Polycom Struggles to Remain Relevant in Changing Market

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April 17, 2012 Companies: AAPL, CLRO, CSCO, CTXS, GOOG, LOGI, MSFT, PLCM, RVSN, SHOR

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Reverdy Johnson, rj@blueshiftideas.com, 415.364.3782

Summary of Findings

All 18 U.S. sources said Polycom Inc. (PLCM) is struggling to keep

up with the changing video conferencing market. Polycom‟s in-

room solutions are no longer driving the market as growth and

demand shift to mobile and desktop solutions. Sources stressed

the importance of mobile device conferencing, an area where

Polycom has just started to compete.

Ten of 18 U.S. sources said Cisco Systems Inc. (CSCO) is in a better

position than Polycom, and even gaining share in some instances,

because it offers integrated solutions currently favored over

Polycom‟s stand-alone products. Also, Cisco products are better

suited to small- and midsize businesses.

Video conferencing has become much less formal, giving rise to the

likes of Microsoft Corp.‟s (MSFT) Skype and Apple Inc.‟s (AAPL)

FaceTime. Also, equipment prices are being pressured downward

by competition from companies like Vidyo Inc. and Avaya Inc.

Four U.S. sources said Polycom is having trouble with its

salesforce, ranging from defections of key members to poor

customer service. Polycom is not expected to win many future

accounts so it is focusing on deepening relationships with existing

clients.

All eight sources in China said Polycom is the market leader, but

that Cisco is losing share because of its high prices. Four sources

said Polycom has lowered its prices in the face of increasing

competition from local upstarts. Three sources said industry growth

has slowed in 2012.

Video

Conferencing

Market

Polycom’s

Position in U.S.

Market

Cisco’s Position

in U.S. Market

Equipment

Vendors in U.S.

Large Corporate

End Users

Small Corporate

End Users

Industry

Specialists

Research Question:

How are increased competition and lower-cost alternatives affecting Polycom's growth

and market share?

Silo Summaries

1) EQUIPMENT VENDORS IN U.S. & CHINA Six U.S. sources said Polycom‟s growth has slowed

under pressure from competitors focused on desktop

and mobile solutions. Cisco, LifeSize, Avaya and Vidyo

are all taking share from Polycom. Skype and FaceTime

also attract customers. Cisco beats Polycom with its all-

in-one platform, better price, and is better with small

businesses. One source said the high turnover in

Polycom‟s salesforce has cost the company key

relationships. Two sources in China said Polycom is the

market leader. Polycom beats Cisco on price and

outperforms cheaper local competition. One source said

Polycom‟s price has dropped 10% year to year, while

another said the industry‟s growth in China has slowed

since Blueshift‟s November report.

2) LARGE CORPORATE END USERS Three U.S. sources said Polycom is struggling to

maintain its market share amid greater competition and

a shift to desktop and mobile solutions. Cisco and

LifeSize are gaining share as the market shifts to less

formal video conferencing. Polycom is also hurt by its

lack of all-in-one solutions. Four sources in China said

Polycom is the market leader with a more affordable

solution than Cisco and higher quality than low-priced

local competitors. Slowing industry growth and

increasing competition is leading to an overall 10%

decrease in price, while one source said Polycom has

dropped its prices about 5%.

3) SMALL CORPORATE END USERS Three U.S. sources prefer Cisco to Polycom for its

quality, price, mobile solutions and reliability. One

source said Polycom‟s poor customer service from its

salesforce was a prime factor in not choosing Polycom.

The market is shifting to solutions on desktops and

mobile devices, an area where Polycom trails. Two

sources in China said Polycom is the market leader and

Cisco is losing share. Competition from local companies

is growing. Hardware prices are dropping 15% to 20%

year to year in China, though one source said Polycom‟s

price remains stable.

4) INDUSTRY SPECIALISTS Six sources said Polycom faces an uphill battle to

maintain its market share. There is a move toward

integrated solutions where Cisco and Avaya excel.

Desktop and mobile solutions are growing faster than

Polycom‟s in-room systems. Video conferencing is

becoming less formal, hurting Polycom. One source said

Polycom‟s sales defections have hurt more than

anticipated, and they need a partner to help move

beyond the hardware-only solution.

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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Background

Polycom and Cisco, two heavyweights in the video communication space, are facing increased competition from lower-cost

alternative vendors. Blueshift Research‟s November 22 report found Vidyo and Logitech International S.A.‟s (LOGI) LifeSize to

be the biggest threats to Polycom because of their quality products and lower prices. Sources also expect prices of video

conferencing equipment to decline during the next one to three years because of increased competition. Polycom issued Q1

2012 guidance below analysts‟ estimates, lowering its first-quarter revenue outlook due to slower business in North America.

CURRENT RESEARCH This report aims to determine the effect competition is having on Polycom's market position, and how Polycom measures up

to Cisco in a head-to-head battle.

Blueshift employed its pattern mining approach to establish and interview sources in five independent silos:

1) Equipment Vendors in U.S. and China (8)

2) Large Corporate End Users (7)

3) Small Corporate End Users (5)

4) Industry Specialists (6)

5) Secondary sources (4)

Blueshift interviewed 26 primary sources, including 16 repeat sources, and included four of the most relevant secondary

sources focused on competition from Blue Jeans Network, the iPad and the bring-your-own-device movement.

Silos

1) EQUIPMENT VENDORS IN U.S. AND CHINA Six U.S. sources said Polycom‟s growth has slowed under pressure from competitors focused on desktop and mobile

solutions. Cisco, LifeSize, Avaya and Vidyo were all mentioned as alternatives taking share from Polycom. Skype and

FaceTime also attract customers. Cisco beats Polycom as it can cut prices on its hardware to sell bandwidth, is better with

small businesses, has more opportunity to cross-sell and offers an all-in-one platform that Polycom lacks. One source said

Polycom‟s salesforce has been instructed to deepen existing relationships and upsell as the U.S. customer has plateaued.

Another source said there is a disconnect between the sales team and upper management, and the high turnover in

Polycom‟s salesforce has cost the company key relationships and caused confusion amid changing strategies. Two sources in

China said Polycom is the market leader with 40% to 50% of the market. Polycom beats Cisco on price and outperforms

cheaper local competition on quality. One source said Polycom‟s price has dropped 10% year to year, while another said the

industry‟s growth has slowed since Blueshift‟s November report.

Vice president of sales at business communications vendor; repeat source

The video conferencing market has high growth potential over the next five

years, but Polycom may have trouble growing with the market. It is the

established player along with Cisco, but its strengths are in-room-based systems

for government and education, while the growth is in systems that connect

business users using desktop computers and mobile devices. While attending a

recent Polycom sales conference, the source was impressed by Polycom

executives and their strategy for addressing vendor issues and their weaknesses

in the corporate market. However, there seems to be a disconnect between the

leadership and field sales. Turnover has been high among field sales agents,

and the sales strategy keeps changing. The source also deals regularly with

LifeSize and Avaya, upstarts that are likely to take market share from Polycom.

Price competition is high among vendors, and the source‟s profit margins have

dropped 5% to 12%.

Polycom and Cisco‟s strength

has been in-the-room systems,

but those systems will be less

and less prevalent. Twenty-five-

year-old users expect to be able

to do video through their

desktops or mobile devices.

Doing video wherever you want

is going to win the battle.

VP of Sales

Business Communications Vendor

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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“Of all the markets we‟re in, I see video conferencing as the one that has the most potential for growth. In three

to five years, it will be ubiquitous.”

“Polycom is really strong in health care, government and education. They‟re weak in commercial enterprise

business and small business. They said at their annual conference that they want to work on that area.”

“Polycom and Cisco‟s strength has been in-the-room systems, but those systems will be less and less prevalent.

Twenty-five-year-old users expect to be able to do video through their desktops or mobile devices. Doing video

wherever you want is going to win the battle.”

“My biggest frustration has been Polycom‟s field sales. Turnover in

personnel is like nothing I‟ve ever seen. Our service person has been

reassigned three times in the last year, and they‟re constantly changing

strategy. Polycom is very tightly connected up above, but I don‟t know if

it gets down to the field level. There‟s a disconnect.”

“Everything in technology has been commoditized. I don‟t have a deal

where one or two competitors aren‟t also bidding, and I‟m getting

squeezed.”

“My profit margins have dropped 5% to 12%, and Polycom hasn‟t done

anything to help me out. However, I just went to their annual sales

conference and they‟re aware of the problem. A lot of the profit is in

services, and they say they‟ll be shifting service revenue back to the

partners, providing more opportunities for service.”

“I‟ve been selling Polycom for four to five years, but this was my first

time at their annual conference. I was really impressed with the

message at the CEO level. There is lots of synergy down through the

ranks—everyone had the same message. That‟s not like other

conferences I‟ve been to, where you hear four or five different things at

different levels of the organization.”

“Polycom is the more established, more known player. Their technology has been superior. LifeSize is the

upstart, catching up in the tech space. They have a narrower product, though. Avaya is the newcomer, in the

market for about 18 months. It‟s well-established in voice, but their product has not been well-defined.”

“When I saw the stock had dropped 20%, I thought about running out and buying some. But I haven‟t bought

any. I‟m just not that confident in them.”

VP of marketing at unified communications equipment provider; repeat source

Business has been good, with steady growth in the market. However, Polycom has struggled compared to its competition.

Lower-cost desktop-based solutions from providers like LifeSize have been cutting into its market, and Polycom has not

shown off many new ideas in response. Price competition continues to be an issue, and Polycom has suffered from the

difference between its list price and its street price. The source has profited from customers who need services, but has

less incentive to promote hardware if the sale goes to another provider competing on price. Cisco is also a problem for

Polycom, since it can cut prices on hardware to sell network bandwidth. The big trend seems to be the end of dedicated

hardware as communications goes to a virtualized model, and Polycom will have to make significant changes to its

business if it wants to keep up.

“Business has been good, steady and strong. Q1 was a little slower, but

we‟ve seen that seasonal variation before. The other three quarters will

make up for it.”

“It‟s a competitive market. LifeSize is growing, and there is a breadth of

other desktop options, even Skype. These people are eating into

Polycom‟s market share.”

“LifeSize is doing a very good job of getting information to partners. I‟ve

also seen Polycom‟s webinars, but I feel I‟m seeing the same

information over and over there.”

“Polycom has all the tools, but they need to make better use of them.

They bought Accordent, but the integration needs to be better.”

“I haven‟t really been affected by the management changes at

Polycom.”

My biggest frustration has been

Polycom‟s field sales. Turnover

in personnel is like nothing I‟ve

ever seen. Our service person

has been reassigned three

times in the last year, and

they‟re constantly changing

strategy. Polycom is very tightly

connected up above, but I don‟t

know if it gets down to the field

level. There‟s a disconnect.

VP of Sales

Business Communications Vendor

It‟s a competitive market.

LifeSize is growing, and there is

a breadth of other desktop

options, even Skype. These

people are eating into

Polycom‟s market share.

