With HP, Microsoft Partnerships, Polycom Must Now Perform: Analysts

Polycom needs to prove it can leverage its deals with HP and Microsoft before it can challenge Cisco, according to analysts.

Polycom's $89 million purchase of Hewlett-Packard's video collaboration business, including its Halo telepresence products, gives it significantly more ammunition in its growing competition with Cisco Systems.

Now Polycom will need to leverage that investment, as well as its expanded partnership with Microsoft and membership in the new OVCC (Open Visual Communications Consortium), to not only grow its business but to differentiate itself from Cisco, which currently owns about 47 percent of the telepresence market and was successful in staving off HP's efforts in the space.

Analysts are taking a wait-and-see approach to Polycom and its new-found video communications riches.

"While these announcements will create a great short-term opportunity, it's not a given that Polycom will be able to create long-term differentiation," Yankee Group analyst Zeus Kerravala said in a blog post. "Historically, Polycom has been great on executing on tactical, short-term opportunities, but it's never managed to think about how to make video part of the DNA of its corporate customers. Meanwhile, Cisco has made video the main focal point for its entire collaboration strategy. So great short-term moves for Polycom ... and to Cisco, it's game on."

During a Webcast press conference June 1, Polycom CEO Andrew Miller spoke of the capabilities his company is inheriting through the acquisition of HP's video collaboration business, which will include not only the Halo telepresence products but also managed services. Miller also talked about Polycom's aggressive push for partnerships and the drive to create greater interoperability and openness in the video communications business.

The deal for HP's video collaboration business is expected to close in the third quarter.

It's those partnerships and what Polycom will gain from them that will be more beneficial to the company than any HP Halo products, Roopam Jain, an analyst with Frost & Sullivan, said in an email to eWEEK. Polycom already has telepresence and video collaboration products, Jain said. However, through its strategic relationship with HP-in which Polycom becomes HP's exclusive provider for telepresence technology-Polycom will gain access to a wider customer base, a larger distribution channel and big sales team. In addition, Polycom will be bringing its telepresence and video collaboration technology to HP's webOS platform, which will include PCs, laptops, smartphones and tablets.

In addition, HP CEO Leo Apotheker, at the D9 conference June 1, said HP was looking into licensing webOS to other vendors.

"Mobility is a hot topic and the most exciting developments in collaboration are coming to mobile devices," Jain said.

Add HP's support to the expanded relationship with Microsoft and the partnerships with the various service providers-including AT&T, Verizon, Orange Business Services, BT Conferencing and Global Crossing-and Polycom has some formidable allies, she said.

"What Polycom's competition has to worry about is how to counteract an even more powerful Polycom," Jain said. "Polycom has been gaining a lot of momentum in recent months and has already benefited significantly from a growing ecosystem of partners, particularly Microsoft. This announcement creates another strong partner for them. The HP-Microsoft-Polycom triangle of partnership could mean huge challenges for Polycom's competitors."

Henry Dewing, an analyst with Forrester Research, agreed, but said the onus now is on Polycom executives to make all this work to its advantage.

"Polycom is joining the march of vendors betting on the improved collaboration made possible by video-and adding its own twist by focusing on platforms and interfaces that enable the cloud services that will deliver intercompany, cross-carrier solutions in a way that will enable service providers of all types to profitably participate in the market," Dewing said in a blog post. "If Polycom can take the lead in offering open interoperable services, it can hurt Cisco in its core business. However, it is not clear that this set of announcements and relationships can deliver more open interoperability than the legacy Codian technologies that Cisco owns and markets through a long list of service providers today, giving Cisco an advantage until Polycom can prove that its solutions are more open."

Polycom's Miller and other executives have said that their open approach, partnerships and focus on standards and interoperability will be a key differentiator for Polycom going forward. They look at Cisco's offering as a more closed, proprietary environment-though Miller said he hoped Cisco would join the OVCC. However, Cisco officials said that their success in the video collaboration space over the past few years is proof positive that their approach makes sense in the market.

"In just under five years, Cisco has gone from zero to 47 percent telepresence market share while HP has failed to build any credible presence in collaboration," David Hsieh, vice president of TelePresence marketing, said in an email. "Regardless of the vendor, innovation and a commitment to customers are critical for success in this rapidly growing collaboration space, and Cisco's strategy to offer customers one of the largest portfolios of interoperable telepresence solutions for their unique needs is paying off."

For the rest of the industry, Polycom's moves are an indication that more changes are in the offing. Yankee Group's Kerravala noted that after Cisco closed its $3.3 billion for video conferencing rival Tandberg last year, speculation was rampant that Polycom would be the next takeover target, with HP and Dell among the list of potential purchasers. Polycom's HP deal changes things around a bit.

"Over the past few years, Polycom has allowed Cisco to be the primary evangelist for corporate video and seemed content to ride the wave Cisco has created," he wrote. "Polycom now has strategic relationships with two of the largest IT vendors (HP and Microsoft) as well as developing relationships with network service providers, which has typically been an area of exclusivity for Cisco."

For smaller vendors-such as Mitel, ShoreTel and Vidyo (which last year announced a partnership with HP)-the deal could trigger more interest in them, according to Frost & Sullivan's Jain.

"Video is becoming key to all communication vendors' portfolio," she said. "We expect to see more consolidation in this market."