Yielding about $1 billion in revenue last year, the worldwide videoconference equipment market is projected to grow to more than $5 billion by 2001, according to Will Strauss, president of Forward Concepts of Tempe, Ariz., a market research firm that monitors the industry. Helping to fuel that growth are PC desktop models costing as little as $1,000, about one-third lower than last year's price. The lowest priced group systems are running about $7,000, which is about a 50 percent reduction.
Industry mainstays PictureTel of Andover, Mass., and VTEL of Austin, Texas, together accounted for almost 70 percent of last year's revenues. Many observers predict that situation will change when the Internet or H.323 standards systems become viable and when industry giants Intel and Microsoft begin flexing their muscles in the market.
Intel already offers competitively priced desktop and group units, and Microsoft shipped video capability on its latest edition of Netmeeting, which came out last year. Lacking the necessary bandwidth at present, the Internet remains ill-suited for videoconferences, which are still largely carried over the H.320 standard integrated services digital network, or ISDN, and plain old telephone service, or POTS, lines.
Along with health care and higher education, the government is a key segment of the videoconferencing market, and all of the companies "are keenly interested in further penetrating the government market," said Jim Herbert, executive director of the International Teleconferencing Association in McLean, Va.
"The efficiencies of the teleconferencing market are uniquely suited to the government," Herbert added, noting that work force reductions have put more pressure on the survivors to do more. Focusing on middle managers, those job cuts have shifted the responsibility for
decision-making further down into the work group that is often spread around the world.
While an attractive market, the government offers key challenges as well, such as "the rules and regulations surrounding its organizational structure," said Mike Raymond, sales director for VTEL Federal region in Vienna, Va. Because the technology involves voice, video and data, VTEL must deal with several organizations, he said.
"Also, we often deal with different types of networks, including satellites for overseas locations," as well as ground lines, and even hybrids that combine both, he said. There also are security and encryption issues, especially when dealing with the Defense Department and the intelligence community, he added.
While they must grapple with the idiosyncrasies of the market, the vendors do not, for the most part, sell directly to government agencies, but rather rely on systems integrators and value-added resellers with proven government sales track records.
"We use indirect channels to represent and educate the market about our products," Raymond said. Among VTEL's partners are international and regional telephone companies, including Sprint of Kansas City, Mo.; AT&T of Basking Ridge, N.J.; GTE Corp. of Stamford, Conn.; US West of Englewood, Colo.; and Bell Atlantic Corp. of Philadelphia. Other partners are government sellers, such as Vienna, Va.-based BTG Inc., Cleveland-based TRW Inc., McLean, Va.-based FreBon International Corp., Sigcom of Greensboro, N.C., and CritiCom Inc. of Lanham, Md.
With revenues of $482.5 million last year, PictureTel is the industry pacesetter and is now looking to secure its position in the coming Internet market. It has forged
alliances with powerful companies, such as AT&T, Compaq Computer Corp., IBM Corp., MCI Communications Corp. and Microsoft Corp. In addition, PictureTel is expected soon to complete its acquisition of MultiLink Inc. of Andover, Mass., a supplier of multipoint audioconferencing systems. The $40 million deal should be finalized by month's end.
"The acquisition of MultiLink provides us with access to an extremely affordable next-generation multimedia architecture that will fill out our product line and enable new market development," said Bill Avery, vice president of PictureTel's Network Systems Division. It also will give PictureTel the technology to facilitate its entry into the H.323 intranet/Internet/LAN network space.
Aside from providing the system used by FEMA, PictureTel supplies videoconferencing units to the U.S. Army Total Dental Access Group, a pilot program with command centers in Georgia and Germany and mobile units in Bosnia. Current plans call for increasing the number of U.S. locations to 13 and European sites to 12. PictureTel is an industry partner in the Defense Department's Telemedicine Test Bed, boosting collaborative development of telemedicine systems by government, academia and industry. PictureTel also is working to provide NASA with two-way, interactive visual communication with astronauts orbiting the Earth in the nation's fleet of reusable space shuttles.
The newly merged VTEL and Compression Labs Inc. of San Jose, Calif., could provide a formidable challenge to PictureTel. With combined revenues exceeding $200 million last year, the new VTEL claims to be the largest supplier of videoconferencing equipment to the government. About 20 percent to 25 percent of its revenues come from government work, said Raymond. In its restructuring, the company is designating a separate unit to sharpen its focus on the federal government videoconferencing market.
The company is playing a key role in a host of government contracts. The latest, awarded June 12, calls for VTEL to provide systems for about 25 locations under a Federal Aviation Administration contract awarded to FreBon International Corp., valued at up to $750,000, said Raymond. The company also supplies systems to Veterans Affairs sites in Long Beach, Calif., and Columbia, S.C., under VA contracts with CritiCom and Sprint Government Systems Division of Herndon, Va.
Sprint and CritiCom also offer the VTEL systems through the General Services Administration. During 1995 and 1996, the VTEL units were Sprint's biggest seller off the GSA schedule, said Lynn Furrow, program manager for GSA schedule at Sprint.
In addition, VTEL is providing 110 videoconferencing systems for the Army's new Video Tele-Training Network, the largest distance-training system in the government under a $50 million contract awarded to Sprint late last year. About 92 of the systems are now in place and the rest are expected to be completed in the next few months. The system allows soldiers in remote locations to attend classes and interact with each other and their instructors using the video data.