VP of Marketing

Communications Equipment Provider

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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“Polycom has suffered from its street price being way off from list price. Dell [Inc./DELL] and other discount

providers have a very different model, and they can get by with a couple of points margin on products. It‟s bad

for everyone in the industry in the long run. Why should I recommend a

piece of hardware that might just get jobbed out for a lower price?”

“Overall the market has still got good growth. Other applications are

starting to emerge, especially in health care. Virtual consultation is

starting to get really big for the medical market. Doctors are looking to

reduce their costs and exposure—that‟s the key term.”

“People are looking for smaller units, a lot of desktops. They don‟t want

to make a huge investment in infrastructure. There is also a lot of

mobile, but mobile is still a little awkward to use.”

“You‟re going to see the end of this dedicated hardware. All these

pieces are going to a virtualized model. Polycom will have to change.”

“Cisco‟s always pushed TelePresence. They have very different

distribution. They can give away some equipment to sell network

bandwidth.”

“Avaya‟s acquisition of Radvision [Ltd./RVSN] is interesting. It seems

like Avaya is starting to get into video, and they have a good selling

network that Radvision can take advantage of. Coming into video from

voice is a transition, but it‟s a transition that Polycom made.”

Principal, video communications consulting firm

Specialized video conferencing equipment manufacturers are under significant pressure from both desktop-based retail-

level solutions and upstream network-resident solutions. Polycom‟s legacy business is somewhat shielded by its deep

relationships with value-added resellers and known brand, but future wins may be difficult. Small- and medium-size

businesses are a lost cause. Cisco, on the other hand, has all of Polycom‟s market advantages and a nearly ubiquitous

brand in small enterprise.

“Polycom is probably going to remain on the defensive until they can figure out how to appeal to enterprise

customers as a dedicated hardware purchase. Tandberg or Cisco has the upper hand here.”

“Streaming two-way video is now within reach of not only the typical desktop but mobile devices as well.

Customers who would once have wanted to create a dedicated „conference room‟ set-up are now more inclined

to use retail screens—everything from the old-fashioned desk-mounted webcam to an iPhone—and pay extra to

make sure their network can handle the feed.”

“On the network engineering side, Polycom is a bit behind the loop. They have great switching capabilities

related to their historical telecom equipment expertise, but Cisco can build its streaming video solutions into a

larger enterprise network a lot more easily. The win for Cisco is really to get people who want to buy a camera

and a screen to buy into the TelePresence Cloud and the TelePresence

Callway. The camera is practically a free gift with purchase.”

“But Polycom is still largely known for selling the camera and the

screen. While they acquired some expertise from buying Hewlett-

Packard [Co.‟s/HPQ] Halo business, they were really only buying the

customers. Certainly, from my point of view, the company is a hardware

manufacturer first and foremost. They‟re one of the best camera

makers, but they‟re still a camera maker.”

“Conference room consultants still love Polycom products. It‟s one of

only four vendors we regularly recommend. Cisco‟s Tandberg is still

known by that name and there‟s only a bit of resistance from the

consultants now that they‟re part of Cisco. The technology still works as

a pure hardware purchase. It‟s really a win for Cisco to have a captive

hardware maker to sell their service offering into. It‟s not like people

who were recommending Tandberg as a standalone piece of an overall

solution are suddenly steering clear because Cisco reengineered the

cameras to only work on its cloud.”

People are looking for smaller

units, a lot of desktops. They

don‟t want to make a huge

investment in infrastructure.

There is also a lot of mobile,

but mobile is still a little

awkward to use. … You‟re going

to see the end of this dedicated

hardware. All these pieces are

going to a virtualized model.

Polycom will have to change.

VP of Marketing

Communications Equipment Provider

Polycom is probably going to

remain on the defensive until

they can figure out how to

appeal to enterprise customers

as a dedicated hardware

purchase. Tandberg or Cisco

has the upper hand here. …

Tandberg now arguably has

everything going for it that

Polycom ever did, plus the huge

backing of Cisco behind it.

Principal, Video Communications

Consulting Firm

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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“There‟s talk that Polycom is bringing its cameras to small business, but you have to ask two things. First, can

small businesses that employ maybe 50 people justify the expense when they probably don‟t have that many

remote locations anyway? Second, would those small businesses like to spend $5,000 on a great camera set-up

for the home office when they could just put everyone on a retail-level solution like [Citrix Systems Inc.‟s/CTXS]

GoToMeeting? The answers are „maybe‟ and „no.‟”

“We like Polycom and Tandberg as well as Sony [Corp./SNE] and a company called Initia [Inc.] for switching.

Sony is often discounted as a serious competitor, but their systems are actually better out-of-the-box solutions

for small business that wants a dedicated camera solution. Polycom and Tandberg are the gold standard beyond

that point. Tandberg now arguably has everything going for it that Polycom ever did, plus the huge backing of

Cisco behind it.”

“LifeSize is great but it‟s considered a cut-rate vendor. The margins aren‟t there for value-added reseller [VAR]

relationships to be interested and LifeSize is more at risk of being squeezed out by a pure desktop or mobile

solution anyway.”

Principal, video communications value-added reseller

Use of video conference services remains robust but the overall U.S. customer base has plateaued. Polycom is as

susceptible as any other vendor to the lack of new avenues of growth. However, the company‟s ties to government and

educational organizations have functioned as a moat around its core market share and even helped it win some new

customers. Cisco is a serious competitor but hampered by internal channel conflicts.

“Times are tough because the market is no longer really growing. Existing deployments are growing and

deepening and people are willing to switch vendors, but the green field wins aren‟t nearly as frequent as they

once were. That weighs on Polycom‟s growth, and because they‟re one of the biggest players in the field, what‟s

bad for them is terrible for just about everyone else.”

“Polycom just announced a big win in the educational market. It‟s a

rare thing now. Most of the enterprise customers who wanted video

capability already have it in some form. The easy sell has already been

made. Now things get tougher and if anything, the new deployments

may have hit a wall.”

“People still love the idea of video meetings. The pain points ebb and

flow, largely with airfare prices, but at this point everyone has access to

some form of the technology and has at least tried it out. The barrier to

entry has now reached zero in the form of applications like Skype and

[Apple‟s] FaceTime. And as always, once „free‟ is on the table, the point

at which people will pay for incremental value—functionality, reliability,

security—gets fairly far out. So people love video meetings. They just

aren‟t as readily convinced they need to pay for the hardware and the

service.”

“I suspect Polycom‟s revenue may go up single digits per quarter for

awhile as they squeeze higher ticket prices out of existing customers.

Their sales teams are going back out with orders to deepen existing

relationships, upsell the software and other components of the offering

that someone who just bought the hardware may not be buying yet. But

beyond that, we seem to be in the „new normal‟ for hardware sales.

This is as good as it gets until a new generation of enterprise-level

devices restarts the procurement cycle.”

“Cisco is in a similar boat, although with them the opportunities to

cross-sell are much wider and so the apparent upside for them is

higher. More specialized vendors like LifeSize are in much worse

trouble. Logitech can‟t sell too many added keyboards to people who bought a camera. Sony is in between:

difficult to find synergies to exploit, but the video conferencing equipment is such a small part of their overall

empire that I can imagine them simply selling it off or even retiring the product line some day. Not a dedicated

competitor here.”

“Polycom does have friends in the educational and government verticals. None of these entities have much

cash, though. The ones who wanted to spend cash on distance learning or remote conferencing did so during

I suspect Polycom‟s revenue

may go up single digits per

quarter for awhile as they

squeeze higher ticket prices

out of existing customers. Their

sales teams are going back out

with orders to deepen existing

relationships, upsell the

software and other

components of the offering. …

But beyond that, we seem to be

in the „new normal‟ for

hardware sales. This is as good

as it gets until a new

generation of enterprise-level

devices restarts the

procurement cycle.

Principal

Video Communications Reseller

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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the last few years of stimulus spending. Now that the money from Washington has trickled out, they‟re laying off

a lot of people. They‟re not bringing on so many people that flying them around is costing too much. Education is

probably the place where consolidating remote services makes sense as budgets shrink, and that‟s a place

where Polycom can make a pitch.”

“The problem with Cisco here is that the networking equipment guys aren‟t talking to the client-facing equipment

guys. Tandberg still doesn‟t have the hang of making a focused presentation to the network admins and saying,

„our hardware is integrated into your router protocols, buy both together and save headaches.‟ They‟re just

reaching out to the front office with the HD experience. At best they sell the Cisco cloud if the network admins

are even in the room. It‟s a waste of their integrated offering. Having the desktop-based GoToMeeting

applications in the mix only confuses the message more.”

President, video communications value-added reseller

Polycom is losing significant share as Cisco rebrands its legacy conferencing businesses into an integrated all-in-one

solution. This strategy gives Cisco and Radvision the upper hand as established top-down turnkey vendors, leaving

Polycom struggling as No. 3 in that market. Low-end vendors are considered unworthy of discussion, but Vidyo is now

considered more vital than ever in the desktop and mobile space.

“Polycom is caught in the middle. We still offer them to customers, but

the mental space is increasingly dominated by Radvision‟s known

brand among integrated and secure applications and Cisco‟s newly

integrated TelePresence and Digital Media Suite offerings. With two

great choices, fewer customers will ask to see a third, so Polycom falls

between the stools.”

“The problem is that Polycom made such a great name for itself as a

vendor of telecom equipment and conferencing hardware that people

forget to take them seriously as a full-service solutions provider. People

will say Polycom makes the camera, the star-shaped conference

keypad, maybe the switch. They have to be reminded that this is a

platform provider. That‟s tough because it means the company has to

sell itself up and outside the potential buyer‟s psychic comfort zone.”

“Cisco, on the other hand, is Cisco. They‟re the biggest U.S. name in

networking equipment, a blue chip name around the world. Now that

they‟re finally retiring the Tandberg name—or rather, folding it into the

Cisco Digital Media Suite—they can take advantage of that blue chip

brand and win some star-struck customers. [Cisco‟s] share is rising. If

share is coming from anywhere, it‟s Polycom.”

“We don‟t sell LifeSize or the Sony peripherals. If you want a webcam,

go to Best Buy [Co. Inc./BBY]. Our clients know that.”

“The market is growing but only as people who‟d been using ad hoc

solutions scale up and find that they need better connectivity, better

security, lower latency. I think 10% growth in the United States for the

big boys feels realistic, maybe a little high. This market is fairly mature. Pricing is stable so far.”

“For the ad hoc solutions, Vidyo is actually doing great things that use legacy hardware to improve the

teleconference experience. They‟re ahead of the curve when it comes to selling enterprise video

communications on tablet, desktop, smartphone and everything in between. If you evaluate overall growth in

conference usage, I suspect they‟re ahead of both Cisco and Polycom. But on that scale, I‟d put Apple far and

away on top because FaceTime put the video call on the map for them.”

Social media analyst for business equipment provider

Video conferencing is growing, but not as fast as in recent years as the next six months will only have a slight increase in

growth. Polycom faces increasing competition from LifeSize and ClearOne Communications Inc. (CLRO) that are cheaper

and more flexible. Polycom‟s high prices and lack of commitment to improving its products are costing it market share,

and it will have to come up with revolutionary product ideas and support cross-platform video delivery to succeed. Price

competition is high right now as companies try to get the most they can out of the market‟s slowing growth.

