Channel: Cisco's Tandberg Buy Redraws The Battle Lines Around Video

Cisco's planned $3 billion acquisition of video conferencing market leader Tandberg represents major consolidation in an industry that is already down to a select few commanding players. That could mean a major boon or broadside to the channel, depending on the vantage point, observers told Friday.

For starters, the move gives Cisco a broader reach into midmarket and small business territory it couldn't touch with the high-end TelePresence, and also takes Tandberg out of play, vaulting Cisco into the number one spot for video conferencing market share worldwide.

But more broadly speaking, for channel partners of Cisco, Tandberg, and their competitors, it's a seismic move in a marketplace and also a potentially positive one. Cisco partners will broaden their reach, competitors get to trumpet their scarcity and independence against the Cisco machine, and the video communications market becomes more popular than ever -- a rising tide that will float a number of boats.

"On the macro scale, it's good for the industry as a whole," said Joan Vandermate, vice president of marketing for Polycom's video solutions group. "Cisco is a major player with a capital 'm,' and they're not going to throw money away on a minor submarket, so it validates the idea that this market is a growth opportunity and that after two decades, video is finally here."

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Vandermate said that from where she sits at Polycom, it isn't so much that Cisco will now have Tandberg's portfolio as Polycom no longer has to compete with both Cisco and Tandberg.

"Tandberg's been very publicly on the market for a year and half, remember, so it was bound to be somebody," Vandermate said. "For us, it's one fewer front to fight on."

The move by its very nature, however, is disruptive for the channel. Cisco and Tandberg partners told they greet the acquisition with a mix of excitement and trepidation.

"We're both a Tandberg partner and a Cisco partner, and I think that our challenge in the past has been to figure out how video fits in our overall go-to-market strategy," said Mike French, vice president of marketing for INX, a Houston-based solution provider and Cisco gold partner. "It's almost impossible to segment out video from unified communications and collaboration, but when you talk about the video component in our collaboration suite, we were struggling to figure out from top to bottom how to present the right video solutions and align the right partners."

French said INX was committed to Cisco's TelePresence at the enterprise level but lead with Tandberg in midmarket and small business plays. The thought of Tandberg as a part of Cisco means INX doesn't have to choose, at least between manufacturers.

"We're tickled pink that this happened. It solves a problem for us having to work with two distinct manufacturers and two video platforms for a single collaboration," he said. "The challenge now for Cisco and Tandberg is how they're going to integrate everything very quickly."

It's there -- how Tandberg products will fit into Cisco's overall portfolio -- where things will get sticky, channel observers contend.

"I'd like to see Cisco protect that [Tandberg's] partner base and not just all of a sudden open up the product line to their entire channel," French said. "How is Cisco going to help those partners that have already made significant investments in Tandberg and what's the roadmap for integrating Tandberg, specifically the collaboration software. Is it all going to migrate to WebEx? Plus, as a marketing guy, how are they going to market the two families together. What suites stay? There are very strong intersections all over the place. Tandberg has a high-end telepresence solution that competes directly with Cisco's TelePresence. They can't keep both, so what happens there?"

"We need to work with Cisco and see where Tandberg is going to land within the Cisco architecture," said William Corbin, executive vice president of global strategic relations at Westcon Group and top executive at Comstor Worldwide, the distributor's Cisco-centric unit. "But we're really excited about it. And what an aside for [VARs] who have a vested interested in telepresence communications. This presents a tremendous upside for them and will probably open the eyes of those partners who are going to be toying and thinking about adjacent video technologies anyway."

Other channel partners are concerned that strong Tandberg business would get swept away as Tandberg's channel is folded into Cisco's massive partner community.

"I really don't know what to make of it at the moment. It seems like a good thing, but I love Tandberg and I love a lot of what they do and it's going to change my business a lot if Cisco suddenly sunsets a lot of that stuff and gives us no indication of what to lead with," said one solution provider, who asked not to be identified. "Plus, everybody in the world sells Cisco. Guys down my street sell Cisco, not necessarily video, and I sell Tandberg. Are they getting my business because Tandberg's video portfolio is now in their reach automatically?"

Next: Tandberg Competitors Mount Up For Channel Gains

It's that type of uncertainty that Polycom and other standalone video communications competitors like LifeSize Communications will now seek to exploit.

"We've been getting a lot of phone calls since the deal was announced, and that's from both Tandberg and LifeSize partners," said said Michael Helmbrecht, director of product management for LifeSize. "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."

That conflict, Helmbrecht said, is music to LifeSize's ears.

"We're hearing from a lot of people who may be having second thoughts about their future with Cisco and Tandberg and talking about how we can make things good for them," he said. "There is a vast network of companies that compete with Cisco every day. We're one of them."

"Let's say a zillion Cisco resellers now get access to Tandberg videoconferencing products. To me, someone would say, well, what else is there available?" said Von Bedikian, president and CEO of GBH Communications, a Burbank, Calif.-based solution provider. "That may in essence help this industry continue to grow. We can take advantage of it and use it to make short-term tactical gains. It's not going to make a big difference to us, but we'll have to wait and see."

Long a Polycom-heavy shop (it was the country's first registered Polycom reseller), GBH does a significant portion of its video technology sales with both Polycom and LifeSize, whereas its Tandberg portfolio, Bedikian said, represents less than one percent of its business.

He sees Polycom and LifeSize feeling benefited much more than threatened, in other words.

"When the number one player buys the number two player, there's less competition and greater opportunity for smaller companies like a LifeSize," said Bedikian. "The smaller players in the industry becomes more viable and more prevalent -- number fours become number threes and so on -- and all of a sudden there's more interest in looking at their solutions, too."

Polycom's Vandermate says Polycom and other Cisco competitors have history on their side, too.

"Every time a company tries to become too much to too many, every time a company gets too large and too dominant and tries to extort customers and says they can buy from me and only me, the market inevitably rebels," Vandermate said. "An ecosystem approach always tears down that single vendor approach. Always. It can take a long time, but it's inevitable."

The Cisco-Tandberg acquisition comes at a time when many observers also consider Polycom a prime acquisition target. As Wells Fargo analyst Jess Lubert put it in a research note Thursday, Cisco buying Tandberg constitutes "a meaningful threat to Polycom's market share," which might make it an attractive buy to, say, an HP or another powerhouse looking to bolster its video portfolio.

Polycom's range of video communications tools and partnerships -- it has strategic partnership and OEM agreements with everyone from Cisco and HP ProCurve to Motorola, IBM, Avaya and Microsoft, many through its VIEW certification program -- have kept its position solid. So have moves like bringing on former Tandberg CEO and Cisco executive Andrew Miller, who joined Polycom as its new executive vice president of global field operations in July 2009 and is a key figure in Polycom's channels.

Then, there's the not exactly small matter of Tandberg's strategic alliances -- it has strong ties to both Avaya and Microsoft, for example -- and how they will change.

"The acquisition should effectively end Tandberg's alliances with Avaya and Microsoft, which compete with Cisco primarily in IP telephony and unified communications respectively," said Technology Business Research analysts in a Friday research note. "TBR believes that both companies will now be forced to either align themselves with another industry player, such as Polycom, or perhaps make a video conferencing acquisition of their own."

Does it all mean Polycom's gearing up to be acquired?

"Anything is always possible, but we are not hanging a giant for sale sign on the building, no," Vandermate said. "We are very bullish on making it as the only independent left, because it creates some great partnership opportunities. Cisco has a lot of competitors, from HP to Microsoft and Avaya and Siemens, and all those players need video to augment their portfolios to offer a complete solution."