Transcript for UCStrategies Experts Weigh in on Polycom Announcement
Russell Bennett: Hi, this is Russell Bennett from UC Insights, part of the UCStrategies team and today on the podcast we are going to talk about the Polycom announcement that happened yesterday regarding their latest efforts at solving the interoperability problem and video conferencing. I will start by making introductions and I will call upon a range of UC experts to add additional points. So around about the first of October, Polycom was sending out messages to all and sundry and had an announcement on their website and it said, “Mark your calendar; Polycom is about to make history.” And I certainly was sitting on the edge of my chair all week trying to find out or figure out what this was all going to be, and when it emerged yesterday I have to say I was very disappointed. The announcement was headlined, “Industry transforming breakthrough solutions designed to accelerate mass adoption of video conferencing.” I have got a set of slides here that shows what Polycom actually announced and you will be able to see on the website. What they’ve announced is the integration of Polycom MCUs, Google Talk, Skype and Facebook. And I certainly think that that is a worthwhile endeavor getting B-to-C integration, which is essentially what this is, the business-to-consumer and large business-to-small business, is a key thing I have spoke about a lot before. However, whether this is industry transforming or Polycom is making history, I significantly question that.
The second slide you will see on the website shows that three vendors in particular, Vidtel, BlueJeans and Vidyo have already done almost every one of these integrations. So in terms of Polycom making history, I think they are repeating history, but they are certainly not making it. And it leads me to wonder why they tried to make this big announcement only potentially to disappoint people. Certainly they were at NASDAQ on Monday presenting to investors, and with good reason their stock is down 70 percent on the year. They got a little bit of an uplift yesterday after the announcement, but it’s down three percent today. So I think that this strategy was overreaching and misplaced.
Speaking to the specific points about the announcement – a standards-based video codec. The standards for scalable video codec are not locked in yet, so I don’t know how they can make that claim. And they also claim the first multiprotocol MCU that is software based that runs on standard servers. The first multiprotocol MCU came out years ago and that was the Codian MCU that’s now owned by Cisco. It was on dedicated hardware, but anybody who knows anything about video transcoding will know that, it is very, very hard to do video coding at scale on a standard single CPU admittedly multicore box. In my opinion you do need DSPs to do that, so it’s not clear to me that this is such a great breakthrough or the direction they should have been going in. So I am going to call on our UC experts as I said to add their comments. Firstly Jim.
Jim Burton (3:07): Thanks, Russell. Well, as I look at Polycom, my view is that, they are going through a very, very significant transition and an appropriate transition, because I believe that their business model that they have used in the past is not one that will sustain them moving forward. And so part of what we are really seeing is part of this change and part of this shift and how can Polycom gain more control over their destiny than they’ve had in the past, because in the past they have had to rely on partners. At one time one of those partners was Cisco and we all know that Cisco acquired Tandberg, so that is no longer a partnership opportunity. And I think that some of the changes that they have to make are so significant, you would relate it to an incumbent company that if they don’t change they are not going to survive and I think they probably view it that way and so they are making some changes.
So while I see that this product offering is a way to kind of reinvigorate their product portfolio, to reinvigorate their customer base and to give them a platform of how they could move forward, I think I can understand all of that. By the way, Russell, I do agree with you and I think that some of this information was a little bit over-hyped. But the big question that I really have and one that I didn’t see answered yesterday was, they have several really important partners and I’ll pick two of them: Microsoft and IBM. And as I look at this, these were not products that helped bolster that relationship. In fact, you might even say that, these were products that did not add value to their customers or their partners in the way of Microsoft and IBM and quite frankly, if I were Microsoft and IBM I’d be a little bit upset that I did not see a little bit more of what they are doing with ME included in that offer. So like I said, I think that we’ll see a huge change in front of Polycom for survivability and letting them be a successful company going forward, but boy, it seems to me that they left by a couple of partners along the way.
Russell Bennett: Thanks, Jim. Obviously, very important to maintain your existing partner relationships while you are forging new ones. Marty, do you have anything to say on this?
