During this week’s C-Scape analyst conference in London, Cisco’s Chairman and CEO, John Chambers, admitted that the company’s high end consumer telepresence initiative, Umi, is at least two years away from reaching significant volumes and “major acceptance”. He also indicated regret at the fact that the service had not been available before the 2010 selling season, and that it would be late 2011 before the company could be sure how well the business was performing.

As my colleague, Ben Piper, reported at the time of Umi’s launch, initial pricing levels were likely to be a major barrier to Umi’s adoption. 30% of people in our US survey of 2000 respondents indicated interest in the telepresence concept, but many of those same people are also keen not have any further monthly expenditures appearing on their bank statements. As much as the $599 initial purchase fee (or $1198 if you account for the need for a minimum of two systems for a conversation to take place), it is the $24.99 monthly fee which is likely to prove a strong deterrent to potential buyers.

 

 

Surprisingly, perhaps, John Chambers was prepared to accept that Umi is a longer, rather than near, term opportunity, however strategically important consumer telepresence remains to Cisco’s video network vision. This caution also explains to some degree why Cisco was prepared to take on the role of service provider in Umi’s early days, since it believes traditional service providers like telcos and cablecos need to be educated or persuaded on telepresence’s potential to drive ARPUs and help customer retention.

 

Cisco’s problem is that the window for Umi to capture a high end telepresence customer base may be fairly narrow. Connected TV-based solutions such as Skype are likely to increase their market penetration significantly over the next 24 months. Perhaps even more significant, we are likely to see growing home-based adoption of video conferencing on other non-PC platforms such as tablets and smartphones. These alternatives clearly will not offer the same big screen, high quality experience as Umi, but they could have both positive and negative impacts on Umi: on the one hand it will be argued that they “prove the concept” of mass market videoconferencing; on the other, they may eat into the early adopter market Umi is targeting, and, moreover, set the market price at much lower price points.

 

Service providers, in spite of early Umi partnerships such as Cisco/Verizon, will be watching closely for signs that alternative solutions are genuine competitors as this market emerges. They are unlikely to be blinded into making significant upfront investments by the temptation of additional ARPUs until further substantial evidence of Umi’s potential is demonstrated.

David Mercer

Cisco today unveiled its long-awaited consumer Telepresence product. A smaller and scaled-down version of the company’s enterprise-grade TelePresence system, “ūmi” (‘you-me’) comes with an HD camera, a console and a remote. The idea of the videophone is far from new. Children of the 60s and 70s may recall George Jetson getting chewed out by his boss, Mr. Spacely, over videochat. In fact, the technology, is older than that, and was conceptualized as early as the late 1800s. The German Bundespost offered (albeit short-lived) commercially-available service the1930’s. AT&T announced its Picturephone product at the 1964 World’s Fair, though the service never quite took off, reportedly maxing out at 500 subscribers nationwide.

This time it’s different…

What makes this time different? According to Cisco’s VP of Consumer Marketing, Ken Wirt, three things are different this time. The quality and ubiquity of HD displays, the increased average household bandwidth, and exponentially increasing processing power have converged to create a ‘perfect storm’ for telepresence.

With apologies to Elvis Costello

Writing about telepresence is like dancing about architecture

Or was that Frank Zappa? In any case, as with HD or 3D, trying to explain telepresence to someone who hasn’t seen it is akin to trying to explain the color blue to a blindfolded person. You kind of have to see it to understand it. I had a chance to test drive the product last week before the official product announcement, and must say that—even as a professional skeptic--I left the demo thoroughly impressed. The so-called “immersive” effect (allowing you to ‘see what others are feeling’ ) is quite noticeable, and is what distinguishes it from a garden-variety Skype video or web-based video chat program. There is near perfect synchronization between audio/video, and people appear life sized on the screen. Ken Wirt cited a study showing that 55% of all conversation is non-verbal. It’s no surprise that it is our body language, the nods and raised eyebrows, shaking heads, smiles and smirks, that distinguish a phone call from a ‘carbon-based’ face-to-face meeting.

