Riding high on the growing demand from the government sector, India emerged as the fourth largest market for videoconferencing end-point equipment in the Apac region. With the growth momentum continuing, India is expected to surpass Australia to become the third largest videoconferencing market in Apac, in the next two to three years. Growing at a CAGR of 20%, it is estimated that India will become the highest growth market in the region.

While the government and corporate sectors will continue to fuel the demand for videoconferencing solutions, relatively smaller markets like education and healthcare will start to bring in sizeable contribution as well. Considering the growth projections, and the way market dynamics are playing out, India is now among the top focus markets for videoconferencing vendors. Vendors are already escalating their investments to strengthen their base and deepen market penetration.

In FY 08, the market for videoconferencing equipment (both endpoints and infrastructure) touched Rs 128 crore, up 16% from revenue of Rs 110 crore in FY 07. At Rs 103 crore, endpoints accounted for 80% of videoconferencing equipment revenue. As against a market size of Rs 90 crore in FY 07, the endpoints market witnessed a 14% growth. Though a small market in absolute terms, the infrastructure equipment revenue grew faster at 25%, and touched Rs 25 crore in FY 08, up from Rs 20 crore in FY 07. The market comprises multipoint control units (MCUs)/gateways and products like gatekeepers, management tools and NAT/firewall traversals.

The endpoint equipment market continues to be dominated by group systems, with the desktop videoconferencing accounting for a paltry 2% of total endpoint market. Vendors did try their best to fuel the desktop videoconferencing market, by bringing down the prices of entry-level endpoint equipment. Polycom was aggressive on the pricing front, as it slashed the price of its V700 equipment from Rs 2.5 lakh to Rs 1.5 lakh. However, the cost still plays out to be too high for providing it to individuals as a personalized videoconferencing tool. Another dampener to the uptake of desktop videoconferencing has been the fact that Web-conferencing is more common among desktop users. Further, the availability of software like Skype is preferable for one-to-one conferencing, as its free and easily available. However, the segment is finding its niche among the top-level management of organizations.

The government segment rode on the demand for videoconferencing in the judiciary and the SWAN projects. In the corporate segment, the demand was driven by BFSI and the IT/ITeS companies.

Vendor Play-out
One of the biggest highlights in the Indian videoconferencing endpoint market is the unevenness of revenues distribution. The landscape is far from a level-playing field, with the market highly skewed toward a single vendor. Polycom has maintained its dominance over the years, and, in FY 08 too, it accounted for a major chunk of the market with a 60% share. However, its a close call when it comes to the remaining 40% of the market as competition intensifies among remaining vendors. Polycoms nearest competitor, Tandberg is way behind at 19% share but the gap narrows down with Aethra close behind at 10%, Sony at 6% and others at 5% market share.

Polycom has been able to leverage its strengths of market reach and regularly upgrading technology. The company follows an indirect business model, barring a few select large accounts. It has been able to maintain a good base of channel partners to provide it the necessary penetration into the market. And with a strong partner like Ingram Micro, the company has been able to address a much larger and wider base of customers. Further strengthening its channel strategy, Polycom also appointed sixty channel partners through its Polycom Select Partner Club.

Polycom maintained its dominance by a huge margin. Its nearest competitor, Tandberg was less than half its size in terms of revenue. However, after the big gap between Polycom and Tandberg, the competition gets close and aggressive

Tandberg, which commands higher pricing than its competitors, has been growing its presence in India through staff and office expansion. Aethra has been successful in getting channel partners with strong domain expertise in verticals they have targeted. The companys empanelment with NIC brought good business from the government segment.

On the other hand, Sony has reworked its channel and marketing strategy. Lifesize and MLabs have been relatively newer vendors in the market. MLabs, which offers software-based videoconferencing solutions, has been able to drive this differentiation as an advantage and gain market penetration despite being in the Indian market for around two years only. The success of Lifesize, another relatively new player, will depend on how fast is the uptake of IP-based networks and high definition (HD) videoconferencing, its area of focus.

