Videoconferencing's New Appeal
CNET News.com, 12/18/01
By SERGIO G. NON
News Analysis: Fear of flight apparently has Wall Street flocking to shares of videoconferencing companies.
When U.S. stock markets reopened Monday after missing four sessions, no technology companies got a bigger boost than
makers and sellers of conferencing systems. In fact, shares of videoconferencing players Polycom, ACT Teleconferencing,
Wire One Technologies and MCSi posted rare gains on Monday as shares of airline and online travel companies fell sharply.
Since the attacks on the World Trade Center and Pentagon last week, analysts have speculated that travel will be
New scenes of assault rifle-toting guards mixed with long queues of would-be passengers summed up the state of air
travel in the wake of four hijackings and thousands of deaths. Flying will cost more, take longer and, regardless of
the reality, feel more dangerous. That would be reason enough for executives to slash their travel budgets.
"We believe that companies may begin to increase their use of video and audio conferencing in response to the more
difficult travel situation," said Wells Fargo Van Kasper analyst J.P. Mark, who has a "buy" rating on
Polycom, the largest company in the audio and video conference market.
Polycom on Monday declined to comment on any possible sales increase spurred by the terrorist strikes. But a Polycom
vice president last week said the hijackings would "have an impact" on the use of technology.
And a number of brokerages on Monday echoed Wells Fargo Van Kasper's view, including Prudential Securities, Thomas
Weisel Partners and Pacific Growth Equities. Polycom, ACT Teleconferencing, Wire One Technologies and MCSi saw stock
price gains ranging from 15 percent to 47 percent, after several reports suggesting that companies would use video
conferences in lieu of in-person meetings.
Monday's attention was rare for video conferencing companies. video conferencing so far hasn't spread widely in
corporations largely because executives like flying, said Ira Weinstein, of C-Tech Consulting in Marlboro, N.J.
"It's that business-travel experience that a lot of executives choose not to give up," he said. "It's a
bit of an ego thing, and now some people take their families with them on trips."
In addition, travel companies have far more resources to promote themselves. "Travel's a huge industry, while
video conferencing is tiny," Weinstein said.
Airlines long have feared video conferencing would cut into business travel. The travel industry has tracked the cost
of vs. flying, and their data indicate that when rates fall for the ISDN lines commonly used by video conferences, air
travel falls along with them, said Will Strauss, president of Forward Concepts, which carried out video conferencing
market research until recently. Market researchers from American Airlines used to get data from with Forward Concepts,
"Some of the folks who bought our video conferencing research in the past were airlines," he said.
"There is certainly a concern."
Yet those factors probably wouldn't be enough to drive long-term, sustained growth in conferencing systems. The
industry has seen spikes in demand after previous terrorist activity, but they have always subsided as executives have
gone back to flying.
But this time market research analysts believe the technology is good enough to keep some people grounded.
"If you have a system that's 4 or 5 years old, that's a dinosaur," said Andrew Davis, senior analyst and
managing general partner with Brookline, Mass.-based Wainhouse Research. "The new systems today are very reliable.
The horrendous events of last week will cause people to rethink a lot of (travel) decisions, but people should do video
Where video conference technology used to be clunky and difficult to install, a reliable system can be set up in an
hour these days, Weinstein said. "If they can program a VCR, they can do a video conference," he said.
The blinking "12:00" on innumerable video recorders around the country suggests that even that level of
sophistication might be too much for many people, and analysts say ease of use can be improved. Still, conferencing
systems are far easier to use than they were only a few years ago. And video conferences work almost as consistently as
the private branch exchange (PBX) networks used for traditional phones.
"Reliability is phenomenal," Weinstein said. "We're not at PBX levels, but we're getting there...I also
don't know that we need to be (at phone reliability levels), because audio is always a fallback. I don't think I'd need
the 99.999 (percent reliability of phones). I don't know if people would miss the fifth nine in the audio world."
So why isn't video conferencing a bigger hit? The quality of video meetings for individuals varies because of
bandwidth. At this point, the Internet network--not the video conference technology itself--is the biggest impediment
to mass adoption of video calls, analysts said.
"It's a 'last mile' problem," Wainhouse's Davis said. "The barrier to the consumer is the network."
But corporations can achieve reliable quality because many of them built their own networks, or can afford ISDN lines.
And video conferences should appeal to businesses in a weak economy, because they save money for companies whose
employees travel often, proponents argue.
A WorldCom study in 1998 concluded that the average meeting with five people would cost $8,000 less with a video
conference, compared with flying four of the participants to the fifth person's office. To be sure, a large
communications carrier like WorldCom is biased on the value of videoconferencing, but much of the study's information
came from the travel industry's own data, Weinstein said.
A video conference system that could accommodate that five-person meeting would cost roughly $100,000, Weinstein said.
Assuming WorldCom's estimate is accurate, that means the system would pay for itself after 13 sessions.
"Basically, you can pay for a system in a few weeks in some cases," Davis said.
Most businesses that do use video conferencing aren't trying to save money, but rather time. Meetings over video
systems tend to be shorter and more focused than audio conferences, Weinstein said.
Gauging market penetration is difficult because it's hard to determine how many employees are using a company's video
conference systems. There are fewer than 100,000 video systems installed for conference rooms, Davis said, adding that
he estimates that no more than 3 percent of the conference-room market has video systems. He guessed that the total
video conference industry in the fourth quarter would grow 35 percent from the third, with demand largely fueled by air trepidation.
"I think the impact will be huge," Davis said. "There's going to be a lot of motivation for business to
look for an alternative to flying."
Much of the resistance to video meetings these days is psychological. People simply aren't used to talking to a camera.
"The fear people have of being in front of a camera is what we have to overcome," Weinstein said. "These
companies have good technology, but they haven't gotten the word out."
Conferencing will never completely replace live meetings, however. First-time sales calls, for instance, are probably
better handled in person, analysts said.
"Videoconferences are the maintenance visit, the second sales call, the employee review after the employee has
already met with his direct manager," Weinstein said. "It's not a replacement for travel, but an alternative."