Marty Parker (5:19): Yes, thanks, Russell for calling on me. I have three things I would like to chat about. One, I’ll just speak about unified communications for a moment. I was disappointed in Polycom’s abuse of the term. They showed themselves with a position at the top of the room systems video conferencing Forrester wave. Hey, that is a great position to have. But then they went on to say, “that means we are a leader.” And every so often they would say, “THE leader in unified communications,” and that is just not the case. So I wish they would be a little bit more responsible about the use of the term, because abuse of the term does not hurt me, but it hurts the market because it confuses the buyer and the buyers then have to say “well, what am I buying? Am I buying unified communication or just a room system?”
The second thing I would like to say is that, I thought that they did a really nice job with their browser-based approach. I was very impressed by the ability to send a URL out. The recipient clicks the URL and suddenly they are into the video conference with their browser. That was impressive. And I know others do that, WebEx has been doing that for years on a browser-based solution, so maybe that is the competition they are facing since Cisco WebEx is really a predominate video conferencing solution out there. I don’t know. But definitely, I was impressed by what they did; I was impressed by the demonstration they gave.
The critique I would have of that however is that, they are doing something that I think may come back to bite them, because it’s going to make a lot of enemies. They are hijacking other people’s territory. So for example, they showed that the new Polycom client will pull in your buddies from Skype, from Google Talk, from other places, so I think they do that on the user’s PC; maybe they’re doing it by integration with those services, but I doubt it. So it’s going to take my buddy list and compile them into a list of people I can drag into the conference interface – kind of a mini version of Avaya Flare by the way – but I am going to drag people into that conference interface and then I am going to conference with them on the Polycom infrastructure. So I am not sure how Skype or Google will take to the idea that, I am a customer of theirs, but Polycom is using my client to deliver services through a service provider, of course as they said, and to create revenue for the service provider. There is a commercial use clause in those terms of use of those particular instant messaging products and I’m not sure that Polycom has not stepped over that boundary. But I am not the lawyer and we will leave that to the future for someone else to care for. Anyway those are my three thoughts.
Russell Bennett: Thanks, Marty. Dave Michels always has something interesting and controversial to say, so over to you Dave.
Dave Michels (08:17): Thank you, Russell. Marty, to your point about the universal or virtual global address list, there are other products that do that. I don’t think that they are going to be stepping on too many toes, because it’s not particularly unique – a universal IM client that can talk to other products. It was surprising to me how much of the popular press confused that message from Polycom and I think it was partly because the way Polycom worded it. But I saw a lot of articles yesterday that highlighted that Polycom is now interoperable with Skype and people thinking that included video, and it does not. In fact, that is an area where BlueJeans and Vidtel, I think, are really stealing some revenue and it has yet to really be addressed by any of the major video players. I was actually expecting Polycom to announce something along those lines.
To Russell’s point, I think this was very much aimed at the financial community and not necessarily the unified communications industry. Obviously, putting this in NASDAQ, I cannot image what that cost, but putting this in NASDAQ as the venue was clearly aimed at the financial community. I think it kind of goes along with the rebranding they did earlier this year. They’re really trying to get their awareness up in the financial community.
But also to Russell’s points, there just really was not a lot of meat…I mean, they issued five press releases, they really built this thing up and there didn’t seem to be a whole lot of meat in there. A lot of it I think was a catch up…they are trying to catch up. They announced SVC for the first time…they actually announced SVC quite some time ago…I think it is almost two years ago. But in the press release, they did not actually make it available and now they are actually making it available, so they are catching up to themselves there. They are catching up to LifeSize, because LifeSize announced a software-based MCU. The software-based MCUs are interesting to your point about the transcoding, Russell. Now earlier Vidyo announced a virtualized software-based MCU and they are able to do that because of SVC and by effectively skipping the transcoding.
