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Video conferencing software cutting into hardware revenue

Video hardware revenues are expected to stagnate as video conferencing software grows in popularity. Vendors may be in trouble if they don't adapt to a changing market.

Hardware-based video conferencing is going the way of the PBX as organizations increasingly opt for video conferencing software options.

According to a recent report from ABI Research, revenues for enterprise video conferencing infrastructure and endpoint hardware will stagnate through 2020 at a 2.1% compound annual growth rate.

The trend toward an increasingly virtualized video conferencing market has been accelerating the past few years, said Irwin Lazar, analyst and service director at Nemertes Research.

"The hardware model is pretty much gone," he said. "It will be rapidly disappearing over the next few years."

Lazar said most organizations today are less likely to buy multipoint control units (MCUs) when there are several software-based systems that can act as a conferencing bridge. Many organizations, especially smaller businesses, are using the video capabilities built into Web conferencing platforms, such as those in Microsoft's Lync Online in Office 365 and Citrix's GoToMeeting.

Employees are changing how organizations use video as they bring their experience with consumer video conferencing services like Skype and FaceTime into work with them, said Roopam Jain, industry director for communications and collaboration at Frost & Sullivan.

"The same old way of doing things is out the door," Jain said. She said there are three things users want that are driving the need for video conferencing software: the best user experience, seamless mobility, and intuitive, low-cost devices.

WebRTC is also making an impact on the video conferencing market.

"There are a lot of WebRTC platforms coming out that eliminate the need for any kind of hardware," Lazar said. There are an increasing number of platforms from vendors like Pexip and Acano that offer software-based and virtual MCUs and make the user's computer the entrance point for video communications.

Telepresence is the exception, as there is still a need for higher-end, executive-style room systems, Lazar said. Three-screen telepresence systems will become a niche in the conferencing market as vendors cut prices and focus on integrating with desktop and mobile video.

Legacy vendors must adapt

Legacy vendors like Avaya, Cisco and Polycom whose heritage is in hardware-based video conferencing platforms will have difficulty with their infrastructure and endpoint sales if they do not adapt to an increasingly virtualized market, according to ABI Research.

These vendors are facing a transitional challenge because they still make money on service and support of video hardware, Lazar said. However, those revenue streams will decline.

Legacy vendors are trying to deliver cheaper systems to eliminate the need to spend huge amounts of money for infrastructure, he added. As a result, they are making the moves in the cloud UC market.

"Vendors have gotten around cloud and know they have to have a cloud offering," Lazar said.

Only one in 20 conference rooms has any kind of video capability, according to Rowan Trollope, senior vice president and general manager of Cisco's collaboration technology group. Most of those video-enabled meeting rooms require on-premises hardware. But the new generation of video conferencing software is meant for those 19 conferencing rooms that don't have video. Vendors are trying to entice new customers with low-cost, consumer-like services that are connected to the cloud, he said.

Cisco has revamped its video offerings by consolidating its offerings, reducing prices and moving its infrastructure to the cloud, said Trollope.

"Our hardware sales for infrastructure are going down, but software is rocketing," he said.

Polycom offers a video-as-a-service (VaaS) RealPresence cloud platform , while Avaya recently announced a VaaS platform similar to one offered by Blue Jeans Network, Lazar said.

Jain said all major vendors now offer virtual editions of their UC and video conferencing platforms, and larger customers are opting for a mix of room- and software-based conferencing to create hybrid video conferencing to support a growing mobile workforce.

As more vendors offer high-performance video conferencing software, there will be rapid adoption of video conferencing applications, she said.

Next Steps

Redefining video conferencing

Why users want a hybrid approach to conferencing

When will users prefer video over voice for calls?

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