cisco. "That's one of the reasons why this is one of Cisco's top three overall technology priorities, along with data center virtualization and collaboration. We have 40 to 50 different engineering projects all going on right now all focused on video technology."

Next: Cisco Now Ready To Serve Any Customer

Thanks to Tandberg and other acquisitions, Cisco now has an answer for almost any type of video customer, from the consumer video enthusiast buying a Flip camera, to the TelePresence-craving enterprise CIO with a fat wallet.

It also has a vision for how to connect disparate video systems. Cisco's Telepresence Interoperability Protocol (TIP) -- for which it launched a new program, the TIP Open Source Project, in line with its Tandberg announcement Monday -- finds Cisco attempting to spur interoperability among systems using its technology.

But for now, there is Tandberg. The Tandberg products themselves become part of Cisco's TelePresence Technology group, to be headed up by former Tandberg CEO, and now Cisco Senior Vice President, Frederik Halvorsen.

By Cisco's estimation, it's a glove-fit, and may indeed become one of the most important Cisco acquisitions of recent years.

"Tandberg and Cisco are very complementary, as opposed to competitors," said Richard McLeod, director, collaboration go-to-market group, worldwide channels, in an interview before the acquisition was completed. "We have strong focus and energy around interoperability, and we're taking two very strong players to rise the level of the lake."

McLeod said that all pieces of the Cisco video portfolio -- from the highest-end TelePresence deployments on down -- had seen growth in the past year. According to a Cisco spokesman, Cisco has also added more than 150 new video partners since January 2009, inclusive of TelePresence, video surveillance and Cisco's Digital Media Suite.

But according to McLeod, Cisco wants its partners to view video not as endpoint resale but as the most critical piece of the collaboration and UC stories.

"You're opening up conversations and whole new budgets," he explained. "For partners, think about where your strengths are. What's the next natural extension of what you do that has video-enabled technology? We want to help them build out the next steps in advancing their practice."

Next: Cautious Optimism From The Video Channel

For Cisco and Tandberg channel observers, the pervading feeling on a combined Cisco-Tandberg channel is one of cautious optimism.

"This is a good thing for the industry. Let's start there," said Ira Weinstein, senior analyst and partner at Wainhouse Research. "For the average Tandberg reseller, the road will have been dozed and paved for them to get to more C-level executives. The Cisco name and reputation will open doors."

Kari Yent, vice president of strategic alliances for Force 3, a Crofton, Md.-based solution provider, said that when she attended a recent Tandberg partner conference, all people wanted was details, details, details.

"I wouldn't say I have concerns as much as I have a desire for the details, so that we can get going building our collaboration practice," Yent said. "The Cisco TelePresence solution is very high-end, and with Tandberg, it gives us a much broader portfolio. We were and are a Tandberg partner. Before, there'd also been some competition between Cisco and Tandberg and I'm looking forward to having a unified front."

Cisco and Tandberg VARs interviewed for this story had as many opinions as they do names, but there's a consensus on a few things: VARs and integrators that already sell both Cisco and Tandberg products will have a far easier time with the transition than those who don't, and margin pressure on Tandberg videoconferencing gear, already a sore spot for many Tandberg resellers, will inevitably get worse.

Still, excitement is first and foremost.

"We've been a Tandberg partner for several years, so we're very excited," said Rus Healy, CTO of Annese & Associates, a Herkimer, NY-based solution provider. "There's been a large gap in Cisco's video offering and we think their message is right but their strategy has been weak. But what they've done now, with TelePresence, is start at the top end and work their way down to the desktop. Cisco has been great at creating market awareness."

"I don't think it'll be disruptive at all. In the long run, it'll enhance our standing," said Brian Trampler, senior product manager of strategic video solutions at Intercall, itself a video conference software and collaboration vendor but also a Cisco Gold partner. "What we've shown with Tandberg is that we're able to very quickly work with them to get in front of customers and understand the value proposition of the Tandberg solution. Given Cisco's aggressiveness of sales, I doubt they'll be reluctant to bar our way to continue working."

Next: The Drive To Services

For some solution providers, the problem for many VARs isn't so much video hardware margins evaporating as it is they've failed to understand that video, for the channel, is now a services game.