So if you look at the specs of what Polycom announced, the SVC picks up more horse power and I’m not exactly sure why, but I guess that must be the transcoding between…I’m not sure what is transcoding, actually, to be honest, I’m a little confused by that. They also acquired a company called ViVu last year and it looks like, that’s how they are going to do their cloud access solution with the global address book. So they are catching up in that sense, because they acquired that company about a year ago.
I was really expecting them to announce a cloud service. They announced that actually in January and we have not heard anything since then, so I was thinking that they were going to have some more details on their cloud service, which didn’t come about. I think LifeSize announced their cloud service earlier this year, so I thought Polycom would be catching up on that.
A couple things that I don’t think got very much press yesterday, but I think are pretty significant, is that their endpoint pricing really dramatically came down. I think that is an interesting play, because they get a lot of revenue on their endpoint devices and they‘ve dropped the prices dramatically. They have also redesigned their remote for the first time in quite some time and I think it has some user interface enhancements.
And then to Jim’s point about the partner community, it’s more than IBM and Microsoft, because the other big player is Cisco and they do call control, a lot of companies NEC, Mitel, ShoreTel, Siemens, they all rely heavily on Polycom to complete their best of breed portfolio with a UC solution. And so a lot of companies were very anxious and have a lot of vested interest in Polycom being successful here. And to Jim’s point, there wasn’t really a lot talked about in that partnership community. So those are all my thoughts.
Russell Bennett (12:13): Thanks, Dave. And just for the listeners who aren’t up to date on the acronyms, SVC means scalable video codec. It’s an emerging technology that allows the amount of data flowing backward and forwards between two clients to flex depending on the availability of bandwidth. And since video codecs are very bandwidth intensive, what they are doing is they are thrashing the CPU at the client end and minimize the overhead in between the clients. I think Phil Edholm has got some points about codecs and a number of other technical things. Phil did you want to take it away?
Phil Edholm (12:49): Certainly. Thanks so much. Before I start talking about a couple of technical comments, let me start by a comment really about what you are saying reflected in the Polycom announcements and Polycom’s positioning and challenge as a business. Their overall revenues at a quarterly level have dropped from over $400 million a year ago, to just over $300 million today, almost a hundred million dollar drop from $428 million last year. I think that represents the real change we’re seeing in the market. If you look at the video market starting five years ago, even three years ago, two years ago, the room system market was dominated by companies installing room systems to do video. What they found was, a lot of those room systems were installed in locations where the users either didn’t use them because their communications were task-based and really did not need the selling collaboration capabilities of video or they were a single person who needed video and going to a room system to use it became problematic and it was difficult and a challenge to use. Room systems tended to be for bigger meetings and bigger conferences.
What we are really seeing today is video coming out as a desktop solution, where it’s end user to end user. That really changes what video is. This whole concept that, when you move video out of the conference room to the individual, the first place you see the impact is at executive level and we started to see that about three or four years ago, but now we are seeing it at the middle manager level. We are seeing it in people making team meetings on video to actually assure active participation. So I think the challenge that is brought to Polycom is that, as long as video is this separate entity and it was all about room scheduling and room systems, it didn’t really need to be part of what used to be called call control, the telephony system and now has migrated from a UC perspective doing a video system. But I think what you are really seeing is the challenge that, Polycom cannot allow itself to be just an endpoint manufacturer, because there are people like AVer that are beginning to attack the cost point of endpoints and we see that in the cost points dropping.
So I think what you are really seeing is that, Polycom is trying to define a position for itself that is much more significant. I think the question that really customers who have Polycom and one of the UC vendors need to think about and really work on very carefully with themselves and with their consultants they work with is, how do we resolve this issue going forward? The more that Polycom develops a separate infrastructure, a separate set of functionality and capability that parallels and doesn’t integrate tightly with other systems like, Lync and those, you will have a continuing issue.
The one area that I thought technically we should comment on is SVC, so as was commented on earlier, scalable video codecs basically allow you in a single video codec stream with a slightly higher total overhead of the stream, to essentially encode multiple levels of bandwidth. So you can have a megabit of bandwidth, a half of megabit of bandwidth, and a quarter megabit of bandwidth, for example. The net result is that, if a communicating device only wants to send or receive one of those, it can actually choose which one.