Another important consideration is the fact that market distribution among vendors has not changed much over the previous year. For instance, Sony and other vendors gained at the cost of Aethra. This again was a matter of 1-2 % point change. Not having been able to either accede or concede significant market share indicates that vendors have maintained their dominance in specific markets they are focusing on. So, even if certain vendors have been able to get a very small share of the market, they have been successful in maintaining their stronghold therein.

Growth Drivers
Factors that create the perfect storm for video communication have intensified, driving up the demand for videoconferencing solutions. While on one hand, businesses are more global than ever, on the other hand, they are facing rising inflation. During the year, one of the biggest challenges for enterprises has been to maintain global operations amid intensified cost cutting. Besides, FY 08 has also been a year of green focus, with enterprises becoming more conscious about environmental issues and reducing carbon dioxide emissions. Cutting down on travel is one of the first steps, and videoconferencing turns out to be the logical solution.

More specifically, over the last two years, infrastructure in India has also become more conducive to the use of videoconferencing solutions. The situation has improved with respect to availability, affordability and reliability of networks. Bandwidth is one of the most important factors for the success of videoconferencing applications. Customers are gradually shifting from ISDN to IP network which means that bandwidth is becoming readily available, enabling higher-quality video calls at lower costs. Therefore, performance glitch that was once a major hindrance has been taken care of to a large extent, barring a few locations in smaller cities where connectivity is still a problem.

Service providers and telcos provided further spurt through their offerings in the videoconferencing space. Though the momentum started building up in FY 05, when service providers and telcos began offering videoconferencing services, significant thrust came only in FY 08 with the uptake of opex and managed services models. This improved the affordability of videoconferencing solutions, as enterprises didnt have to invest upfront in the equipment. This also opened up the market for SMBs, which hitherto was restricted due to cost factor.

FY 08 has also been a year of green focus, with enterprises becoming more conscious about environmental issues and reducing carbon emissions. Cutting down on travel is one of the first steps, and videoconferencing turns out to be the logical solution

Telcos in India are actively eyeing videoconferencing as an important value added service to gain deeper access into enterprise accounts. While the last two to three years saw tie-ups with vendors, FY 08 was the time when telcos focused their energy on the kind of services to offer and actively scouting and bagging enterprise customers. This largely fueled the demand for infrastructure equipment. Reliance with its Reliance World Videoconferencing sites across the country has been a major contributor to vendors infrastructure equipment revenues. Increasing activities of telcos have resulted in the Indian market emerging as one of the fastest growing markets in Apac.

Market Landscape
The adoption of videoconferencing percolated to newer segments in FY 08. More companies are extending their videoconferencing networks to include key partners, suppliers, and customers. Enterprises understand the RoI and payback on technology, and even external partners are gradually becoming candidates for it.

Within large enterprises, expansion of videoconferencing is happening as an intra-company communication tool in offices in India and just a pipe to sites outside the country. After this, the next phase will be the adoption of technology for intra-campus and intra-office communication. Another trend is the percolation to mid-market companies, as it allows them to globalize in a more cost effective manner.

The government vertical spearheaded the adoption of videoconferencing considering the fact that its the biggest buyer for videoconferencing endpoint equipments with a 39% market share. The government vertical revenue is being driven by NIC, which has been establishing videoconferencing facilities between various government departments. NIC has created videoconferencing sites/rooms that can be used by different departments for communications purposes. Both Polycom and Aethra have been successful in getting good business from NIC.

Also, within the government, the judiciary segment, which is using videoconferencing in jails as part of judiciary reforms, gained significant ground in FY 08. And so did the adoption in SWAN projects. In fact, the e-Court Committee set up by the Ministry of Justice has put forth videoconferencing as one of the technologies for modernization of courts and jails. During the year, Polycom maintained its stronghold in the government vertical bagging key deals including the HP, West Bengal, Maharashtra, and Karnataka SWAN projects. On the judiciary front, it bagged the telejustice project for Bihar, Haryana, Punjab, Maharashtra, among others.

Telemedicine and distance learning are among the applications that are still relatively nascent but have the potential for future build-out. Videoconferencing is now also working on a much larger canvas in rural applications.