The Uncomfortable Topic of Money

The price tag is steep, at $599 for the unit, plus a monthly fee of $24.99 for unlimited ūmi calls, video messaging and video storage. The system will be sold through Best Buy/Magnolia Home Theater stores, bestbuy.com and on the cisco website. The service requires a minimum of 3.5 Mbps to work in 1080p, though it can be optimized for use at lower speeds, as low as 1.5Mbps for 720p. This means that the service will largely be limited to those with cable broadband or FTTx. Cisco believes that 34% of US households have this type of upstream capability—which is in line with Strategy Analytics’ own estimates.

The Network Effect

Back in the early days, the phone company sold “telephone pairs,” with the understanding that the value of the network lies in the number of nodes. A telephone network with one phone is not terribly valuable. Nor is a telepresence unit if there’s nobody on the other end. Cisco has partially circumvented this problem by providing interoperability with Google video chat, though if you’re spending $600 on a unit, you probably want the “real thing.” The real value of telepresence will be realized when there is a robust network of equipped households. While family video-calling seems the most obvious use-case, its utility seems rather limited. How many times do we really want to videochat with Grandma each month? Unless and until the network reaches critical mass, the appeal and draw of video calling will be very limited. Rather than a consumer mass market play, the real opportunity might very well be in the Business to Consumer (B2C) space. If private industry can help subsidize and drive the technology more mainstream, it could hit the critical mass it needs. Cisco talked about a number of other potential applications, three sound like potential winners in driving telepresence forward. These include

Financial Services: A $600 upfront investment and $25/month is a drop in the bucket for a company trying to prove its value to high net worth clients. For the cost of a few steak dinners, a Financial Services company could equip a client’s living room and increase the frequency of “touch points.”

Health Care: While the chatter around Telemedicine never seems to cease, this is one application where it actually could make sense. An insurance company might find it financially beneficial to subsidize a unit for a patient requiring regular and routine examinations, or for medical compliance monitoring (“Did you take your pills Mrs. Smith?”)

Distance Learning: How about tapping into the multi-billion dollar distance learning market in the US.  Equip every “Phoenix” with a system? That’s what I call scale.

I want one… but not for $599 plus $24.99/month

Many who experience the technology firsthand will want one for their own living room. It’s cool. It works well, and the potential applications are only limited by the imagination. It’s light years ahead of pc-based chat. On the flipside, the price is high. Too high. And when you add on the 24.99/month fee, it starts to feel like another cable bill. Survey research conducted by Strategy Analytics in Q3’10 shows that 30% of Americans showed some interest in a service of this type. Importantly, though, 46% of those interested said they are often concerned about their ability to afford regular household bills, 45% said they worried about signing up to new fixed term contracts when buying new products and services.

Adoption Will be Slow But Steady

Cisco would certainly admit that the $599 price point is untenable for the long run, and as volumes slowly ramp up, we should expect to see price points come down. If Cisco is successful in getting private industry into the game, and a subsidy model takes hold, we could see adoption speed up. The other barrier standing in the way of rapid adoption is broadband. While today only one-third of households have the minimum required bandwidth to support the system, this will certainly increase going forward. We estimate that by 2015, over 60% of all US households will have at least 1.5 Mbps upstream capabilities. Stay tuned…we’ll be putting out a Telepresence report in the upcoming

Many thanks to Jeff Baumgartner at Light Reading for reminding me of my post last September concerning ActiveVideo Networks and the company's suitability as a potential Cisco acquisition. I had also just noted that ActiveVideo is planning to exhibit on Cisco's stand at this year's IBC starting tomorrow. I'm sure the relationship is quite harmless at the moment, but who knows where things may lead? If you're at IBC, hurry to register for our free-to-attend 3DTV Analyst Forum. We’ll be presenting great insights from our 3DTV research, and Sky’s Brian Lenz, who has headed up the company’s 3D initiative, will be giving the audience his thoughts on our findings as well as an update on Sky’s 3D launch plans. Attendees are invited to register in advance by visiting www.strategyanalytics.com/ibc2010.html. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

