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

The challenges facing 3D TV were evident from its relative lack of focus at LG’s CES press conference this morning. While brief mention was made of the plans for new 3D-ready TVs to be launched in May this year, much more time was spent on a variety of broadband-enabled features which will be rolled out over the coming months. In particular, the headline-grabbing deal with Skype to bring video conferencing to the big screen caught the attention, and LG was confident enough in its technology to demonstrate a live Skype video call. Such demonstrations in front of the world’s technology press have a terrible habit of going wrong, but this worked, at least in terms of establishing a communications link. On the other hand, the quality of the video was extremely jerky and cut off completely once or twice. For a free service, that’s probably only to be expected, but vendors pushing specialist consumer TV video conferencing systems should take note that the price point for this basic capability is now effectively zero. LG has also redesigned its web TV services known as Netcast, and added various new ones including DivxTV. It claims that more than 110 “channels” are now available. It will offer Netcast on two thirds of its TV line-up in 2010, and virtually every set larger than 32”. Enhanced connectivity will also feature strongly, with most of LG’s new TVs being “wireless-ready”, which means they will require only a dongle for wireless HD connection to compatible devices. The company was cagey about which technology was being used, but Amimon, whose technology lies behind the WHDI 5GHz standard, issued a statement this morning claiming that “the new wireless-ready high-definition televisions and wireless HDTV accessories launched by LG Electronics are based on AMIMON’s wireless 1080p solution”. LG also demonstrated the inevitable “thinnest yet” TV, an LED LCD model only 6.9mm thick. I’m sure we’ll see more entries into this rather tiring pseudo-battle before next Sunday. Thin TVs are great, but there comes a point, and I think we have reached it, where another fraction of a millimeter is unlikely to make much difference to the sales line. And finally 3D, and LG was surprisingly circumspect in its announcements, focusing on its introducion of the first full HD single lens front projector. It said 3D capable TVs and a 3D BD player would be launched later in the year but was light on specifics. It seems a lot of work on the details still needs to be done. Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

The depth of the recession in the US consumer electronics market was highlighted today by CEA data which confirmed a decline in dollar revenues in 2009 of 12%. The outlook for 2010 improves but only in the sense that the rate of decline falls to 3%. In the meantime we're hearing news of new 3D TV channels already, with both ESPN and Discovery throwing their hats into the ring. This is great, if expected, news for the many 3D-ready TVs we expect to see over the next few days. At this evening's CES Unveiled event Sensio were showing their passive 3DTV, even though the company today announced its partnership with Visio to launch an active 3DTV later this year. Mitsubishi was also showing its laser 3DTV with the adaptor which will be necessary for compatibility with Blu-ray 3D players when they are lauinched. Logitech was showing its new Lapdesk N700, a laptop “cushion” with in-built speakers designed for enhanced laptop usage in the comfort of the armchair. The peripheral retails at $89.99 and also features an in-built cooling fan to prevent over-hearing, a familiar problem for those many TV viewers who now sit with a laptop on their knees. Logitech have thoughtfully added a grip to help keep the laptop steady, but unfortunately in my case it failed to prevent the Macpro falling to the floor. No damage done, luckily, but perhaps evidence of a need for further improvement in design. Logitech was also demonstrating the fruits of its recently closed acquisition of Lifesize Communications, a videoconferencing specialist. On display was its Passport set-top videoconferencing device. This retails at $2500 and allows anyone with a minimum 2-way 1Mbps broadband connection to communicate using HD video (720p). The service downscales to lower resolutions for slower bandwidth connections. Logitech claims that this device is a third of the price of any other similar product on the market. That may be true today but is unlikely to remain so for much longer. Videoconferencing and telepresence are shaping up to be one of the emerging trends of this CES and we will hear a lot more over the next few days, in addition to the Skype/Panasonic/LG announcement today. Yet another OTT video set-top box was being demonstrated by Syabas with its Popbox product. This grew out of the company’s Popcorn Hour device. The Popbox has been designed to be especially user-friendly, and the user interface does appear attractive and accessible. The service integrates currently 20 “content application channels”, which means things like Netflix, and is working with 200 application developers. It will launch in March 2010 and retail at $129, plus $20 for the optional WiFi module. The Popbox is 1080p-capable, although the only 1080p content was demonstration material. If Syabas manages to sign 1080p deals with content providers it will certainly be a step ahead of most competitors. ProVision CEO Steve Cliffe was confident enough in his company’s wireless HD technology to carry a laptop across the show floor while it streamed 1080i HD content, and there was no loss or deterioration in signal. This UK firm was founded by professors at Bristol University, and uses proprietary error correction and RF management techniques to improve HD video streaming over 802.11n. The company is talking to set-top box and TV manufacturers looking to support HD distribution to multiple home devices. Another UK firm, Imagination Technologies, was launching its Pure digital radio products for the US market. Pure is the leader in the UK but virtually unknown overseas. It will, rightly, tread carefully as it enters the notoriously challenging US market, and will obviously (since the standard is not used) drop DAB from its US product line-up, instead concentrating purely (sorry) on internet radio. Its Sensia product is the highlight of the range and features a full-colour touch screen LCD display as well as additional interactive capabilities like Twitter and Facebook. Pure confirmed to us that video-capable devices are a natural step forward and can be expected in the next year or so. Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