Polycom is caught in the

middle. We still offer them to

customers, but the mental

space is increasingly

dominated by Radvision‟s

known brand among integrated

and secure applications and

Cisco‟s newly integrated

TelePresence and Digital Media

Suite offerings. With two great

choices, fewer customers will

ask to see a third, so Polycom

falls between the stools. …

[Cisco‟s] share is rising. If share

is coming from anywhere, it‟s

Polycom.

President

Video Communications Reseller

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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“Video conferencing is growing, no doubt. But it is not growing as fast

as it was in the past couple of years. In the next six months, you might

observe a slight increase in growth but not as significant.”

“Polycom‟s growth rate will remain more or less the same. To improve

its current position, Polycom will have to come up with a contingency

plan and adapt quickly to the changing demands. It should understand

that businesses might not be willing to pay for its existing products

because those features are now more readily available in free or

cheaper video conferencing solutions.”

“Polycom products and a couple of other video conferencing

monopolists are facing tough competition. Low-cost brands such as

LifeSize and ClearOne are eating profits because these brands are not

just less expensive but also far more flexible and adaptable.”

“Plus, these emerging brands are more interactive and supportive on

social media as compared to Polycom. These brands are using low-cost

and more effective mediums for marketing to their advantage.”

“There is too much competition on price in the video conferencing

market. If you check online video conferencing products and the

solution market, you will notice that almost everywhere the price tag

has been replaced by the RFQ button. There is no fixed price concept

anymore because of the ever-increasing price competition. Prices have

changed, fallen dramatically, because market growth has slowed and competition is high.”

Sales manager at a local Chinese video conferencing manufacturer; repeat source

Polycom operates better than Cisco in China with products at half the price. Polycom leads in video conferencing

technologies but many local Chinese companies also mimic technologies from Polycom while providing much cheaper

prices. Due to the industrywide drop in pricing, Polycom has reduced its price 10% compared to the first half of last year.

“China‟s video conferencing market will increase between 30% and 50% this year. Compared to November

2011, market capacity has grown 20% because of company growth and expansion in medium and small cities.”

“Industry pricing is going down by 15%. Prices are pulled down by small

manufacturers and suppliers providing similar technologies and

services but competing on price.”

“Polycom prices in the first half of this year are 10% less than a year

ago.”

“Vidyo and Polycom are gaining market share. Cisco is losing share

because it is still too expensive.”

“Polycom faces pressure from competitors like Vidyo. Local Chinese

companies have the ability to mimic patented video conferencing

system technologies and usually charge only one third of the price

Polycom charges.”

“Polycom performs better than Cisco in the Chinese market. Polycom

tries to solve three problems for clients: tailor standards according to

clients‟ needs; be compatible with existing equipment; and maintain a

relatively low cost.”

General manager of a unified communications reseller, including Polycom, in China; repeat source

Polycom has more market opportunities than Cisco because it has provided tailored solutions for small- and medium-size

companies. It is expected to grow by 20%. The strengths now are a mobile device video conferencing system which

cannot be provided by most of Chinese local brands.

“The video conferencing market in China in 2012 will grow at least 40% from last year. The market at present

has slowed down a little from last November.”

“In my company, the prices are the same as last year.”

Polycom‟s growth rate will

remain more or less the same.

To improve its current position,

Polycom will have to come up

with a contingency plan and

adapt quickly to the changing

demands. It should understand

that businesses might not be

willing to pay for its existing

products because those

features are now more readily

available in free or cheaper

video conferencing solutions.

Social Media Analyst

Business Equipment Provider

Polycom prices in the first half

of this year are 10% less than a

year ago. … Vidyo and Polycom

are gaining market share. Cisco

is losing share because it is still

too expensive.

Sales Manager

Video Conferencing Manufacturer

China

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

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“Polycom has to face that its operation costs are rising fast in the last two years and the external business

environment has been more competitive. The development of cloud technology, Internet technology and

introduction of new products will all change the whole business environment.”

“Polycom now almost takes 50% market share in China, and it is

expected to grow at a 20% rate in this year.”

“Polycom‟s products are absolutely superior although prices are three

times higher than local companies.”

“Leading companies like Polycom have made efforts in developing

mobile video conferencing system. It cooperates with iPhone,

Samsung, Motorola [Mobility Holdings Inc./MMI] and other dominant

mobile brands. In China, Polycom also cooperates with Lenovo in video

conferencing system, which will be applied in tablets, PCs and

laptops.”

“According to the demand from small- and medium-sized companies,

Polycom provides solutions that are different than solutions to large companies, so Polycom will have more

market opportunities.”

2) LARGE CORPORATE END USERS Three U.S. sources said Polycom is struggling to maintain its market share amid greater competition and a shift to desktop

and mobile solutions. Cisco and LifeSize are gaining share with more flexible solutions as the market transforms away from

high-end, room-based systems to less formal video conferencing needs. Prices are coming down and Polycom is not adjusting

fast enough to market changes. Polycom is also hurt by its lack of all-in-one solutions, an area where Cisco excels. Four

sources in China said Polycom is the market leader with a more affordable solution than Cisco and higher quality than low-

priced local competitors. Slowing industry growth and increasing competition is leading to an overall 10% decrease in price,

while one source said Polycom has dropped its prices about 5%.

AV services director, global consumer and industrial services company; repeat source

Polycom and the overall video conferencing market will remain flat during 2012, or at best mirror the economy. Polycom

needs to focus on the SMB market—an area the source said was overlooked by the video conferencing market in

Blueshift‟s November 22 report—and rely less on the large companies in order to turn it around. Cisco and LifeSize are

gaining share, but the likes of Microsoft Corp.‟s Skype, Citrix Systems Inc.‟s GoToMeeting and other shareware still lack

the security and high bandwidth needed, especially for large end users. Deep discounting to SMBs—up to 40%—during

the last six months is significantly more than the 5% to 10% to large companies.

“Given the overall global economy, I‟m not terribly surprised by

Polycom‟s reduced outlook. They need to start concentrating on

growing SMBs as opposed to large business.”

“Large companies are great, but they don‟t pay all the bills. They also

ask for the biggest discounts as they can use their weight for better

pricing.”

“If the global economy sees a slow and steady recovery, Polycom will

mirror that. If it recovers quickly, it will mirror that, too.”

“The overall video conferencing market will remain relatively flat.

Personal telepresence on phones will become more common in 2012.

Here, that‟s our main growth—desktop licenses. It‟s all about

bandwidth.”

“[Growth] may increase somewhat with travel restrictions but not by as

much as I thought. It‟s hard to quantify the ROI. I have five different

business units. Some use video conferencing a lot, others not as much,

but isolating those costs is difficult. It‟s a hard sell with finance when

the ROI can‟t be put on a spreadsheet.”

The market at present has

slowed down a little from last

November.

General Manager

Unified Communications Reseller

China

Personal telepresence on

phones will become more

common in 2012. Here, that‟s

our main growth—desktop

licenses. … I see Cisco more

and more, so they are gaining

share. I‟m seeing more LifeSize

systems. … I‟ve seen a few

Polycom iPad and iPhone apps

but they are problematic with

bugs and glitches. It is not

being rolled out on a wide net,

still in pilot program.

AV Services Director

Global Consumer & Industrial Services

Company

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

9

“I am seeing a lot of discounting offered in the SMB market—up to 40% in the last six months. Large companies,

there is some discounting but not as much as I would have expected—about 5% to 10%.”

“I see Cisco more and more, so they are gaining share. I‟m seeing more LifeSize systems. The typical companies

always trying to take share from Polycom.”

“Competition hurting Polycom? Yes and no. Smaller companies like Skype will increase a little but they are not

making enough inroads. The main drawback is the security concern, which you get with Skype, GoToMeeting and

other shareware.”

“That is the hidden cost of video conferencing: how much it costs to get the bandwidth vs. the quality. IT

managers don‟t necessarily factor that in as a cost.”

“All our phones are VOIP, cameras are built-in, laptops with cameras. But we‟re a pretty conservative company. I

can see our execs using RealPresence this year. I‟ve seen a few Polycom iPad and iPhone apps but they are

problematic with bugs and glitches. It is not being rolled out on a wide net, still in pilot program.”

“We just got another telepresence meeting room. We have [about 10] worldwide. The next big push is to get

people to collaborate without traveling.”

“We do all kinds of video conferencing with outside vendors, sales, etc. For the most part, they use Polycom, but

I see old Tandberg systems, and LifeSize here and there. I always have [interoperability] problems with

Tandberg. LifeSize has been pretty good lately. My issues are network-based—firewalls. We use a video border

proxy to get through those.”

CIO for an online university; repeat source

Polycom will have to completely rethink the industry they created in order to recover. The formal and infrequently used

high-end, room-based systems‟ market will be flat or down, and the shift to desktop and mobile benefits low-cost

alternatives. Apple is in the best position to take advantage of the mobile space, and Citrix, Cisco and Microsoft‟s Live

Meeting in the desktop space. Price pressure is downward and no longer benefiting the high-end systems. The room-

based system this repeat source bought a year and a half ago was better than the one he bought three years ago and

cost 15% to 20% less.

“Cheaper alternatives are challenging the Polycoms … and video

conferencing is shifting to a commodity desktop/mobile that everyone

has.”

“Price pressure is coming from Apple, webcams that are standard on

laptops—it used to be you had to have the equipment, now everyone

can do it.”

“There is a place for the Polycoms of the world: high-end, high-

definition. But it‟s more informal now, the video conferencing shift is to

low-cost alternatives.”

“This is the challenge for Polycom—they will almost have to abandon

the market they helped create. They will have to create a separate

division to make inroads, products to enhance video conferencing.

Establish partnerships with Cisco, Adobe [Systems Inc./ADBE],

Microsoft. A lightweight codec. Enhance the quality of the informal

video conferencing that‟s common place.”

“It‟s not just the size of the enterprise, it‟s how video conferencing is

used within that enterprise. One-on-one, or one-to-three desktop—how

do you get in that space? Webcams, daily use—it‟s about volume now.”

“In three to five years, it will all be wireless and mobile technology.

Polycom is not moving fast enough. Entrepreneurs are taking the SMB

and mobile markets.”

“Formal, high-def, high-end market will stay the same or shrink. The

informal market is so ubiquitous.”

“RealPresence is a challenge, a fundamental shift. It‟s the only way to

walk away from what you‟ve created [for Polycom].”

“Apple is definitely in the best position to take advantage of the mobile space. In desktop/phone, Citrix, Cisco,

Live Meeting. There also is GoToMeeting, Cisco‟s WebEx.”

Cheaper alternatives are

challenging the Polycoms …

and video conferencing is

shifting to a commodity

desktop/mobile that everyone

has. … There is a place for the

Polycoms of the world: high-

end, high-definition. But it‟s

more informal now, the video

conferencing shift is to low-cost

alternatives. … Polycom is not

moving fast enough.