Returning to temperate climes after my first “summer” visit to Las Vegas, I am more amazed than ever at Nevada residents’ ability to withstand daily temperatures of 40 degrees plus and practically zero humidity. At least I now know what 108 Fahrenheit feels like. The contrast between this and a proper British summer (a few days of 25C followed by cool cloud and rain) could not be more stark. Las Vegas’ Mandalay Bay was the venue for Cisco’s annual customer gathering, which this year also brought together a hundred or so analysts for in-depth discussion of product and commercial strategy. The highlight product announcement was the Cius, as reported by my colleague, Susan Welsh de Grimaldo. While the company has not officially announced pricing, I expect it to be closer to $1000 than $500. Cisco is quite clear that the Cius is positioned as an enterprise solution, and these prices are likely to prevent much leakage towards “unofficial” consumer markets. What was most interesting, perhaps, is the genesis of the Cius within the Cisco organisation. It was obvious from many conversations that few people were aware of its development until very shortly before its unveiling. Even John Chambers himself claims to have been unaware of it until two months ago. If the product proves successful it will be further justification of Cisco’s innovation in organisation and management which allows dynamic cross-fertilisation of ideas across multiple teams. The other news centered on home energy management, where Cisco is launching a “Home Energy Controller” allied to Cisco Energy Management Services, which will be offered by utility companies to help consumers understand and control their energy consumption. The Controller uses Zigbee, WiFi and other home networking technologies to exchange data with and, potentially, control a variety of home devices. Much of our discussion with Cisco execs centered on the challenges and opportunities for service providers offered by OTT video, as well as the potential for telepresence in the home environment. Telepresence has a been a success for Cisco in the corporate market, and it is still on track to bring a consumer solution to the market by the end of 2010. It still strikes many people, both in the industry and consumers, as odd that Cisco should have a serious consumer strategy. While its brand presence is growing, not many would consider it as a competitor to the Sonys, Samsungs and Apples of the world. And there is no doubt that the company’s financial power is built on its core network switching and routing market dominance. Cisco does have key positions in home networking and set-top boxes, as well as the TV and broadband service provider space, but the jury is still out on whether Cisco itself will become an overall leader in consumer markets over the next decade. But consumer players cannot ignore Cisco as an influence on market direction. Its innovation processes, as demonstrated by Cius, will combine with its financial strength to create a wave of consumer innovations over the coming years. Many may fail, but it will only take a few to be successful for rivals to feel the heat. Client Reading: Chasing the Elusive IPTV Business Model: NDS, Cisco and Comcast to the Rescue?

As our recent report pointed out, the potential of internet and IPTV has failed to materialise. One area of untapped potential is interactive or targeted advertising. In spite of more than a decade of red button adverts in the UK these services have never proved commercially viable and in fact were recently withdrawn completely by Sky. Trials of new technologies continue, however, and Sky has just completed a trial called Adsmart. Its partner was Mediacom, using technology from Packetvision and ads from Nat West, the UK bank. Mediacom's Managing Partner of Implementation & Futures Rhys McLachlan, presenting at this morning's Broadcast and Beyond conference, called the trial a technical success, but went on to describe the key findings, most of which seemed to present targeted TV ads not so much as an uphill battle as an attempt at Mount Everest. The first conclusion is that current television audience segmentations are 'rudimentary' at best. In spite of using Sky's own extensive customer database, McClachlan concluded that the segmentations currently used 'cannot be validated'. As far as advertisers are concerned there is simply no consensus on how such audience data should be employed. Mediacom also found that it was very difficult to find the right metric for audience measurement, and that, critically, it was very difficult to prove the ROI from targeted ads. Finally, in spite of the advanced technology used, there was simply no proof that advertisements had been delivered and viewed. Effectiveness measurement depended simply on ‘good faith and intuition'. In spite of these challenges investment in advanced advertising trials continues, and broadband is the key to the future success, according to McClachy. The biggest challenge of all is developing technology which can help advertisers differentiate between single and multi viewer consumption. As we have also noted previously, asking TV viewers to log in, as some emerging services do, does not solve this problem. Even with the latest advanced technologies in the IPTV world, it seems there is still a long way to go before advertisers will be convinced to spend money on using them. David Mercer Client Reading: Chasing the Elusive IPTV Business Model: NDS, Cisco and Comcast to the Rescue?