The other side of SVC that really makes SVC powerful is the concept of an SVC router, where an AVC, if I’ve got 10 nodes sending bandwidth to an MCU, each one may send the bandwidth that they’re capable of sending; the MCU actually can mix the output to each of those units based on the bandwidth they can receive. So the MCU in addition to this concept to transcoding, which is changing codecs, even if everybody is 264, if they are using different bandwidths on their codecs, the MCU actually can map that all together. You often see that if you go into a video conference with especially desktop video, where you have got different people with different camera resolutions, potentially different bandwidth on the network, you will actually see different resolutions and different clearness in the pictures.
The concept of SVC routing is a very different concept. What it basically says is that, every node sends the maximum amount of SVC bandwidth it can, assuming someone wants to see the higher bandwidth. And that’s a critical and kind of an interesting point. It sends that bandwidth to what is called a video router. The video router doesn’t actually create a video image. It doesn’t actually take the packets apart. What it does is, it looks at the receiving nodes and decides which one of those SVC levels to send to the receiving node. So for example, if we are seeing a simple three node conference, let’s assume all three nodes are sending the full three level SVC into the router, if one of the nodes is on a low speed network connection, the router would only send the low speed versions of the SVC to that node. One that’s on a high speed might get the higher speed node.
There’s another little factor that works here that, depending on the size of each video image on the screen of the receiving node, the receiving node can send a signaling to the router to say, because I am displaying this video stream at a small resolution, only send me the lower level SVC stream. So the net result is two-fold. One is, you begin to optimize the transmission bandwidth to the nodes dependent both on their network capability, but also on what is actually being watched on the screen. But more importantly, what it does is, it takes away…it was discussed earlier...that challenge of building a software-based MCU. Because the central node is not really an MCU, it is now a router that’s just routing packets.
I think one of the things that’s very interesting if you look at the Polycom announcement, while they announced support for SVC in this announcement it is not obvious that they are announcing support for routing. And without routing you actually don’t get a lot of the benefits of SVC. So one of the things I would hope we would see very quickly from Polycom is a move towards routing and then integrating that with the AVC, the older single-speed codecs to be able to provide a real migration solution for their existing customers to this world of routing connections. So I think those are my two comments, so I will throw it back to you.
Russell Bennett: Thanks Phil. Michael Finneran always has a mobile perspective to cast on any conversation we make, so over to you Michael.
Michael Finneran (19:40): Thank you Russell. Yeah, I actually listened to most of the announcement from the NASDAQ yesterday and certainly interoperability is always good news, but frankly, I’m not seeing this major ground swell for video in the mobile space, at least not among enterprise users, and that’s what I deal with. Like most things, consumer video is leading the way. Now up to this point most of that consumer mobile video has been streaming – much more so than real-time video teleconferencing. The advent of LTE can be changing that, because now we will finally have enough bandwidth to do real-time, but my gut feeling is, the real-time video we are going to see in the consumer space is going to be more in the way of experience sharing. I’m not sending a picture of myself; I’m sharing something that I am looking at and experiencing with somebody else, and possibly also looking at on their mobile device. Actually I am working on experience sharing of that type for a major industrial firm, but in this case we are sending video of big greasy machines trying to diagnose problems, not at people. So sure, I have been listening to these projections for massive video teleconferencing adoption since I was selling picture phone meeting service for AT&T back in the 1970s. I am still waiting for those projections to materialize, but for the time being though, the mobile side always throws us some surprises, so I am reserving judgement on how quickly this is going to really impact things. So back to you Russell.
Russell Bennett: Thanks Michael. So let me just wrap this up. We talked about the Polycom announcement and the fact that they are going to make history. I actually took a look at what the announcement contained and broke down the components of the announcement and I think that the general consensus is that, the announcement was overreaching, not very interesting and really questionable as to whether this is going to move their story forward or not. Thanks for listening and see you next time.