So I thought I’d start out with a few personal perspectives, bugbears and gripes to kick things off. That way you’ll get to know me a little more personally, and those of you who are clients will hopefully recognise some of what follows from our various communications over the years.

The rate of change continues to accelerate. We will see more innovation in the digital consumer space in the next 5 years than we have seen in the past 10, probably 20. The two sides of that coin are frightening and compelling. The opportunities are unprecendented, but matched by the risks.

Everywhere we look we see underestimation of the rate of change. I was asked, by a TV advertising executive, at a conference 2 years ago whether online TV and video would become a reality within 20 years. Yes, you read that right – 20 years. Our research in early 2004 was some of the first to show that broadband adoption was leading to a decline in TV viewing, but the TV industry didn’t want to know.

I haven’t the faintest idea how consumers will be getting most of their video in 20 years’ time, but it surely won’t be a scheduled linear broadcast one-way model. And the TV industry does seem finally to be waking up, fortunately more rapidly (not that this is difficult) than the moribund music industry did 5 years ago.

There was at least one empty seat at last night's Tottenham game against Southend. I had a ticket but was unable to attend. Sky chose to show the Newcastle-Chelsea game so I delved into the world of live internet TV football. TVU Networks (http://tvunetworks.com/index.htm) is one of a number of largely Asian websites offering live streaming of television channels from around the world, but again largely Asia-based. So I found myself watching KBS, the Korean public broadcaster’s, live transmission from the other side of the world of a game taking place 60 miles away from my home. Such is the power of the connected world. And I paid nobody an extra cent.

At least it worked for maybe 20 minutes, during which time quality was bearable. I get BT’s “up to” (one of my list of marketing phrases to be banned once the Mercer government is formed) 8Mbps broadband service, and should peak at 6 according to my local friendly BT engineer. Realistically it probably caps out at 3-4, and I use WiFi between PCs and BT's Home Hub. KBS’s stream was certainly not reaching my PC at anything near that rate but the experience demonstrates why any picture is better than a thousand words (so why am I writing this then?). Blurred images and barely identifiable players are preferable to any radio commentary, although I have admiration for the skill of sports radio commentators. But internet TV couldn’t last the required two hours and after several frozen screens and dropped connections I gave in to the power of Murdoch and turned to the digital radio commentary on the BBC’s Five Live Extra via Sky's set-top box.

The big picture question is: can pay TV survive in a world where everything is available anywhere at any time? Look for sports rights holders to pursue the renegade TV redistributors (why haven’t they already?) through the courts, just as the record companies chase down P2P downloaders. But the stable door has surely opened. OK, so the user experience is not up to the job today but it’s only a question of time. Cisco, Skype and others are all planning to turn this into a real rival to "television", and I for one will not bet against at least one of them succeeding.