Entrepreneurs are taking the

SMB and mobile markets.

Formal, high-def, high-end

market will stay the same or

shrink.

CIO, Online University

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

10

“I haven‟t purchased a room-based system in a year and a half, but prices have to be dropping. It was 15% to

20% cheaper and a much better solution than the one I bought three years ago. On the small stuff, pricing gets

better—or the price is free. People expect that if I do a unified communication system, like ShoreTel [Inc./SHOR],

video is part of that.”

“Six months ago I helped a company select a new phone system. I said, „Let‟s anticipate the need for video

phones and get Cisco.‟ It was $20 more for video phones than the equivalent without. Over 1,000 phones, that

adds up, but you don‟t have to worry about not having it down the line. Cisco is going to make it so attractive,

companies can‟t not pay for it.”

“There is a consumerization taking place. Employees have better technology at home than at work. We did a

pilot program and were swarmed by bring-your-own-device volunteers who already had iPads. Employees are

used to better tech at home.”

“We have a video conferencing room that is nice—we use it for board meetings but it is rarely used. The quality is

incredibly good; we just use it more infrequently. Our needs are more informal, so we use the desktop.”

“Our management is using iPads and iPhones and the video conferencing is decent.”

Network administrator for a healthcare company; repeat source

Polycom‟s focus on video forces customers to buy separate solutions for voice and video, which is an advantage for

Cisco, and unless Polycom can integrate better, they may not catch up. Cisco continues to gain share on Polycom as it

closes the gap between the two. The source‟s company was using Polycom for video and Cisco for the rest of their UC

system and was deciding which to use moving forward. The company wound up staying with Polycom for video, but

started developing its own solution that is currently being tested with customers.

“We still have the same environment [since the last time we spoke], but instead of choosing between Polycom

or Cisco, we are developing our own solution. There was a lack of flexibility with what we wanted to do. We are

already in the beta phase and testing with customers.”

“We are integrating into our current voice platform to queue calls and

find the best customer service representative to take the call. On the

video conferencing side, we do our work over video as well and we use

our conference system. We use Polycom for the beta conferences. Our

platform and hardware are Polycom HDX.”

“The major problem we have is firewall. They are closed and people are

not willing to change on the customer side. For infrastructure, we had

to develop a solution for a web browser.”

“Polycom is concentrating on video and not too much on voice, which

pushes customers to buy different solutions—voice and video.

Integrating those two things into one platform is really good for the

customer because they don‟t have to buy a new system. Cisco does

really well that way.”

“Polycom developed a black box with no flexibility.”

“Polycom‟s voice is not as good as Cisco, and I don‟t know if they can

catch up. They need to integrate much better.”

Executive in China at a global company using Polycom; repeat source

Because of competition from small companies, Polycom‟s prices have dropped 3% to 5% in 2012. Polycom remains the

leader in China and is expected to continue its growth, but it faces more challenges for market share than it ever has.

Large corporate end users prefer high quality and service for their video conferencing systems such as Polycom, though

all are implementing cost-control plans. Cisco is Polycom‟s closest competitor in China, but Polycom compares favorably

on price.

“The video conferencing market in 2012 may grow by at least 20%, but not higher than 40% since cost control is

on the agenda.”

“I use video conferencing to make overseas long distance calls with headquarters and other branches. I

selected three brands to compare in terms of price, quality and service and then chose one that best suited our

company‟s needs.”

“Pricing is going down due to the competition from global and local brands in China, not by a big percentage

though, because quality and service are what companies mostly care about.”

Polycom is concentrating on

video and not too much on

voice, which pushes customers

to buy different solutions—voice

and video. Integrating those

two things into one platform is

really good for the customer

because they don‟t have to buy

a new system. Cisco does really

well that way.

Network Administrator

Healthcare Company

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

11

“With the heated competition and product maturity, the general trend of pricing is going down perhaps 3% to

5%.”

“With prices dropping, many equipment providers may face challenges,

but are definitely not at risk, since quality and service are still more

important than price alone. So small companies may be the ones at

risk, since they will die out if the quality is bad; or be merged if their

products are good.”

“Polycom is still number one in the video conferencing field. But with

more and more telecom and even software companies wanting a share

in the area, like Cisco, Microsoft, etc., Polycom is facing unprecedented

challenges.”

“Polycom is occupying 45% of market share in China alone. And it will

increase in 2012.”

“Cisco has its own strong points. And with its rich capital, it has

acquired many professional companies in the past few years. On the

other side, Polycom started a strong strategic partnership with IBM and

Siemens to strengthen its influence in the enterprise solutions area.”

“Compared to some local competitors, Polycom provides state-of-the-art video conferencing equipment and

service. Though the price is a little expensive, it‟s reasonable.”

“Polycom offers a reasonable and market price compared to Cisco, which is a bit expensive, especially the high-

end products.”

“Endpoint hardware is becoming smaller and more mobile to realize communicating whenever and wherever.”

Executive in China at a global company using Polycom; repeat source

Competition in the video conferencing industry is increasing, leading to a drop in prices. Polycom in China runs quite well

and it is not at risk although it still needs to provide more high-end products and services to maintain its market leader

position. The low-cost Chinese local brand Huawei Technology Co. Ltd. may be at risk. Hardware prices are decreasing

between 10% and 20%. Companies are cutting their budgets so industry growth is likely to only be 20%.

“Affected by the economic downturn, many companies will cut the budget, so I think the growth will be about

20%.”

“We use the video conferencing mainly to meet the needs of business communication. It is very convenient for

us to have video conferencing with our colleagues working in other cities.”

“Competition in the video conferencing industry is very intense, so we

have enough reasons to expect that the price will drop in the near

future.”

“The low cost provider such as Huawei may be at risk, because it

doesn‟t have a large profit margin. With prices dropping, it cannot stay

profitable easily.”

“Because of the intense market competition and the growing market

demand, Polycom has to make new breakthroughs in high-end

products. As a result, it [formed its partnership] with [Intel Corp.‟s/INTC]

McAfee, and began to dig into the unified communications market.

Polycom is looking at forming strategic cooperations with other

businesses to maintain its current position. Cloud-based services need

content to bring the traffic, and cloud helps content services spread.”

“In China, Polycom has the absolute advantage. Polycom's market share in China continues to maintain more

than 10% growth rate in the last three years. So in the next year, Polycom will still be in a leading position.”

“Polycom has the reputation as the high quality symbol and it gives the customers a perfect using experience.”

“However Cisco comes to the video conferencing market with its good reputation and terrific voice quality

product.”

“Polycom doesn't have price advantages compared with other low-cost video conferencing suppliers except

Cisco, because Cisco's price is the highest in the industry.”

“Endpoint hardware has become smaller and smaller, more and more convenient. And the price is becoming so

low that everybody can afford them.”

Polycom is still number one in

the video conferencing field.

But with more and more

telecom and even software

companies wanting a share in

the area, like Cisco, Microsoft,

etc., Polycom is facing

unprecedented challenges.

Executive, Company Using Polycom

China

Competition in the video

conferencing industry is very

intense, so we have enough

reasons to expect that the price

will drop in the near future.

Executive, Company Using Polycom

China

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

12

Representative for an auto manufacturing company in China using Polycom; repeat source

Polycom is not at risk although local low-cost brands are emerging with price advantages. Polycom has quality and

service advantages. As one of the market leaders, Polycom‟s price is lower than Cisco‟s, causing Cisco to lose share in

China. In 2012, the video conferencing equipment price is 15% lower than the first half of last year.

“Video conferencing systems have a long-term life cycle. The demand for growth is very limited so that I think the

growth rate this year will be not higher than 10%.”

“Due to fierce competition in the market, I think the price will decrease

20%. The market will be supplied with more services in the future so

that clients will have more options.”

“Compared with the first half of last year, the prices of video

conferencing equipment reduced 15%.”

“Price changes will not threaten Polycom but will be risky for small

vendor companies due to lack of brand recognition, bad customer

service and low quality.”

“Market share of large video conferencing suppliers like Vidyo and

Polycom are expanding, while Cisco is losing share because the price of

Cisco is still too high, and it is not compatible with with the other

existing facilities.”

“Although Polycom is not at risk now, the company also faces some

pressure from the current business environment. Inflation drives the

cost of company operations, and more and more local Chinese brands

are emerging.”

“Polycom and Cisco are still the leaders of the market. Polycom prices

are lower than Cisco although still much higher than local brands.”

“Polycom supplies more flexible and targeted hardware and software configuration services, which is much

better than Cisco. Cisco‟s endpoint hardware cost is too high.”

“Compared with low-cost video conferencing suppliers in China, Polycom has advantages too. Domestic brands

such as Korth, Seegle and Iactive, although cheap in prices, have worse quality than Polycom and cannot supply

a stable signal. Big companies have the better technology.”

“Polycom has begun the layout of the mobile terminal, cloud, social collaboration service, and recently it

introduced a platform based on the iPad and iPhone, the RealPresence mobile video conferencing solutions.”

“To stay on top of the social business communication scene, Polycom cooperates with Ericsson [ERIC] to

develop Polycom RealPresence Platform.”

Marketing executive in China for a global nutritional products company using Polycom; repeat source

Polycom faces pressure due to higher costs and lower prices, but it remains the market share leader in China. Cisco is

losing market share due to high prices. The whole industry is expected to expand by 40% this year with prices lower by

5% to 10%.

“In the next few years, the video conferencing market will grow strongly

with decreasing of traditional business conferences and rising video

business conferences. The growth rate in 2012 is estimated at 40%.”

“Prices in the whole industry will reduce between 5% and 10% due to

competition.”

“Prices in the first half of 2012 are definitely getting lower from the

same period of 2011.”

“Vidyo, Polycom and Sony are gaining market share, but Cisco is losing

market share. Cisco‟s prices are too high and with low compatibility.”

“Polycom has to face high cost of operation, marketing, sales channels

and labor, with lower prices. The company has to introduce new

products or services to stay ahead of the competition.”

“In the short-term, the market position of Polycom and Cisco won‟t be

replaced. And Polycom is developing cloud computing technology to

Due to fierce competition in the

market, I think the price will

decrease 20%. The market will

be supplied with more services

in the future so that clients will

have more options. …

Compared with the first half of

last year, the prices of video

conferencing equipment

reduced 15%.

Representative

Auto Manufacturing Co. Using Polycom

China

Prices in the whole industry will

reduce between 5% and 10%

due to competition. … Prices in

the first half of 2012 are

definitely getting lower from the

same period of 2011.

Marketing Executive

Nutritional Products Co. Using Polycom

China

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

13

bring new products to market.”

“Polycom‟s products can be tailored with customers‟ needs and maximize customers‟ desire. Cisco‟s products

are not very flexible.”

“The low-cost brands cannot compete with Polycom and Cisco in technological performance, although prices are

attractive to medium- and small-size end users. Domestic companies like Quanshi and Dake enjoyed growing

market share.”

