Cisco Underestimated Skype's Value

Publisher's Outlook

Cisco Underestimated Skype's Value

By Rich Tehrani, CEO, TMC  |  April 25, 2012

This article originally appeared in the April issue of INTERNET TELEPHONY magazine.

Cisco is far from the most open company in tech, so it is ironic that the company is concerned about a monopoly over videoconferencing a result of the Microsoft (News - Alert) acquisition of Skype.

The company’s Martin De Beer said, “For the sake of customers, the industry recognizes the need for ubiquitous unified communications interoperability, particularly between Microsoft/Skype and Cisco products, as well as products from other unified communications innovators.” This statement coincided with Cisco challenging an EU court over the acquisition.

One has to wonder, however, if Cisco underestimated Skype’s value. After all, the company has been sold twice in the last few years, and the networking company didn’t close the deal either time.

The thesis that Cisco did not realize Skype’s importance is backed up by Cisco’s other actions – launching its consumer video service Umi, a Skype competitor. As you may recall I immediately said this service would fail and backed up that statement with 10 reasons why.

As a reminder, here are the first three. No. 1 is the most important for now.

1) Skype. Elaboration would be talking (writing) down to you.

2) Cisco's solution at $599 for the equipment and $24.99 per month is insane for a new consumer technology that has little to no network effect related to Metcalfe's Law. Oh, and you need 3.5 mbps upload speed for 1080p calls – meaning higher broadband bills for some.

3) FaceTime: Apple's (News - Alert) FaceTime is free and even though at the recent ITEXPO many people commented that using the software on an iPhone 4 is not great because inevitably your hand gets tired and falls to your stomach causing a nose-hair view of yourself to be transmitted, we can expect Apple to FaceTime (News - Alert)-enable everything it sells. Will Umi interoperate? If not, how will it compete?

And, yes, the Umi service failed shortly thereafter.

What is Cisco’s stance on video openness? In October of last year, the company responded to critics regarding its somewhat closed video ecosystem and decided to become more open. But this was five years into selling its telepresence products.

If anything, Cisco has been one of the more closed vendors in the market.

Remember what happened when Cisco announced it would buy Tandberg? Well, Stefan Karapetkov (News - Alert), emerging technologies director for Polycom, said the following: Cisco announced today that they will acquire Tandberg, and this will have significant impact on the video communications market. It will reduce competition, and limit customers' choices, especially in the telepresence space. It will, hurt Radvision who now fills the gap in Cisco's video infrastructure portfolio.

I am, however, more concerned about the standards compliance that has been the pillar of the video communication industry for years. Tandberg and Polycom worked together in international standardization bodies such as ITU-T and in industry consortiums such as IMTC to define standard mechanisms for video systems to communicate.

Cisco, on the other hand, is less interested in standards, and considers proprietary extensions as a way to gain competitive advantage. The concern of the video communication industry right now should be that the combined company will be so heavily dominated by Cisco that standards will become last priority, far after integrating Tandberg products with Cisco Call Manager and WebEx.

Telling is the fact that both Tandberg and Cisco declined participating in interoperability events over the last few months.

But this doesn’t mean Cisco hasn’t done the correct things for its shareholders by being more closed than most other companies. After all, if you are a dominant provider of a solution you aren’t required to open up your product unless a government forces you to. And this is why Cisco has inserted itself into the regulatory approval in Europe of the acquisition of Skype by Microsoft. De Beer continued, “Cisco does not oppose the merger, but believes the European Commission should have placed conditions that would ensure greater standards-based interoperability, to avoid any one company from being able to seek to control the future of video communications.”

And this is the challenge Cisco faces. Microsoft had a Lync Pavilion at ITEXPO East 2012 in Miami and it was mobbed – lots of attention and buying – and it will expand in ITEXPO (News - Alert) in Austin, Texas. And this was before Skype integration. Based on what I saw, enterprise buyers and resellers want UC solutions from Redmond.

Cisco will no doubt lose more share to Microsoft in the enterprise – this seems to be a given. But when FaceTime is a fast-growing competitor and is very closed, do we need to force Skype and Microsoft to open? In fact, I predict that in five years Cisco will have to worry more about Apple in the enterprise than Microsoft and Skype. Good luck getting Apple to open up.

Edited by Jennifer Russell