Cisco built up yesterday’s big news announcement as something “that will forever change the Internet and its impact on consumers, businesses and governments”. The chances are slim that more than a tiny fraction of consumers, businesses and governments will ever actually encounter the catalyst for this revolution, namely the new CRS-3 router, which will help service providers deliver the vast quantities of video that people will expect to consume over the internet in the coming years. So in that sense, the announcement was a slight disappointment, if none the less significant. Shortly beforehand, the news arrived that Cisco had also became a strategic investor in SiBeam, Inc. Also currently unknown to most consumers, perhaps, but SiBeam’s wireless video technology could become ubiquitous over the coming decade. We’ve covered it many times, most recently here. For some years SiBeam has been in a race with various other technology developers, and primarily Amimon, to bring wireless distribution of high-definition video to the digital home. While early consumer products have reached the market in limited numbers using both SiBeam and Amimon solutions, sales performance has been restricted by high prices. We are also hearing that Amimon’s technology has not proved as reliable as it needs to be, and as we predicted before, we believe the momentum is in the direction of WirelessHD, if there is indeed going to be a single de facto standard. Cisco joins other major consumer technology investors Samsung, Panasonic and others in backing the WirelessHD 60 GHz technology. So as well as investing in the future of internet video distribution, Cisco is counting on tomorrow’s in-home video networking technologies to build its vision of a world of networked video. David Mercer Client Reading: Wireless High Definition Appearing Soon at a Home Cinema Near You

Cisco has agreed to acquire Tandberg, the videoconferencing specialist based in Norway, for around $3bn. Cisco has long targeted video conferencing, or telepresence, as a major growth opportunity, and also sees a mass consumer market for home telepresence solutions in the longer term. The Tandberg move will boost Cisco’s position in the global corporate telepresence market, which has been a growth segment in recent years, and not just because companies are cutting back on travel. Our main interest, of course, is the emergence of consumer telepresence solutions and other emerging media businesses. Cisco states that it hopes the Tandberg group, which will become the Telepresence Technology Group within the Emerging Technologies Group at Cisco, will drive video innovation. We look forward to hearing how Tandberg will drive further innovation in the critical video element in Cisco’s strategy. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

We have had a number of discussions with ActiveVideo Networks recently, before and during IBC. ActiveVideo offers network-based processing to bring rich media, ie interactive TV, to consumer devices over MPEG streams using the internet. The only requirement in the end user device is a software module, and a high speed internet connection. Naturally enough the IBC discussions focused on issues relating to managed service providers and operators, which is a key customer base at IBC. On its IBC stand ActiveVideo was demonstrating a proof of concept for delivering IP video streams to a CI+ module connected to a Sony flat panel TV. Neotion, one of the firms behind CI+, and Ziggo, the Dutch cable operator, were partners in the demonstration. ActiveVideo’s current customers include PCCW in Hong Kong and Time Warner’s Oceanic cable network in Hawaii. Other customers are expected to be announced in the coming months. But ActiveVideo’s recently announced partnership with Videon Central to target connected CE devices confirms that the company is also positioning itself for online video services which bypass managed service providers. The Videon deal plans for availability of connected TVs and Blu-ray players by the end of 2010. ActiveVideo’s IBC demonstrations were certainly impressive, and unlike many were running off a live internet connection. President and CEO Jeff Miller told us that ActiveVideo technology allowed cable and IPTV operators “to move at the speed of the internet, not the speed of TV”. A TV-like service over IP could be upgraded and added to very quickly, and once the RSS feeds were established the service could run with minimal intervention. ActiveVideo is certainly planning for a world where higher broadband speeds are the norm. The company claims that movies need between 3 and 5Mbps, while a multi-window video mosaic could require 10Mbps. These speeds are slowly becoming more widely available but are by no means universal in the US and Europe. I can’t help thinking ActiveVideo’s cloud video model sounds like something Cisco should be doing in order to fill some of the gaps in its consumer video portfolio. In fact, ActiveVideo’s vision statement – “we put the application and video processing load in the network” – could come straight from a Cisco strategy piece. I’ll just add in the observations that: Cisco is intending to make acquisitions; has the budget available; is targeting consumer and video as strategic priorities; is only a 10 minute drive away from the ActiveVideo offices; and that ActiveVideo has around 100 people – John Chambers’ ideal acquisition profile; and leave it at that. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