“To maintain the market leadership, Polycom has some marketing strategies. It offers the latest technological

products such as a mobile video conferencing system based on the iPad and iPhone, and in the mean time,

some old products and services are on sale resulting in decreased prices for Polycom.”

3) SMALL CORPORATE END USERS Three U.S. sources prefer Cisco to Polycom for its quality, low price, mobile solutions and reliability. One source said

Polycom‟s poor customer service from its salesforce was a prime factor in not choosing Polycom. The market is shifting away

from Polycom‟s old stranglehold of defined-use cases for larger firms and toward more flexible solutions on desktops and

mobile devices, an area where Polycom trails. Polycom also must make up ground with small- and medium-size businesses, a

market segment where competitors have typically outperformed it. Two sources in China said Polycom is the market leader

and Cisco is losing share. Competition from local companies is growing. Hardware prices are dropping 15% to 20% year to

year; though one source said Polycom‟s price remains stable.

CTO for a U.S. SMB, Cisco user; repeat source

Polycom‟s focus is on large end users, which was successful when they could under-bid Tandberg, but an end-user shift

to using laptops and personal devices does not play to that strength. The source‟s expectations for Cisco have remained

the same since Blueshift‟s November 22 report—flat to up 5% to 10%. The overall market‟s future depends on

interoperability and ease-of-use. The trend is away from centralized IT and toward cloud-based and free systems. The

Callway system is good value for money, and the source links its sales directly to the video quality during product

demonstrations.

“Cisco is still in line with the last time we spoke, flat to up 5% to 10%—on a growth curve but there won‟t be

exponential growth.”

“Cisco has some bright spots and … I don‟t see them losing share.”

“Polycom does better with larger organizations, same as Tandberg did.

When they market to large organizations with defined-use cases,

Tandberg came in at or over budget and Polycom a little below.

Polycom plays well there, but it‟s not the future. The future is bring-

your-own-device. There is a shift away from central IT—to cloud and free

interworking like Skype.”

“Polycom doesn‟t have the level of software and service to extend to

the level of their product that Cisco does.”

“Interoperability is the Holy Grail: multi-vendor video without having to

know who has what.”

“Cisco‟s Jabber Video is taking a needed step. It‟s a lower-entry to

desktop. … It‟s not zero effort, it doesn‟t come already installed, but

previously the software had to be bought as part of Movi. It‟s an

attempt to solve the problem of, „How do I invite someone not on my

enterprise on this video call?‟”

“Cisco has been up front about the quality—it depends on the network conditions, it might be lower-quality for

free users.”

“The quality of our video conferencing [via Callway] is very important for us. We can link it directly to our sales. If

you are using your video conferencing just to enable meetings, how are you measuring your return? That‟s where

some companies are falling down—they are taking travel money and allotting it to video, but beyond that?

Where‟s the big ROI? We measure the minutes used and the number of demos of our products.”

Polycom does better with larger

organizations, same as

Tandberg did. … Polycom plays

well there, but it‟s not the

future. The future is bring-your-

own-device. There is a shift

away from central IT—to cloud

and free interworking like

Skype.

CTO, SMB, Cisco User

U.S.

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

14

“Callway is very affordable. … We found it to be in the area of $100 per month for our endpoint and enterprise.

Adding desktop was also very inexpensive. Even if it were more expensive, we would still consider it over having

to dedicate hardware, pay license fees, etc.”

“We got six months free desktop video with Callway. Since we last spoke, we‟ve added a second endpoint—so

three room-based in total, two of which are C40s. There was no price difference. We budgeted the same and

that‟s what came through. It‟s still good value for the money and we‟re happy. We are now paying about $50 per

month for desktop. For reps using it to advance sales, it‟s a no brainer.”

“Callway, plus Cisco‟s lower-cost endpoints, really plays better in the SMB space than I thought. … I think that

the UI ease of use and the ease of provisioning will really help Cisco‟s offerings to SMB. Callway is really the key

here.”

“[Cisco] is lowering the level of entry with handsets that are video enabled. They‟re sliding them in with

customers with the same priced handset.”

“With hosted video providers, I wonder about bandwidth and resilience.”

System administrator for a networking consortium in research and education; repeat source

Room-based video conferencing systems will be flat for Polycom and Cisco, and up 10% overall during 2012. Soft clients,

mobile devices and smartphones will experience higher growth. Cisco is beating Polycom on quality, lower pricing on

superior Tandberg products and their free soft client Jabber. Cisco is also in the best position to reap the benefit of

mobile solutions despite not offering one yet. Polycom has reliability issues which are turning up in their RealPresence

offering as well, and Vidyo is growing but has not taken off as expected. Interoperability for small competitors and

expensive hardware for major players remain sticking points in the industry.

“Sales of high-end room systems will be flat for Polycom and Cisco.

Historically, Tandberg is the Cadillac while Polycom is the Chevrolet.

Cisco lowered prices to be competitive with Polycom. With Tandberg‟s

reputation for quality matched with Polycom‟s pricing, more sales will

go to Cisco.”

“Overall video conferencing growth will continue, and the 10% I said for

your November report could be right for room system models. Soft

client, mobile devices, smartphones are going to grow more than that.

Vidyo was the first mover, the first to have a useable iPad client.

Polycom was the first to have standards-based mobile clients. But Cisco

will end up [being in the] best [position]. They are waiting and will

release a polished solution and the free service is just to whet the

appetite.”

“Polycom needs to repair their reputation in terms of reliability. They

need to answer what Cisco has done with their soft client.”

“Polycom is going in the right direction with the iPhone RealPresence

but it‟s confusing to the end user. They download it, but then are

prompted to log into a server, which they don‟t understand. We haven‟t

tried it yet, but these kinds of problems speak to the broader reliability

[issues] across the product line.”

“Polycom also needs to be forward looking. … You pay for [hardware]

custom development and design, and there are two things that are

changing making this model obsolete: off-the-shelf hardware is more

powerful, taking away from the need for custom products—like what

Blue Jeans [Network Inc.] does—and people moving toward routing

MCU [Multipoint Control Unit] instead of transcoding MCU. … It‟s the same end result, just more cost effective.

Polycom needs to embrace this strategy.”

“Cisco is lowering their lower-end pricing to compete with Polycom. The bridges are more expensive but more

reliable. Polycom‟s bridge [pricing] is where they were before, but to make a big change, they need change the

MCU model.”

“Polycom is losing on desktop. Tandberg has a nice, exec desktop unit and Polycom‟s is kind of a joke. It‟s too

expensive and not as good as Cisco.”

Sales of high-end room

systems will be flat for Polycom

and Cisco. Historically,

Tandberg is the Cadillac while

Polycom is the Chevrolet. Cisco

lowered prices to be

competitive with Polycom. With

Tandberg‟s reputation for

quality matched with Polycom‟s

pricing, more sales will go to

Cisco. … Polycom is losing on

desktop. Tandberg has a nice,

exec desktop unit and

Polycom‟s is kind of a joke. It‟s

too expensive and not as good

as Cisco.

System Administrator

Networking Consortium

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

15

“LifeSize—the Yugo in this lineup—is coming in at the bottom end. It‟s a perfectly useable product with

aggressive pricing.”

“Vidyo is still there and growing. … They haven‟t demonstrated the value of their interoperability, and are staying

as an island. Like Skype. Vidyo-to-Vidyo uses, but they need more bridging between islands. A lot of interest, but

it hasn‟t taken off exponentially, and I‟m left wondering, „Why haven‟t they?‟”

“The most interesting thing since we spoke last is Cisco‟s change in direction in its video offerings. TelePresence

focused on a legacy telephone carrier model. In order to deploy, you needed to be connected to a carrier

exchange as opposed to the Internet. It was high quality, but expensive. It wasn‟t a good model for [Cisco‟s]

market share. They sold a few to people who could afford it, but it was a high-cost solution. They started to

address this failed approach when they acquired Tandberg. … The capability to dial URLs—dial over the

Internet—not to an AT&T exchange was a fundamental shift.”

“Polycom is highly flexible, but that has meant less reliability, more issues with their infrastructure, based on our

use. But it‟s tough to say if that is why their revenue is down.”

“In November, we were discussing Polycom and Microsoft. I‟m not sure how Microsoft is going to leverage Skype

in conjunction with the Polycom offerings. It‟s possible that Microsoft will use Skype and Polycom will fall by the

wayside.”

“Cisco has announced the beta for the free Jabber video service, a Skype competitor, out maybe next month. It‟s

a rebranding of Tandberg‟s Movi product. Before, you had to buy the back end. … It‟s the first time a high-quality

interop soft client will be free. The main difference between this and Skype is you can call into all the systems.

With Skype, you can only call Skype or whoever they are linked to, like Blue Jeans.”

“We are bringing Cisco into the suite of interoperable solutions. We bought a new bridge from Cisco with other

Cisco products to go with it. We use Polycom internally, their endpoints, and have a lot deployed.”

“One thing that Polycom has that no one else has is Polycom Director. It automates camera tracking with two

cameras that switch back and forth to zoom in on the person speaking and zooming out [on the entire room].

But our companies stay in their office for conference calls instead of going to a conference room. … With

conference rooms, you can have six people calling together, and with video in their office, 25 people are on the

call. But it‟s a bigger load on the infrastructure. That‟s where costs are going. [The cost of] building out a

conference room [vs. the cost] to build the infrastructure.”

President of a language translation service; repeat source

Cisco was the shoo-in when this small end user was about to pick a vendor in Blueshift‟s November 22 report but the

source has since found their system cost prohibitive. The runner-up, Vidyo, is also out and Polycom was never considered

because of an unprofessional salesman. The source is researching a hosted solution—which he says more SMBs are

doing to save money—and avoiding buying expensive hardware while still getting the technology and security he needs.

“Cisco is out and Vidyo is somewhat in the loop but not really. I am looking at other technological aspects, and

video is not the only thing we are considering. I‟m looking for technology and security, not just a low-cost

alternative. The quality of the visuals is important. And security is more important than anything else.”

“Cisco was too cost prohibitive, so we are looking for a hosted solution. In order for Polycom and Cisco to stay on

top, they have to join the crowd. The economy is tight right now and

businesses are finding alternatives to save money. They are turning

more to hosted solutions to do that. That‟s not in Polycom‟s offerings.”

“It has been a long road to get to this point. We are about to open a 20-

person call center, and I need a unified solution with audio and video.”

“The hosted solution I am considering allows me to avoid buying

hardware as it is provided by the vendor. It‟s plug and play. The initial

contract would be for 24 months.”

“Polycom has a lot of great products. There is nothing wrong with them;

I just had a bad experience with the salesperson not being

professional. The person I was talking to was not familiar with customer

service and technology.”

“What has caught my eye is the video conferencing market creating

great partnerships with small business to help them grow. They need to

provide solutions so the SMBs can get into the market with the money

they have.”

Polycom has a lot of great

products. There is nothing

wrong with them; I just had a

bad experience with the

salesperson not being

professional. The person I was

talking to was not familiar with

customer service and

technology.

