Videoconferencing's Coming Boom: Polycom CEO Predicts Rapid Growth


The telecommunications industry has been touting videoconferencing technology since at least 1964, when AT&T displayed its Picturephone at the New York World's Fair. In fact, the concept of the videophone is nearly as old as the phone itself, and prototypes predate the Beatles by many decades.

Given its long history, one might have expected that the public would have latched onto the technology, but that just hasn't been the case. While new modes of communication, from email to texting, instant messaging and wireless phones have been adopted at astonishing rates, video communications have lagged -- at least until now.

Thanks to a combination of better technology, lower prices and faster Internet connections, video communications finally are moving into the mainstream.

"The industry is at an inflection point," says Andy Miller, CEO of Polycom (PLCM), an industry leader based in Pleasanton, Calif. "In the past, video communications was mostly a boardroom technology, but that is rapidly changing," Polycom roughly splits the $2 billion market with its Norwegian rival Tandberg, which Cisco (CSCO) acquired earlier this year.

Revenue growth for the industry is rising up, according to Miller. He expects the company to grow about 40% this year. IDC (IDC) predicts the compound annual growth rate for the industry for the next five years will be about 23%, roughly twice as fast as during the previous five.

Telehealth on the Cutting Edge

The growth in the videoconferencing industry reflects the rise of a video-based Internet culture driven by websites such as YouTube and Metacafe. Miller views video as part of the larger market for unified communications, which combines audio, video, IM, file sharing and other forms of networking. That market is valued at $15 billion to $20 billion.

Until recently, videoconferencing technology was used mostly as a platform for board meetings, but that's changing fast. The Obama administration has budgeted $400 million to promote telehealth technologies that support medical professionals in providing health care long-distance. For example, doctors at the University of Pittsburgh Medical Center use Polycom video equipment to make remote diagnoses for patients around the country. The technology has been adapted for use by as diverse sectors as education and power utilities.

"We took share in the first quarter," says Miller, a former Tandberg CEO who was tapped to lead Polycom in May. Polycom shares are trading at about $30, up from a 52-week low of about $20.

Polycom has based its strategy on open communications and better video compression. In February, it reached an interoperability agreement with a number of other tech companies including Microsoft (MSFT), Hewlett-Packard (HPQ), IBM (IBM), Siemens (SI), Broadsoft (BSFT), Juniper (JNPR) and Avaya. The group says it can deliver full-motion HD-quality video with 512 kbps of bandwidth, and full-motion DVD-quality video over 128 kbps. Most household broadband services offer at least several times that amount of bandwidth, making high-quality video communication for the mass market feasible. Polycom also is working to drive the product into the mainstream by integrating it into browser applications such as Microsoft Live Meeting.

Miller says video communications will get another boost as mobile communication hardware and networks become more robust. For example, Apple's (AAPL) iPhone 4 has a front-facing camera, which will pave the way for the videophone as a mass-market mobile app for consumers and enterprises alike. That would realize a dream nearly as old as telecom itself.