"We have not been a box sell, and I know a lot of Cisco's sales model is push the box: they work with reseller partners, and they cut the margins very low," said Bin Guan, CTO at York Telecom, an Eatontown, N.J.-based solution provider. "So there's a lot of people pushing the box, but there are a lot of customers who don't fully understand how to use the system. There is still expertise needed."

Guan's argument was shared by a number of veteran video VARs: don't blame Cisco and it's narrow-margins approach for the fact that you haven't converted your video practice into a services piston.

"There is a lot of money in services in video, and that's got to continue for the health of channel partners," said Annese's Healy. "The phrase we've been using is 'margin pressure,' which will begin immediately, and it's going to be problematic for partners to reach a good services model if they don't have that already."

Beyond basic integration, Healy and Guan cited hosted video conferencing, advanced integration with UC communications and data center infrastructure, and other services, from managed to maintenance, that can help solution providers develop a compelling video practice.

Moreover, solution providers still offer a value-add between truly integrated, truly secure video services and a collection of video end points with a pipe in between.

Skype, for example, may be a powerful force in the consumer IP world, but for many businesses, video communications for employees and Skype are two very different things.

"A lot of businesses, especially in the size we deal with, immediately discredit something like Skype," said Dane Martin, principal consultant at Dimension Data. "They say: it's in the cloud, we have no control over it, we're a huge organization and we don't want to delegate too much to our user community. It might be a conversation starter, but for our customers it's about providing a consistent experience, with operational support. The bigger the company, the more process and control they have in place, and the more security."

Opportunity, yes. But more video conferencing opportunities expand, the more the margin pressure question still nags.

"The challenge is that the Tandberg product line will be available to Cisco ATP [Authorized Technology Program] partners," said Wainhouse's Weinstein. "Now, they're not all knocking on the same doors, but video conferencing represents high-margins and service opportunities. Cisco channel partners, on the other hand, are used to seeing lower margins. If I'm a Cisco ATP partner, I'm looking at this as more competition. If I'm a Tandberg partner, instead of just three Tandberg partners responding to the bid on the street, I might be competing with five Cisco partners, too. All of it depends on how Cisco rationalizes the combined channel."

Cisco hasn't provided much in the way of details for how it will qualify existing Tandberg VARs that don't already sell Cisco. There's just no way to be certain how it will all shake out until there's a firmer integration plan in place, according to some solution providers.

"You'll be OK as a Tandberg reseller? Please. That's what Cisco wants you to think as they offer up that stuff to every ATP with a name and title," said one longtime videoconferencing reseller, who asked not to be identified. "Unless you have a services business that can clean the clock of the 10 guys in your area -- and most of us don't -- you're going to be fighting for scraps."

Many Cisco devotees dismiss that kind of discussion as spin from Cisco's competitors. But even those who applaud Cisco's efforts to make the channels integration as smooth as possible acknowledge the potential difficulty.

"The margin pressure in the Cisco world is very real," said Gia McNutt, CEO of Special Order Systems, a Campbell, Calif.-based solution provider. "If it weren't for the back-end programs, you really couldn't make a living selling Cisco if you weren't one of the top guys. Polycom, for it's own sake, is smart to throw that out there if it is."

Others say that Cisco's mighty channel machine will provide a dose of discipline that Tandberg VARs haven't enjoyed in some time.

"Tandberg hasn't managed its channel very well for a while," said Annese's Healy. "I thin some partners are uncomfortable here because Tandberg quite frankly has allowed some of them to operate outside of the rules. I mean, they'd take orders from people who haven't met channel partner requirements for years. It's been a scramble to see Tandberg get its act together before the sale closes. Partners who had a good self-support model were OK, but those who couldn't do that were left twisting in the wind by Tandberg."

Overall, solution providers and channel observers said, Cisco has its work cut out for it to integrate Tandberg's channels and thread the needle with existing partners while it simultaneously announces itself as the new power in video.

Its success or failure to do those things won't be immediately determined, either.

"What I want to know is not necessarily the one-year roadmap, but the two- and three-year roadmap," said Intercall's Trampler. "They put out their press releases and you see battle lines being drawn, but how does Cisco merge all those product lines and stay strong for video partners two, three years down the road? We'll be watching."