President

Language Translation Service

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

16

Director for the Chinese edition of a U.S. publication; repeat source

Cisco is losing market share, and Polycom is still the top supplier of video conferencing systems. It may face challenges

from high-quality local brands like ZTE Corp. (SHE:000063) and Huawei, but right now due to stable large enterprises‟

customers, Polycom is still gaining share. The video conferencing hardware price has decreased 15% from the same

period of last year, though Polycom‟s price has remained stable.

“The video conferencing market in 2012 is expected to grow by 20% in China, almost the same rate as last

year.”

“The price of Polycom this year won‟t change too much, at the same

level with last year. Polycom is the technological leadership in this area

and has excellent performance.”

“In the whole market of video conferencing, prices decreased around

15% this year compared to last and the price change will cause a

reduction in profit for these companies.”

“Cisco is losing market share, and Polycom and medium-size

companies are gaining market share.”

“New technologies and a reliable virtual network terminal may subvert

the fixed place of the video conferencing market. The high price of fixed

terminal equipment and expensive endpoints hardware will test Polycom.”

“Polycom is the top video conferencing supplier, with a considerable advantage in both hardware and software,

and it has very stable customers like government and large enterprises. In the future, it may face pressure from

the low-end smart and convenient mobile video conferencing suppliers like Vidyo. The domestic video

conferencing industry is very competitive and grows with produce homogeneity.”

“Domestic brands like ZTE, Huawei and PPMEET all guarantee high security, stability and high video quality and

the prices are much lower than Polycom. In the future, those domestic brands may threaten Polycom.”

“Polycom‟s price is lower than Cisco‟s but higher than other domestic brands.”

Consultant in China for a human resources consulting firm using Polycom; repeat source

The video conferencing market in China is expected to grow by 50% this year due to the demand from small cities.

Polycom in China faces challenges from local brands as state-owned companies and private companies in China prefer to

use local brands. Polycom‟s prices are usually a little lower than Cisco‟s. The equipment prices in China have dropped

down 20% this year.

“Video conferencing will become more and more popular in China as the market is confronting AP/Global HQ

transfer, which will require more communication to home countries. Meanwhile, China‟s second- and third-tier

cities are also becoming headquarters as business centers try to reduce first-tier city labor costs. Because of

that, industry growth will be at least 50% in China.”

“For middle- or junior-level products, pricing may fall due to competition, while high-level products and some

customized products will see a price increase.”

“Video conferencing equipment prices decreased 20% for the first half of 2012 compared to 2011.”

“Midsize providers have a greater risk as they don‟t have the top brands like the industry leaders nor do they

have the cost advantage of local vendors.”

“Currently all the providers are gaining share as the market is big. Going forward, top brands may slow down as

state-owned and private companies won‟t choose international vendors.”

“Polycom needs to develop more customers among local Chinese clients.”

“Cisco is more popular with its brand and mature products. Polycom is young and more aggressive in the

Chinese market, while the system and product needs to be improved.”

“Polycom needs to find the critical competitive advantage over competitors, whether it is in products, technical

delivery or service.”

4) INDUSTRY SPECIALISTS Six sources said Polycom faces an uphill battle to maintain its market share. The video conferencing market is shifting and

Polycom is being left behind. There is a move toward integrated solutions where Cisco and Avaya excel while Polycom sells

Cisco is losing market share,

and Polycom and medium-size

companies are gaining market

share.

Director, Chinese Edition

U.S. Publication

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

17

stand-alone products. Desktop and mobile solutions are growing faster than Polycom‟s bread and butter of in-room systems.

Video conferencing is becoming less formal, giving rise to low-end providers and driving down prices, two disadvantages for

Polycom. One source said Polycom‟s sales defections have hurt more than anticipated, and they need a partner to help move

beyond the hardware-only solution.

Principal at telecom consultancy firm focused on IP communications

Polycom is not successfully competing in the growing video conferencing market. While the company may be able to

change its fortunes, it‟s trying to sell independent products in a market that is now looking for integrated solutions.

Polycom still has a strong brand and valuable patents, and is more likely to be acquired in a few years than succeed in

the market on its own. Competition from the free video conferencing services market is driving prices downward for mid-

range equipment, while high-end luxury systems remain price insensitive. The video conferencing market will continue to

span a wide range of technology and price points, but desktop and mobile systems will grow more than in-room systems.

Physical equipment will continue to exist for some time, but will inevitably be virtualized as users become more

accustomed to easy and cheap video conferencing.

“Video conferencing is becoming very big. It‟s not a luxury anymore,

and there are several competing technologies. There is a market for

stand-alone video—and that‟s what Polycom knows how to do—but

there are lots of stand-alone video plays now, and they‟re mostly on the

desktop.”

“The future is in systems solutions. There‟s potential for the video

conferencing market to be balanced, with Cisco and the desktop

providers at each end. There is still a big need for group-based

communications.”

“Desktop and mobile are growing more than in-room video. It‟s a

demand-driven market now. Customers have become comfortable with

the idea of conferencing due to social media. A lot of people were hung

up on video being complex, but now it‟s just as easy as a phone call,

just as cheap as an email. Which makes things that much harder on

Polycom.”

“The market has moved away from hardware, and it‟s hard for

hardware-based companies to transition. That said, physical equipment

will be around for years to come, but sooner or later it will become

virtualized.”

“Polycom is going to be taken out by somebody. The phone biz is not

viable anymore, and consolidation is inevitable.”

“Polycom‟s patents and brands may be of interest. Polycom has very

strong relationships with its current customers. Their footprint is big, so

they would be an attractive acquisition candidate at some point. ”

“Nortel was a dominant player in switching in its day, and Polycom is comparable in the video conferencing

world. Both companies have survived changes, but Nortel didn‟t have the DNA to adapt to those changes. I think

Polycom is different. It has a very strong market presence, which you can‟t discount, and they have very strong

research and development.”

“TelePresence is pretty cool when you experience it. It‟s like HD; once you‟ve seen it, you don‟t go back. The

experience is almost life-size.”

“There is continual downward pressure on pricing because the quality and popularity of free alternatives is

growing.”

“I‟m not sure the LifeSize brand is going to survive. It may be subsumed into Logitech.”

President at a telecom and business strategy consultancy firm; former industry executive

Video conferencing and unified communications are growing and changing due to increasing wireless bandwidth.

Polycom needs to change the nature of the products it has offered in order to adapt to the market. Polycom is known for

making stand-alone products, but the market is moving toward solution systems, where Cisco and Avaya excel. Polycom

has set standards for endpoint devices like handsets and conference phones, but these are being commoditized.

Polycom may need to focus on services and central equipment such as media servers, management software, and

Desktop and mobile are

growing more than in-room

video. It‟s a demand-driven

market now. Customers have

become comfortable with the

idea of conferencing due to

social media. A lot of people

were hung up on video being

complex, but now it‟s just as

easy as a phone call, just as

cheap as an email. Which

makes things that much harder

on Polycom. … The market has

moved away from hardware,

and it‟s hard for hardware-

based companies to transition.

Principal, Telecom Consultancy Firm,

IP communications Focus

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

18

archival systems. Polycom may be helped by its alignment with Microsoft. If video conferencing takes off on Lync, the

Microsoft service could quickly become the largest video community in the world, which would benefit Polycom.

“Polycom has had a reputation in the industry as being a quick-hit product company. They build one great

product, not a solution system. Cisco and Avaya are more systems-oriented. The CEO is trying to take Polycom in

a different direction, but we‟ll see how that goes.”

“Video conferencing was predominantly an overlay purchase. The

purchase was made separately from the phones, sometimes by totally

different buyers. Being unaligned was an advantage for Polycom then.

That‟s begun to change. Having those two systems integrated together

becomes critical. The challenge that may be coming is that Cisco and

Avaya, and to a lesser extent Siemens [A.G./SI], can tell customers,

„You should be looking at our system.‟”

“We are coming to a time when the three kinds of bandwidth—wireless,

nomadic Wi-Fi, and wireline—become very cost effective. There‟s not a

huge cost increase for using video instead of audio. You can add video

to any communications device.”

“For Polycom, their focus in video is in enterprise systems. Their

opposition is in smaller device sizes, the mid-market of video. Apple

and Microsoft are going to have video solutions for their devices, so the

question for Polycom is, „How do you integrate with and make money

off those devices?‟”

“The alignment with Microsoft helps Polycom. Only a few of Lync‟s three

million users use video. If 50% of them embraced it, it would be the single biggest video conferencing

community in the world.”

“The endpoint devices are becoming less valuable. The midmarket will commoditize the lower end of the

market. Room systems will still have high value, but there‟s a fixed number of those in place.”

“Polycom builds endpoints, but those endpoints call to other components. Polycom can build the media servers

at the core of the system, meeting management software, or archives so you can look at the 30 seconds of the

meeting your co-worker told you that you should see. Avaya and Cisco are going there, but will Polycom?”

“SIP endpoint devices could be important. Most of them use Polycom hardware, so Polycom is the standard

there. The SIP companies subsidize the hardware so they can sell services. That‟s good news and bad news for

Polycom, since subsidized sales are always in danger.”

“HD Video was expensive three years ago. You can get it now in an iPad for $499.”

Publisher, telepresence trade journal

Growth in the overall video conferencing market remains robust. However,

recent salesteam defections wounded Polycom more deeply than many

commentators believe. The company‟s outlook as a pure video

conferencing play in a space increasingly inhabited by full-spectrum

technology giants is troubled at best. Instead of absorbing Hewlett-

Packard‟s video conferencing business, Polycom should simply have

courted a larger acquisition partner. Vidyo may be the most relevant stand-

alone vendor left, as it continues to open up new markets.

“This is a healthy and vital space growing at a rate of maybe 20%

a year. But the people growing that market and benefiting from

that growth aren‟t the specialized vendors like Polycom anymore.

The growth is up and down market from them, but in the middle

there‟s an ominous silence.”

“Polycom was already hurting for new business and then people

started jumping from their sales team midquarter. They lost some

key people, including the head of their educational and

government sales force. These are long-lead-time markets,

relationships that take years to nurse and more time than

Polycom has had a reputation

in the industry as being a quick-

hit product company. They

build one great product, not a

solution system. Cisco and

Avaya are more systems-

oriented. The CEO is trying to

take Polycom in a different

direction, but we‟ll see how that

goes.

President, Telecom & Business

Strategy Consultancy Firm

Polycom was already hurting for new

business and then people started

jumping from their sales team

midquarter. They lost some key

people, including the head of their

educational and government sales

force. These are long-lead-time

markets, relationships that take years

to nurse and more time than Polycom

has to rebuild. I don‟t think we‟ll see

many more press releases about

schools signing up for awhile. … It‟s

really a potentially crippling loss that I

don‟t think the Polycom cheerleaders

have heard or even understand.

Publisher, Telepresence Trade Journal

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

19

Polycom has to rebuild. I don‟t think we‟ll see many more press releases about schools signing up for awhile.”