The BFSI and IT/BPO markets dominate adoption in the corporate segment, which is close behind the government with 38% market share. The driving factor being that better collaboration is needed for IT/BPO companies between geographically dispersed work-force and customers. Financial companies also have been using it to expedite decision-making processes. The most common applications being used in the corporate segment include review meetings, interaction with clients, product launches, conferences, interviews, etc.

In the Fast Lane
With the market gradually shifting to IP-based networks, the videoconferencing endpoints market too saw a drift toward IP endpoints. However, while the migration is happening, a major chunk of customers want to have a backup. As a result, the market is going for equipments that support both IP and ISDN. The migration to more IP-based usage and hence the deployment of more IP endpoints is expected to happen over the next two years. This shift will lead to easier deployment and more optimum performance of videoconferencing solutions.

The shift toward IP, in effect, also pushed the market for HD systems, as HD is highly bandwidth intensive. During FY 08, the market witnessed the initial uptake of HD systems. Though overall a nascent market, the uptake was encouraging for some vendors. In fact, for vendors like Polycom the initial response turned out to be more than expected, as the company managed to build strong momentum therein. During the year, HD accounted for almost 45% of its revenues. Besides movement toward IP, narrowing price gap between HD and SD systems also provided the required thrust, thereby making HD a little more affordable. Another factor working in favor of HD adoption is the fact that the Indian market has the advantage of leapfrogging to the next technology, as not much legacy has been created. So, the Indian market doesnt need to re-invent the wheel.

What is also driving the demand for HD systems is the growing usage of high bandwidth videoconferencing applications. India has emerged as the destination for knowledge and specialized services, and as the backhaul for the gaming industry. It is now also emerging as the exports hub for products like gems and jewellery. Even major retailers like WalMart are also increasingly sourcing from the Indian market. In such a scenario, speed-to-market and emphasis on details is imperative. This, in turn, is driving the demand for high quality and high-resolution picture, and therefore the upgradation from SD to HD systems. Telemedicine is another area that is expected to build demand in the future, again because of the need for real-time, high quality video.

Emerging Trends
Telepresence, the higher end of HD, is among the new trends emerging in the Indian market. Though the market for telepresence in FY 08 was very small, the technology did started making its presence felt. Telepresence delivers real-time, face-to-face interactions using advanced visual, audio, and collaboration technologies. In some cases, these products use a room-within-a-room environment along with life-size images, and high-definition resolution with spatial and discrete audio to create a live, face-to-face meeting around a single virtual table. Cisco has been an aggressive player in the telepresence segment, wherein it has a tie-up with Polycom.

As Indian companies increasingly go global and MNCs enter the market, one will see more investments in Telepresence. Moreover, there will be certain niche applications that would require the highest end of video quality offered by telepresence. However, from an overall market perspective, the cost of technology is too prohibitive for mainstream adoption anytime in the near future. The Cisco TelePresence 3000 costs approximately $300,000 for each installation, or room, while the Cisco TelePresence 1000 runs about $80,000 per room. But vendors are working toward more affordable entry-level telepresence solutions to increase the addressable market. For instance, Cisco launched the Cisco Personal TelePresence 500 priced at $20,000. Over the years to come, Cisco is also working toward launching solutions for the home user at the price point of $5,000.

In line with the trend toward greater convergence and collaboration, conferencing forms an integral part of the new buzzword Unified Communications (UC). For enterprise telephony players like Cisco, Avaya, Nortel, Alcatel, etc, when they are doing convergence of their telephony, conferencing is a big element in that. As a result, these vendors are now tying up with videoconferencing equipment vendors to complete the basket of voice, video and data. Though, for the present, there are not many UC deployments in the country, when the UC adoption does pick up, it will provide the additional spurt to the videoconferencing market in India.

3G is another technology that will define the future trends in videocon-ferencing, ie, videocon-ferencing on-the-go. This will herald videoconferencing on mobile as well as allow users to connect their phones to the laptop and enable high-speed videoconferencing sessions on the laptop. However, this is a trend that will catch up in the distant future, as 3G spectrum is yet to be allocated.

Shipra Malhotra
shipram@cybermedia.co.in

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