Videoconferencing : The Video Invades

Even with the slowdown impacting IT spending across the industry, the growth
story of videoconferencing continued. It was primarily the government that
fueled the demand for videoconferencing. Although there was a decent number of
deployments in the private sector as well, it was the public sector that
paradoxically ensured that VC had a better run because of the slowdown.

Videoconferencing grew by a healthy 49% in FY 09. Out of this, the endpoint
market alone constituted Rs 156 crore while the infrastructure part made up the
remaining Rs 35 crore. The endpoint market continued to grow at 50% as against
Rs 103 crore in FY 08. The infrastructure market, although a small one in terms
of its overall size, has been showing a steady growth over the years, thanks to
the telcos who are eyeing this area rather seriously to gain deeper access into
enterprise accounts. FY 09 saw the infrastructure market growing by around 40%.

Another reason for this growth in infrastructure can be the spurt in the
demand of opex based models, that emerged as a part of tightened IT spending.
This was a significant shift for conferencing, which has largely been capex
based since its entry into the Indian market.

The endpoint market is dominated mostly by big names and group systems, and
although almost every vendor is driving desktop conferencing, it grew by a
meager 2% in FY 09. The room to room environment still dominates the market;
the emergence of high definition conferencing is only giving it a further push.

Also, there is a crowd of free applications that still rule the scene when it
comes to the desktop level. However, a positive sign on that front is that the
security issues with free apps like Skype are fast gaining awareness, and there
is a conscious effort, even among SMBs (the biggest users of open source) to
secure their data.

Vendor Report Card

The vendor market share took some interesting turns during the year. Polycom
continues with its dominance of several years, and in FY 09 too it captured a
sizeable 53% of the total market share. And though its share dipped, it managed
to stay on top with the help of timely upgrades and new names constantly
cropping up on its clients list. It also did some serious reworking of its
prices and touch points with its customers, and has made clear its new-found
focus on the mid level enterprises. While banking on its strong brand
recognition, Polycom, in the face of toughening competition also strengthened
its chains with the channel partners. It is also driving high definition in a
big way, and in fact deriving a substantial chunk of its growth from HD video
conferencing.

What, however, bags the attention is the emergence of Aethra as the second
largest vendor, with a share of 27% in the overall pie. What has worked for
Aethra, and where others have apparently lost out, is its decided niche within
the government. The last year saw the government adopting VC on a huge scale for
SWAN and other major e-governance projects, and thats where Aethra managed to
gain ground. It now has deployments over almost all nationalized banks, and has
benefited from other government verticals such as NHAI, NIC, postal services,
and defense. What seems to have clicked Aethra with the government is its well
defined strategy of segment targeting and local technical support. Its strategic
partnership with Radvision has also yielded results.

Although the visibility of deployments in the government vertical is low, the
fact remains that the government has emerged as the largest buyer of VC and by
that virtue has brought about some reshuffling in the market.

That makes TANDBERG the third largest player in the conferencing domain with
a share of 11%. TANDBERG has been focusing on expanding its presence in the
Indian market, and is strengthening its position by working with some key
channel partners. However, its presence is mostly limited to large enterprises.
And although it has lost some ground to Aethra, most of Aethras advances have
eaten into Polycoms share.

LifeSize, the number four vendor in the market, though relatively new, has
gained inroads into some big accounts in the industry. With its aggressive
pricing of high definition conferencing, LifeSize is the market leader in HD
segment.

While its apparent that Sony and VCON are losing their competitive edge to
their rivals in spite of them ramping up their channel strategies, the
competition is narrowing down between other vendors. TANDBERG and LifeSize are
not too far from each other, and TANDBERG is moving aggressively up the ladder.
Although some Chinese players are entering the market, as of now they havent
made any significant dent. But they can be entities to look out for in the
future.

Market Scenario

Conferencing reached yet more verticals in FY 09. While the government
ensured that it invaded everything from the judiciary to prisons management, the
other verticals that gained traction last year were education and healthcare. As
the case of RoI is becoming clearer, conferencing is increasingly being adopted
for intra-organizational functions as well.

One of the most significant buyers of conferencing solutions last year turned
out to be mid level enterprises. Not being too affected by the slowdown because
of their localized operations, they are striving for a globalized reach in a
more cost-effective manner. They are, in fact, pioneering the adoption of
technology to expand their operations.