“What‟s painful about these people leaving Polycom is that the company had already been trying for a few

months to restructure and revitalize its sales efforts. No surprise, since they need to change things up there and

start bringing in contracts again. Unfortunately, these people had already made the cut and were considered the

bedrock of the new configuration. Now that they‟re gone, the company is probably not only back at ground zero

but left with even less than it had to begin with. It‟s really a potentially crippling loss that I don‟t think the

Polycom cheerleaders have heard or even understand.”

“Polycom is really the last hardware-oriented company in this space. They‟ve tried hard to grow out beyond

hardware, but the legacy remains. All the other vendors from the hardware side have been absorbed into much

larger and more all-encompassing organizations. This isn‟t news, but Polycom had a few years to grow into

something larger and might have missed the mark.”

“You had Radvision, but Avaya just took them off the table. Polycom needs a partner fast. The sad thing is that

they could have teamed up with Hewlett-Packard but that deal didn‟t bring Polycom into the HP family. It only

made Polycom bigger and in some ways harder for a would-be buyer to digest. Now it‟s got more moving parts

and a lot more mass and not much else to show for it.”

“Now you have giants: Cisco with Tandberg, Avaya with Radvision,

Microsoft. Will Microsoft buy Polycom? That might be ideal. And you

have Google [Inc./GOOG] doing whatever it‟s doing with conferencing.

But until recently, Google was never a hardware company, so that‟s the

piece of Polycom that would choke a potential deal on that side.”

“The giants are winning massive share in the teleconferencing market

because they‟re starting from low bases and have huge enterprise IT

buy-in behind them. Tell a procurement officer that Radvision has

Avaya behind it or Tandberg has Cisco behind it, and the decision gets

a lot easier. Polycom doesn‟t have that luxury.”

“And there are all these start-ups and fringe vendors that are actually

growing the market. The „traditional‟ enterprise conferencing market is

maybe growing by 7% to 10% a year, about where Polycom sales have

gone. It‟s stalled out, in technology sector terms. But the real growth in

conferencing is rocketing ahead by over 20% to 25% a year. That‟s the

start-ups converting small businesses and larger hold-outs, one

account at a time.”

“Vidyo, Blue Jeans Networks, SalesCrunch, all the software-only

vendors that don‟t sell a fancy camera, don‟t care about ultra-HD office

home theater—these are the vendors that are expanding the conference market and making new share for

themselves. Most of them will sputter and/or get bought out themselves. It‟s the way any new segment evolves.”

“Vidyo is fantastic because it addresses how people actually live and work now. That‟s funny because Vidyo has

actually been in this business for close to a decade now but purely on the software and networking side. It‟s a

convergent home/office solution that scales up to enterprise but starts at Skype-like levels. It costs, what, $5 a

month? A Polycom package can cost $5,000 and that‟s just for the starting equipment. Bandwidth and service

are extra.”

“Independent market segments emerge, flourish for awhile, get absorbed into something else. Remember when

the world was full of stand-alone email vendors? That‟s where teleconferencing is going. Cisco loves this

business because it sells bandwidth. The application is just the sizzle on that steak. Microsoft loves it because it

sells applications. The hardware is just the sizzle. And so on. That‟s where the real success is in this business

and it‟s where the real money will be made once video calling becomes truly ubiquitous.”

Analyst, independent technology strategy group

Adoption of videoconferencing technology is now being driven from the employees, not management. This renders top-

down solutions vendors like Polycom irrelevant in a modern enterprise environment.

“Employees are the leaders as new unified communications strategies emerge from the bottom of the

organization and spread along viral vectors. Applications must embrace the iPhone and iPad or other mobile

platforms in order to succeed and generate ROI for the organization. Polycom doesn‟t get this, or if they do, it

may scare them.”

The giants are winning massive

share in the teleconferencing

market because they‟re

starting from low bases and

have huge enterprise IT buy-in

behind them. Tell a

procurement officer that

Radvision has Avaya behind it

or Tandberg has Cisco behind

it, and the decision gets a lot

easier. Polycom doesn‟t have

that luxury.

Publisher, Telepresence Trade Journal

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

20

“Sit-down formal video conferencing was the transformative technology a decade ago. Now it‟s as much an

entrenched piece of the old corporate environment as anything else, and it‟s currently being subsumed by more

radical, informal and universal video channels. I would expect to see platforms like FaceTime and Skype and

Google Chat or the „hangout‟ feature on Google Plus growing at spectacular rates. Formal video conferencing

may still be growing in absolute terms, but its momentum is being sapped from within.”

“In terms of ROI, nobody needs rich and fully-rendered streaming high-

definition video. That‟s seen as an extravagance and an actual

impediment to productivity. You don‟t need to see every twitch on your

co-workers‟ faces. They don‟t want you to see every twitch. It makes

them less eager to participate in the meeting, and if you have to corral

everyone into the conference room anyway to talk on the screen, why

not just corral everyone to talk face to face?”

“The tablet screen is „good enough.‟ It‟s more fun and it encourages

24/7 unified communication—meetings any time. There‟s no fuss, no

corralling. It‟s not the high-definition experience companies like

Polycom offer, but who wants that but the CEO? And what does it

generate but revenue for the hosting company charging you by the

minute? That‟s the business companies like Cisco and Avaya are

hungry to capture. That‟s the captive cloud opportunity.”

“In tablet, I like Vidyo but really, I just like Skype and FaceTime. And

Google keeps trying to crack the code, now with Gtalk. You have other

vendors like Tango. These are the applications that have the potential

to get real enterprise buy-in, no matter how much money they spend on

$6,000 webcams. The phones already have video cameras and their

employees already have phones.”

“The dedicated hardware vendors have maybe another year of capturing older and slower accounts, but in the

meantime the employee-driven mobile video call is going viral. The next generation of executives won‟t see the

point in gathering everyone into the conference room to deliver a PowerPoint presentation. They‟ll beam the

demonstration across all the phones. And they won‟t renew their Polycom contracts or replace the technology

when it wears out or breaks down.”

Editor-in-chief of networking industry website

The source recently commissioned a study of unified communications that included the video conferencing market. He

found moderate growth, but believes that growth has been overhyped by Cisco in a bid to sell increased capacity. A large

portion of video conferencing growth is happening at the low-cost bring-your-own-device level. Younger users like

students are accustomed to video communication using desktop computers and mobile devices. TelePresence is a slick

technology and popular with those who use it, but it is too expensive for broad adoption. Price competition between

brands is part of video conferencing purchase decisions, but it‟s not as important to buyers as maintainability, scalability

and security.

“I don‟t think the video conferencing market has changed much in the last few months. It‟s progressing, and

some buyers are further along in stitching their communications together than others.”

“The interesting thing, I think, is that all the talk about video is Cisco hype. They keep telling us about the

bandwidth demands of video, but I‟m not sure that demand is really there.”

“Pricing is pretty far down the list of what people care about. Maintainability, scalability and security are more

important. Cost is a component of the buying decision, but it‟s not a top-five item.”

“There‟s a lot going on that isn‟t sanctioned by institutions. In higher education, students have their own gear,

Skype and FaceTime for instance. The schools are just supplying the pipe. Schools are very interested in

equipment for video-based coursework, though.”

Support engineer at lower-cost communications solution provider

Polycom is in a fundamentally different business than its lower-cost competitors. Polycom is really a hardware company,

and its strengths are phone handsets and wireless headsets, not software or services. Polycom‟s growth is not

dependent on video conferencing. Video conferencing will not drive the unified communications market, but the market

is growing and will grow faster as the economy improves and new businesses need communications. His company

Sit-down formal video

conferencing was the

transformative technology a

decade ago. … It‟s currently

being subsumed by more

radical, informal and universal

video channels. I would expect

to see platforms like FaceTime

and Skype and Google Chat or

the „hangout‟ feature on Google

Plus growing at spectacular

rates.

Analyst

Independent Tech Strategy Group

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

21

experienced double-digit growth last year, driven by new businesses embracing

new technology. Lower-cost software-driven companies have a competitive edge

in that situation.

“We have a lot of desktop users, because all you need is the software

and a webcam. It‟s not really meant for conference rooms. We use

LifeSize internally. If someone said video conferencing, I‟d think

LifeSize, not Polycom.”

“What I‟m familiar with Polycom for is phone handsets—they‟re one of

the largest providers—and wireless headsets. They are pretty much a

hardware company that happens to make software.”

“In the IP PBX sector, growth is going to continue. It‟ll scale with the

economy because new businesses need new phones. Small businesses

are more likely to invest in a new technology solution.”

“I‟ve got a lot of legacy systems to deal with, but it‟s getting hard to buy

an old digital PBX.”

“There are two distinct video conferencing industries, personal and

corporate. Skype rules the personal world— we even support Skype trunking. But there‟s not much impetus to

improve video conferencing in the corporate world.”

“We‟ve never used video conferencing on a regular basis within the company. Maybe for going away parties, but

what does it add to the conversation? On a professional level, it‟s not that important. Maybe it would be for a

sales group, or human resources, or administration.”

“There are some real fundamental changes happening in telephony, and that‟s exciting.”

Secondary Sources

Secondary sources show Blue Jeans Network, iPad and the bring-your-own-device movement redefining unified

communications at the enterprise level with increased interoperability, versatility and portability, and decreased costs.

March 21 TechCrunch article

Blue Jeans Network offers a lower-cost competitive videoconferencing product, which aims to eliminate more expensive

legacy devices with its cloud-based solution.

“Having sold two companies to Cisco, Krish Ramakrishnan knows what it takes to compete with the venerable

networking giant.”

“After leaving Cisco for the second time to be an entrepreneur in residence at Accel Partners, he started Blue

Jeans Network three years ago to compete in the video conferencing space. They soon rolled out a product that

connects people for video meetings regardless of whether they use Skype, Google Hangouts, Cisco or Polycom.”

“Now Blue Jeans is digging in deep with a new product meant to kill those expensive video conferencing units

called MCUs or multipoint control units, that can cost north of $250,000.”

“„This is a $700 million market. We‟re just following a trend in industry where people‟s infrastructure just

disappears into the cloud,‟ he said in an interview. „It‟s my intention to take the oxygen out of the traditional

MCU unit. Just shrink it. The industry doesn‟t need legacy-type devices.‟”

“The new service, which he calls an „MCU Killer,‟ starts at $299 per port (or per party involved in calls). He‟s

already signed up 250 enterprise clients including Facebook, Foursquare, Stanford University and MIT, that want

a cloud-based video conference solution that they can easily scale up or down depending on the number of

people who need to use it. With old MCU units, they‟d usually pay for several devices or ports up-front, even if

they didn‟t end up needing them down the line.”

“Even if he cuts this $700 million market down significantly, Ramakrishnan is optimistic that the lower barriers

to entry will bring many more new customers into the market.”

“„Maybe the hardware market will disappear, but Blue Jeans is about expanding the usage of video,‟ he said.”

“The Mountain View, Calif.-based company has raised $23.5 million from Accel Partners, NEA and Norwest

Venture Partners.”

We have a lot of desktop users,

because all you need is the

software and a webcam. It‟s

not really meant for conference

rooms. We use LifeSize

internally. If someone said

video conferencing, I‟d think

LifeSize, not Polycom.

