Cisco $3 Billion Tandberg Purchase Heats Up Video Conferencing Market

Acquisition prompts new TelePresence business unit

October 8, 2009
By

D.H. Kass

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Cisco Systems Inc. last week ponied up $3 billion in cash for Tandberg, a Norwegian maker of video communications equipment, in a move that fleshes out the vendor’s roster of video conferencing solutions and extends its competitive position in the teleconferencing and collaboration market.

Tandberg’s smaller, less expensive video conferencing products afford Cisco immediate access to mid-sized accounts, a segment the vendor has been unable to successfully approach with its high-end, pricey TelePresence systems.

The deal is important and unusual in the sense that it carries with it the potential not only to broaden Cisco’s spot in the teleconferencing and collaboration market but also to further enliven the entire sector.

The economic downturn has raised the visibility of and heated up the video conferencing segment, as businesses of all sizes pare back travel budgets, making collaboration over networks a far more attractive, cost-effective option with which to communicate.

Both Cisco and Tandberg officials seemed to recognize the significance of their association beyond spreading the reach of each company.

“People will look back and say that this was an inflection point in the market,” said John Chambers, Cisco chairman and chief executive. “The innovative power of these organizations truly will disrupt the collaboration market. We will have our vision of the way people communicate come through.”

“We are seeing customers really adopt the technology across the board from the high end down to the desktop,” said Fredrik Halvorsen, Tandberg chief executive.

Cisco said it expects to finalize the purchase in the first half of next year.

Once the transaction is completed, Halvorsen will head Cisco’s new TelePresence Technology Group and report to Marthin De Beer, Cisco senior vice president of emerging technologies.

In pegging the revenue opportunity for collaboration technologies--driven by networked Web 2.0 development--at about $34 billion, Cisco officials touted the Tandberg deal as an example of the vendor’s ability to grow by recognizing and acting on market transitions.

“Our customers told us that there’s another company that has almost completely complementary [video communication] products to ours from mid-range down to desktop,” said Chambers. “We almost sell each other’s products without realizing it.”

A consolidating market

The teleconferencing and collaboration segment is rapidly consolidating into a handful of large, powerful competitors and some specialists, as influential players jockey for ranking.

Hewlett-Packard Co. sells large, sophisticated systems similar to those offered by Cisco while IBM Corp. and Microsoft Corp. offer desktop video conferencing products.

Polycom sells products that cater to the video conferencing and voice markets, and upstart LifeSize, taking aim at the low end of the market where Cisco competes with its WebEx product, just introduced an HD-based video conferencing unit for under $2,500.

Both Tandberg and Cisco rely heavily on channel partners to sell their products. Shortly after announcing the deal, Chambers and Halvorsen addressed opportunities the combined companies will present to their channel partners.

“This is a game changing opportunity for our customers but it is even more exciting for our partners and what we can do together,” Chambers said. “There is no revenue overlap with our products. It really is complementary.”

“We have had a loyal set of partners all along,” Halvorsen said. “There are many additional opportunities that this will bring for our whole partner base.”

Cisco’s channel partners will be able to sell the entire Tandberg line, Halvorsen said.

Chambers cautioned channel partners not to alter their go-to-market strategies to include the Tandberg line until the deal closes.

“We do request that each of our partners stay focused until the deal is done,” he said.

The Tandberg agreement marks Cisco’s fourth acquisition this year, adding to its voluminous and aggressive history in gobbling up technology companies. Since 2000, the vendor has purchased more than 85 companies in deals valued in excess of $40 billion.

TAGS: video,Cisco,acquisition,Tandberg,teleconference



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