Government, for the second consecutive year, has appeared at the helm of the
conferencing market. During the last year, it purchased almost 43% of VC
equipments sold in the market. It is readily implementing VC solutions in the
SWAN networks apart from e-governance, judicial applications, postal networks,
prisons systems, and now even education.

Corporate is the second largest adopter of VC solutions after the government.
Although the deployments in IT/ITeS saw a mellowed response in the last year,
the usage of VC increased significantly, primarily because of the need to crunch
travel budgets. BFSI vertical chipped in a good chunk of sales in the corporate
sector.

VC for education also kicked off in a big way through e-learning and distance
education programs. Some premier institutes like IITs and IIMs in India have
started offering their courses using VC solutions.

Developments in telemedicine have further pushed the intake of VC systems.
Intake of HD systems in the healthcare sector is very high as high picture
quality is required for live demonstrations and operations in hospitals.
Hospitals in tier-2 cities are opting VC for seeking consultations from their
expert counterparts.

Growth Drivers

Together with its traditional benefits, the downturn further intensified the
demand for conferencing solutions. It increasingly became the answer to travel
expenditure and a cost-effective way to operate businesses that are now more
globalized than ever.

The availability of bandwidth and its gradual affordability has also
supplemented the growth of VC. Customers are gradually shifting from ISDN to IP
networks, which means more availability of bandwidth. This spells higher quality
video calls at a lower cost. Therefore, the performance glitch, which seems to
have been plaguing the Indian market till now, is finally coming to an end. That
is good news, both for the customer as well as the industry.

Higher bandwidth is also driving high definition conferencing. As per a Frost
& Sullivan report, the adoption of pure IP based endpoints to dual mode enabled
endpoints has grown from a ratio of 10:90 some three years back, to 40:60 in FY
09, and is growing rapidly. HD systems, though having further fueled the growth
of videoconferencing systems on the whole, are witnessing a slow adoption rate
themselves, due to their high bandwidth requirements and high cost of
deployment. The adoption of HD to SD (standard definition) systems is at the
ratio of 30:70 right now, but the trend is slowly picking up.

Moreover, telcos seem to be filling the VC canvas with their vibrant
offerings. The bridging services and pay per use models have brought video in
the affordability range of even SMBs. The uptake of opex based and managed
services models have also opened up newer avenues for companies for whom the
initial investment was a barrier. Services like the Reliance Web World have not
only made conferencing highly accessible but have also spurred the demand for
endpoint equipment.

Also, the VC endpoints market witnessed stronger sales of group systems in
2008.

Majority of the VC endpoints sold were executive systems. This shows that the
top management of organizations increasingly prefer boardrooms over flight
passages. Demand for desktop VC is also steadily gaining momentum as web
conferencing is more common for desktop users. Software based VC solutions are
available in the market which can be either downloaded or are available free of
cost for one-to-one conferencing, which are preferred by SOHOs.

Add to all this the fact that the year 2008 was a year of green activity. A
lot of enterprises announced their moves to control their carbon foot print and
saw VC as the logical answer.

The Trends

High definition seems to be the most prevalent trend in the VC domain as of
now. While some verticals, like healthcare, use it based on their needs, many
are adopting it for overall clarity. The other technology gradually making a
mark is telepresence. Though still in its nascent stages in India, all vendors
are investing in and promoting the technology in a big way.

While telepresence remains for large organizations, the most visible trend in
SMEs was the increased usage of desktop conferencing. Although it hasnt
displayed a healthy growth rate, a lot of organizations seem keen to adopt it,
and it can very well drive VC in the future.

Other than that, convergence being the buzzword in the industry, there is an
integration drive happening for video as well. With the concept of unified
communications catching up, many telephony players are trying to integrate video
with voice and other applications. Video, being a big element in the
communications set up, is now bringing up the need for an independent support
infrastructure to make it talk to the other applications.

Opex based and managed services models also gained significant buyers in the
last year, and are expected to catch up even more as the mid level enterprises
hop on the conferencing bandwagon.

Another thing to watch out for this year is the rollout of 3G spectrum and
how it is going to affect the video. While this shall enable VC on the move, we
are yet to see how it impacts the fortunes of the vendors.

For now, VC is riding high on the growth curve and is expected to throw up
even more interesting numbers for the 2010 Top20. So we hope!

Mehak Chawla

mehakc@cybermedia.co.in