Support Engineer

Lower-cost Communications Solution

Provider

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

22

March 21 Tech.Fortune article

Blue Jeans Network is taking on Polycom and Cisco by providing video conferencing interoperability and replacing

multipoint control units with a less expensive cloud-based solution.

“Videoconferencing has become (almost) mainstream, but there are still plenty of challenges getting different

technologies like Cisco's TelePresence and Skype to work together. In industry-speak, that's called

interoperability -- or lack thereof.”

“Enter Blue Jeans Network, a Mountain View, Calif.-based startup that says it's found a solution to the problem.

The company makes money by selling a cloud-based service that enables everyday Skype or Google Chat users

to videoconference with users of much pricier room-based systems—sort of like an audio bridge for video calls.”

“Up until recently, Blue Jeans wasn't competing with the makers of videoconferencing solutions, like Cisco and

Polycom. It was just providing a web-based tool for customers of the various video vendors to conference with

each other, even if they weren't using the same equipment. But now the small company is trying to position its

product as an alternative to at least one slice of the underlying video infrastructure pie, multipoint control units

(MCUs), or devices that enable videoconferences between three or more users.”

“Traditional MCUs connect between large videoconferencing systems,

and don't work with desktop or mobile solutions like Skype. Blue Jeans

started out allowing different flavors of videoconferencing technology

to work together, but says it realized along the way that its service can

also replace MCUs. To that end, on Wednesday Blue Jeans said it plans

to market its cloud-based service as an MCU replacement by licensing

virtual ports for $300 a pop (each endpoint, like a Skype user on a

laptop or employees in a Cisco TelePresence room, will require its own

port).”

“At least on the surface, the new pricing structure seems more

marketing ploy than actual innovation—the underlying product is still

the same, just packaged differently. But according to Blue Jeans, IT

professionals aren't used to buying videoconferencing capabilities by

the minute, which is one way the company has sold its service up until

now.”

“„At the end of the day we think what we're doing makes the

videoconferencing market bigger,‟ says Stu Aaron, chief commercial

officer at Blue Jeans. „Everybody's benefiting from a bigger pie, but

there will be winners and losers. And yes, there is some admitted

overlap with a piece of their [video equipment makers] portfolio.‟”

“Cisco—one of the largest players in videoconferencing infrastructure,

including MCUs—says it's working on „industry standardization efforts and the next generation of interoperability

protocols.‟”

“„Presently the business-to-business telepresence market does have broad interoperability among the primary

vendors (including Polycom, LifeSize and others),‟ OJ Winge, senior vice president and general manager of

Cisco's collaboration endpoints technology group, said in an emailed statement. „Cisco's perspective is that

interoperability needs to be standards-driven, ensuring ease of use and maximum return on customers'

investments.‟”

“Interestingly, Cisco is fighting Microsoft's proposed acquisition of Skype, on grounds that the duo's technologies

don't play nice with competing videoconferencing tools.”

“Meanwhile, Blue Jeans says it is the „only multipoint bridging solution that can allow a single video conference

to include participants on room-based systems, desktops, and mobile devices that are running a variety of

popular business and consumer video endpoints from Cisco, Polycom, Skype, Microsoft, LifeSize, Google, and

more.‟”

“It's still early days for Blue Jeans. The company launched its service just last June, after raising $23.5 million

from Accel Partners, New Enterprise Associates, and Norwest Venture Partners. But companies like Foursquare

are already using Blue Jeans to make video calls between Cisco TelePresence users in the office and employees

using Skype on the go.”

“„We could easily have two Cisco units in our offices talking to each other but someone in Kentucky wouldn't be

able to join the conversation,‟ says Derek Stewart, Foursquare's director of finance and operations.”

Up until recently, Blue Jeans

wasn't competing with the

makers of videoconferencing

solutions, like Cisco and

Polycom. … But now the small

company is trying to position its

product as an alternative to at

least one slice of the underlying

video infrastructure pie,

multipoint control units (MCUs),

or devices that enable

videoconferences between

three or more users.

Tech.Fortune Article

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

23

“Despite Blue Jeans' push to position itself as an alternative to MCUs, the company is mostly an enhancement—

not a threat—to existing videoconference equipment makers. And whichever company ends up leading the

charge, there's no question that interoperability is an inevitable must in videoconferencing, just like it was in text

messaging on mobile phones. The more use corporate customers can get out of their videoconferencing

systems, the more they'll invest in buying them. That's good for Cisco, Polycom, Skype and Blue Jeans.”

April 10 No Jitter article

The new iPad is a quality video conferencing tool, as well as a replacement for any desktop telephony device. With its

versatility and portability as an added value, iPad gives little reason to invest in any other solution for enterprise video

conferencing needs.

“If I were a CIO and my telecom manager came to me with a PO for a bunch of traditional or „new‟ IP phones, we

would need to have a hard discussion about whether this was a good investment.”

“The announcement of the iPad3 really crystallized an interesting concept that has been on my mind for some

time; Why would anyone buy a new desktop telephony device for an office, or even a cubicle? While there may

be some places where a $150 basic phone is needed, for all of the rest, has the iPad has become an

overwhelming choice as the device to buy for office worker telephony?”

“The iPad2 is now $399. While this is „only‟ 16gigs, has no 3G and

does not have a retinal display or the new high resolution camera, it is

WAY better than any phone out there. And for $100 more you get one

of the best personal video conferencing devices in the iPad3 with a

true HD display and a great camera. And every vendor of telephony and

UC is rushing their iPad app into the market, with the commitment that

it will be a game changing experience for voice, video and

collaboration.”

“Now I know what some would say that the iPad is not really a „phone‟,

but let's examine this. For $100 you can buy the Altec Lansing Octiv

iPad base. It gives a great arm to hold the iPad at ideal

videoconferencing level with landscape or portrait settings, and has

really good speakers for that speakerphone experience when doing

video. Combine this and the iPad3 for a great personal video system

for $600.”

“While the iPad as a speakerphone works really well, for a little more

you can have a great headset, wired or Bluetooth. I prefer the

Plantronics Voyager/Savi as a headset.”

“If you prefer the more custom route, Shoretel is leading the charge in announcing a custom base for the iPad. I

expect to see iPad bases from most if not all of the big UC vendors soon, though the price point may be higher

than the consumer devices.”

“I have been using an iPad for most of my communications for the last 9 months and have found it to be very

reliable, has reasonable voice quality and works well as an office speakerphone. I use it with Skype and the

Avaya Flare client, and both have worked very well. Over that time I found that I stopped using my traditional

desk phone as I really got used to the display on the iPad and all of the information there in either app. The

FaceTime video experience is even better quality than Skype and I can't wait to use it with the higher resolution

and better display of the iPad3.”

“If you have a system with a thousand devices and you are adding 50, why not re-deploy 50 of your existing

devices and get 50 of your employees an iPad? Not only will their phone experience probably improve, but now

they can use the iPad for other functions...and take it with them and use it at home, on the road, at customer

sites, anywhere there is a WiFi network. Just think, for salespeople, a base and handset in a hoteling office now

becomes an open support for any salesperson with an iPad. And it really helps justify building out a great WiFi

infrastructure in your office, which will be a boon to all.”

“Keep the phones where only a basic phone is required and we probably already have enough of those to last a

career. Get the $400 iPad2, a $100 base and the $20 handset and give the users a $520 desk „phone‟ that

makes every other device out there look like it was designed for the last millennium, which they generally were.”

April 9 Network World article

You get one of the best

personal video conferencing

devices in the iPad3 with a true

HD display and a great camera.

And every vendor of telephony

and UC is rushing their iPad

app into the market, with the

commitment that it will be a

game changing experience for

voice, video and collaboration.

No Jitter Article

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

24

A recent study on unified communications revealed that video is not as high a priority as voice and e-mail

communications for companies. The bring-your-own-device movement is gaining steam as it pushes companies forward

in their UC plans.

“Many companies haven't bothered to flesh out their unified communications strategies because 1) it can be

hard to calculate ROI, and 2) the deployment effort is often daunting given so much custom work is required to

piece together the various components that make up an integrated UC system.”

“Network World recently fielded a study on UC that provides a glimpse into how some buyers are approaching

the task. For example, when asked which technology they are using to build out UC, 43% of the 1,105

respondents said they are building from voice/telephone-centric systems. Second most popular was

messaging/email at 27%, while 13% were working to UC-enable specific applications. Only 4% are taking a

video-centric approach (3% said "other" and 10% said they weren't sure).”

“Asked whether they are using any cloud resources for the efforts, more than half (51%) said no, that they are

using private, on-premise UC tools, but 8% are relying on a managed

solution (where the customer still owns the infrastructure), while 9%

went with a hosted option and 22% are using a hybrid approach.”

“Some of the impetus to get going with UC is the bring-your-own-device

movement. Asked if the influx of consumer devices was accelerating

their UC plans, 20% said yes, significantly. Another 47% said yes,

somewhat, while 28% said no (and 5% said they weren't sure).”

“How about the importance of video in UC? Only 8% said video was

critical to their organization's approach to UC, but 28% said it was very

important and 41% said it was somewhat important. One-fifth of the

group said video was not important.”

“Given the difficulty of building an ROI case for UC, it isn't surprising

that cost/funding topped the list of biggest UC challenges, cited by

54% of the respondents, but many other impediments were also listed:

integration with existing infrastructure, 47%; lack of skill sets, 33%;

security concerns, 31%; bandwidth limitations, 27%; difficulty

extending UC to mobile workers, 24%; and integration issues with consumer devices, 21%.”

“In the meantime, of course, elements of UC keep creeping into the enterprise, whether there is a sanctioned

strategy or not. Bits show up in new application features, in new smartphone functions, and of course,

employees can stitch together their own environments using things like Google Voice. Do you wait to see what

develops, or do you get out ahead of it and plan accordingly?”

Next Steps

Blueshift‟s next report on video conferencing will monitor the erosion of formal conferencing among companies of all sizes

and the effect this will have on unified communications providers. We will determine if competition continues to hurt Polycom

or if Polycom‟s RealPresence can help it gain customers looking for mobile solutions. We will also follow up on management

and sales team changes at Polycom, and see if Cisco continues to gain market share. Finally, we will assess the industry

slowdown in China and its effect on Polycom and Cisco.

Additional research by Chris Aylott, Lindsay Gadsby, Scott Martin and Silvia Yu

The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities

and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not

own securities in any of the aforementioned companies.

OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both

market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including

Some of the impetus to get

going with UC is the bring-your-

own-device movement. Asked if

the influx of consumer devices

was accelerating their UC

plans, 20% said yes,

significantly. Another 47% said

yes, somewhat, while 28% said

no.

Network World Article

Polycom Inc.

321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com

25

OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securit ies of other issuers in other industries, may provide bids and

offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial

Group LP.

© 2012 Blueshift Research LLC. All rights reserved. This transmission was produced for the exclusive use of Blueshift Research LLC, and may not be reproduced or relied

upon, in whole or in part, without Blueshift‟s written consent. The information herein is not intended to be a complete analysis of every material fact in respect to any

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