TheLowDown Monthly Newsletter                June 3, 2008

Videoconferencing Gains as Travel Costs Rise

By Helen Chernikoff

As companies cut travel budgets because of higher costs and a softer U.S. economy, they are increasingly adopting technology that allows employees to collaborate face-to-face without boarding a plane.

The businesses that make such technology, like Polycom, Cisco Systems and Hewlett-Packard, are seeing profits from videoconferencing soar alongside the price of jet fuel and gasoline.

With oil prices hitting an all-time high of $135.09 per barrel in May, Cisco has been hearing customers talk more in recent weeks about using video conferencing to avoid travel, said Erica Schroeder, who heads marketing for Cisco's advanced videoconferencing product, TelePresence.

Traveling vs. Teleconferencing

"Travel is the topic of conversation from customers to us," said Polycom's chief financial officer, Michael Kourey. "We're not having to pitch this."

Allan McKisson, a vice president for human resources at the staffing services company Manpower, said that as part of an effort to cut travel costs by 10 percent, it had increased the use of videoconferencing equipment in the last several months.

In companywide e-mail messages, the office furniture maker Herman Miller has encouraged employees to use video conferencing in addition to conference calls and car-pooling to cut operating costs, said a spokeswoman, Susan Koole.

"Herman Miller is really encouraging its employees to ask if their travel is truly necessary," Koole said.

This anxiety over oil prices has translated into improved results for makers of videoconferencing equipment.

Sales of Polycom's high-end technology, which aims to make international colleagues feel as though they are in the same room, grew about 58 percent from the fourth quarter of 2007 to the first quarter of 2008, said Kourey, the chief financial officer.

Hewlett-Packard attributes some acceleration in sales to energy prices, said Ken Crangle, who manages its videoconferencing technology unit, HP Halo. "Most of our customers come back to us pretty quickly and say: 'We justified this on the cost savings,"' he said.

Repeat business happens because videoconferencing can raise productivity by cutting travel time and making more frequent, focused meetings possible, Crangle added.

Also, despite advances in technology, the industry as a whole has not reached its ultimate goal, which would be a videoconference that is as easy as a phone call, said Nora Freedman, a senior analyst with technology market research company IDC.

Such ease of use is already a reality when the parties involved use one system; but different video conferencing systems cannot communicate with each other yet, something that is still two to three years away, Freedman said.

Reducing travel for intracompany meetings can yield substantial savings.

What is the Price?

Cisco has saved about $150 million on travel by using its technology to conduct meetings in the past year and a half, Schroeder said. The company hopes to cut air travel by 20 percent.

But for customers who must buy the equipment, such savings do not come cheap. News Corp. has bought some of Polycom's priciest systems, which cost $299,000 to $700,000.

They feature life-size screens, surround sound and operators, so technically challenged executives do not need to even flip a switch. Less expensive alternatives cost $30,000 to $45,000 and desktop systems start at about $10,000.

The accounting firm Deloitte, which has also bought Polycom's high-end product, has found that the quality of the latest systems induces employees to actually use them, said Larry Quinlan, the Deloitte's chief information officer.

"People say it's lifelike; it's almost like being there," he said. "The clarity of the high-definition image is like watching football at home." (News@Cisco)

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