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Did the market for Cisco TelePresence hit a brick wall?

October 6, 2009 | Chris Payatagool
By Brad Reese, Via Network World

Thumbnail image for cisco_cts3000.jpgBusinessWeek reveals an interesting motive as to why Cisco purchased Tandberg.

Cisco's most recent Form 10-K filed with the U.S. Securities and Exchange Commission, seems to alarmingly warn investors:

    The products and technologies that we identify as "emerging technologies," such as
Cisco TelePresence systems, or "advanced technologies" may not prove to have the market success we anticipate, and we may not successfully identify and invest in other emerging or advanced technologies.

For financial reporting purposes, Cisco lumps its TelePresence products under Other Products. And interestingly enough, it was Cisco's Other Products which experienced the greatest percentage drop in sales (-26.1%) for Cisco's fiscal year 2009.

Cisco Net Product Sales by Groups of Similar Products

Curiously and simultaneously, Cisco also stated in its recent Form 10-K filing (page 20) with the SEC:

    The decrease in other product revenue in fiscal 2009 compared with fiscal 2008 was primarily due to the decline in sales of our cable, optical, and service provider voice products, partially offset by increased sales of emerging technology products such as Cisco TelePresence systems.

My interpretation of the financial meaning of the words "partially offset," could be as little as $100, especially when Cisco purposely omits an actual dollar amount.

So why am I suspicious that Cisco omitted an actual dollar amount for its TelePresence sales increase?

Well, mostly because Cisco has never been shy about revealing the actual dollar amount increases and/or decreases of its product sales, for example (page 20):

    Sales of unified communications products increased by approximately $30 million, primarily due to increased adoption of our web-based collaborative applications and related conferencing media.

andrew-davis.jpgAndrew Davis - Senior Partner of independent market research firm - Wainhouse Research, was quoted in a recent BusinessWeek article regarding his thoughts on the market potential of Cisco TelePresence:

"Cisco's approach was definitely going to hit a brick wall.

"There are only so many CEOs you can take out on the golf course and sell a TelePresence system to."

According to the same BusinessWeek article, Cisco's huge marketing push behind TelePresence has achieved fewer than 500 customers.

craig-malloy.jpgBusinessWeek then gave the harsh take of Craig Malloy - the CEO and Co-Founder of Cisco TelePresence competitor - LifeSize Communications, who claimed that in order to win business, Cisco has had to slash the price or even give away TelePresence systems to customers buying other Cisco products. Malloy then stated, "That's a reason why they sometimes couldn't give TelePresence away--because it wouldn't work with anything anyone else had."

BusinessWeek also duly noted Cisco's denial of Malloy's claim.

Nevertheless despite Cisco's denial, The New York Times reported that Sean Tyrrell, a Tandberg global account director, also confirmed Cisco has been giving away TelePresence:

    If Cisco's Telepresence is soooo good, why do they have to always give it away? In every global account I am involved in, Cisco gives these things away. The fact is they are expensive to operate, limited in that you can only see a few sites at a time, they ought to call it Tele-Absence....They give it away because for every $ companies spend on this, they'll spend seven times that amount on network upgrades.

However, it's my opinion that Cisco's purchase of Tandberg will be a financial disaster for Tandberg's platinum, premier and authorized partners.

And why do I believe that?

Because Cisco is famous for offering its channel partners some of the lowest profit margins in the industry.

Furthermore, according to yet another quote from Cisco TelePresence competitor - LifeSize Communications, only this time in a ChannelWeb story:

    "Video communication is a very profitable space in which to be a VAR, and generally speaking, in this space, resellers have been making margins in the 20 to 30 point range. That's not the world of being a Cisco partner -- you make most of your margin there on services."

I just can't see Cisco allowing its "army" of authorized resellers to earn 20 to 30 points!

[via Network World]

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