We have arrived at the NAB Show, the National Association of Broadcasters convention in Las Vegas, in the middle of the worst downturn this industry has ever seen. Most technology sectors are suffering from the global crisis, of course, and the media production sector is no different. Since the last major international get-together at IBC in Amsterdam last September http://www.strategyanalytics.com/blogs/326/ the environment has changed dramatically. My colleague, Doug Sheer at D. I. S. Consulting, tracks the key segments on a regular basis and noticed a sharp decline in sentiment almost immediately following IBC. That was, as many will remember, the time when Lehmann Brothers collapsed. The effect seemed to be instantaneous: broadcasters around the world took fright and postponed any and every expenditure they possible could in order to prepare themselves for the storm ahead. That situation of stalled spending continues more than six months later. Anecdotal evidence suggests that broadcasters have torn up previously prepared budgets and some are telling managers they have to make do with one year’s spending for the next three. Most notably, the industry association, the IABM has refused to give any industry forecasts since last September. It was particularly unfortunate in having completed a survey just prior to IBC, when the severity of the downturn had yet to hit home. The results from that project are, according to IABM’s director Roger Stanwell “not worth the paper they were written on”. And believe me, they were written on a lot of paper. The industry clearly needs independent guidance at a time of crisis, and that’s one of the reasons why Strategy Analytics has partnered with D. I. S. Consulting, the global leaders in research in the media production sector. We will be publishing latest estimates of the scale of the downturn shortly, but it is certainly severe, so there will clearly be many painful budget decisions to be made by the major vendors, and some players are sure to find it tough to survive. At the same time, we note that certain segments are performing relatively well at the moment. In particular, demand for professional camcorders, video encoders and media storage continues to increase. This is at least in part a reflection of the industry’s continued transition towards an all-digital workflow and infrastructure. It it sectors like servers which are really suffering from budget cuts. So we look to NAB, as with every major event, for signs that renewed growth can be driven by innovation. 3D will of course be a major theme, as well as further progress towards next generation video standards such as 1080p. I’ll be reporting regularly over the next few days. Twitter: twitter.com/DavidMercer_SA Client Reading: Cisco's Consumer Strategy: Will the Network Transform the Digital Home?

Much of the commentary around Cisco’s push into consumer devices has focused on its wireless audio system, home media hub and, most recently, the newly acquired Flip Video business. But as we discuss in our new report published today - Cisco's Consumer Strategy: Will the Network Transform the Digital Home?  – the company’s long term success is likely to depend as much, if not more, on the less high profile media strategy as on its forays into consumer electronics. Cisco’s Media Solutions Group (MSG) was formed more than two years ago but only came out into the open at the beginning of this year. Its objective is to sell the benefits of network-based internet media delivery platforms to content owners. It claims to save content owners from a great deal of the pain usually associated with establishing and maintaining content-focused websites. Critically, it also intends to be synergetic with Cisco’s consumer devices so that problems associated with content re-purposing and re-formatting across multiple devices, something which is a real cost concern to media companies, can be minimised. MSG’s core offer is the Eos platform, and you can see it in action at allseanpaul.com. Our report finds that Cisco has a good opportunity of reaching annual revenues from consumer activities that will put the company in a league similar to some of today’s leading technology brands. It will surprise some that the company already does business in the region of $4bn in consumer related sectors through its set-top box and home networking operations. With a substantial cash pile to support further acquisitions, and with the rest of the consumer electronics industry suffering from the global economic turmoil, it is much too soon to write off Cisco’s chances of sustaining an assault on the market leaders over the coming years. Twitter: twitter.com/DavidMercer_SA Client Reading: Cisco's Consumer Strategy: Will the Network Transform the Digital Home? Buzz up!vote now