Rich. Media. Conferencing. Audio, Video, and Web Conferencing Services

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1 Rich Media Conferencing 2004 Audio, Video, and Web Conferencing Services 3

2 Rich Media Conferencing 2004 Volume 3, Audio, Video, & Web Conferencing Services October 2004 This Copy Has Been Licensed to Only Your Organization The following acts are strictly prohibited: Transmittal to another organization outside you immediate organization (i.e. partners, resellers, etc.) in any media format Posting on a web site which is accessible to others outside your immediate organization Reproduction for sale This publication is protected by United States copyright laws and international treaties. Unauthorized distribution or reproduction of this publication, or any portion of it, may result in severe civil and criminal penalties, and will be prosecuted to the maximum extent necessary to protect the rights of the publisher. Publication No. RE-RMC04-V3

3 About the Authors Andrew W. Davis is Managing Partner at the Wainhouse Research, LLC, a Brookline, MA-based firm providing market research, business planning, and marketing services. He has more than ten years experience as a successful technology consultant and industry analyst. Prior to independent consulting, Andrew held senior marketing positions with several large and small high technology companies. He has published over 200 articles and columns on multimedia communications, image and signal processing, videoconferencing, and corporate strategies in multiple trade journals. and has taught seminars on multimedia communications, videoconferencing, and streaming media technologies. Mr. Davis holds B.S. and M.S. degrees in engineering from Cornell University and a Masters of Business Administration from Harvard University. He can be reached at andrewwd@wainhouse.com. Marc F. Beattie is a Senior Analyst and Partner at Wainhouse Research, LLC where he heads the CSP practice. He has authored public and private reports on product strategies, distribution structures, emerging technologies and industry applications. Marc is the principle author of CSP SpotCheck, and co-authors Wainhouse Research s three volume Rich Media Conferencing series annually. He is a featured speaker and moderator at industry conferences and private company events - specializing on the future impact of current technology developments. Marc regularly consults with end users, established vendors, emerging companies, and the financial community. He is a member of Gerson Lehrman Group's The Councils of Advisors and Vista Research's Society of Industry Leaders through which he advises worldwide financial clients on technology companies and trends. Prior to joining Wainhouse Research Marc was an early member of PictureTel and Polycom - holding positions in product management, business development and sales management - and spent 13 years working within the industry. He has been an independent analyst and consultant since He can be reached at mbeattie@wainhouse.com. Andrew H. Nilssen is a Senior Analyst and Partner at Wainhouse Research, LLC. Andy has over 20 years of experience in bringing high-technology products to market. At Wainhouse Research, he coauthors many of the firm s market research reports and is a consultant to rich media conferencing vendors, network infrastructure vendors, end users, government agencies, and venture capitalists. Prior to Wainhouse Research, Andy was Director of Marketing at PictureTel where he identified strategies and partners to expand business, and was responsible for all market research including end-user, competitive, and market sizing. Earlier, Andy managed the planning and launching of PictureTel's Venue and Concorde group systems and authored the original business plan for SwiftSite. Andy was also Vice President of Marketing at Visual Technology, a maker of IP-based network terminals, and a Product Line Manager at Sun Microsystems. Andy earned his MBA and BSEE degrees from the University of New Hampshire and holds two ease-of-use related patents. He can be reached at andyn@wainhouse.com COPYRIGHT NOTICE Copyright 2004 by Wainhouse Research, LLC. All rights, including that of translation into other languages are specifically reserved. No part of this publication may be reproduced in any form, stored in a retrieval system, or transmitted by any method or means, electrical, mechanical, photographic, or otherwise, without the express written permission of Wainhouse Research, 112 Sumner Road, Brookline, MA (Tel ) NOTE: The material presented in this report is based on both primary and secondary market data coupled with our professional interpretation of the facts. We believe that the basic information and recommendations presented in this study provide a basis for sound business decisions, but no warranty as to completeness or accuracy is implied. All market estimates and forecasts are those of the authors, except as noted. We welcome your comments on this report.

4 A comprehensive series of market research reports designed to help you keep abreast of the rapidly changing technologies, offerings, and vendors in the audio, web, and video conferencing and collaboration markets. The rich media conferencing and collaboration market is undergoing important changes. Audio and video conferences are being deployed over IP networks, though network QoS, bandwidth, and infrastructure bottlenecks remain a concern. Web conferencing and Instant Messaging, combined with the enormous power of Presence and Availability Management, have come out of nowhere to gain massive popularity and support from important enterprise software vendors who are looking to morph many collaboration functions into features of higher level applications rather than see them exist as standalone desktop applications. Videoconferencing systems are evolving with new standards promising higher quality video, security, and data conferencing capabilities. Demand for video- and collaboration-centric hosting services is building as enterprises of all types look for ways to improve communications and reduce travel expenses. Wainhouse Research s Rich Media Conferencing series will help you track the market, understand your competition, re-vamp your marketing messages and distribution strategies, and maximize your return on investment. Our goal is to broaden your understanding of the technology and market trends and to provide an independent insight into the future. The Rich Media Conferencing series consists of three separate reports of interest to vendors and end users alike: Volume 1: Audio, Video, and Web Conferencing Infrastructure Products - Market and technology overview of audio, video, and web conferencing servers, MCUs, gateways, & gatekeepers complete with summaries of major vendors and their product lines, and a detailed 5-year forecast. Volume 2: Videconferencing Clients - Video and Web conferencing clients market and technology overview, complete with summaries of major vendors and their product lines, and a detailed 5-year forecast. Volume 3: Audio, Video, & Web Conferencing Services - Conference services market and technology overview, complete with summaries of major conferencing service providers (CSPs) and their service offerings, and a detailed 5-year forecast. The RMC report series is available by full series subscription or individual reports; in either hardcopy or electronically via Adobe Acrobat pdf. Segment Focus Reports Wainhouse Research Segment Focus reports are published on an ad-hoc basis. They are intended to provide in-depth coverage of markets, technologies, or product categories of special interest to the rich media conferencing community. Some reports include five-year forecasts. See for a listing of available reports.

5 Thinkofit th Ave. South Minneapolis, MN Phone: Fax: Web: Rich Media Conferencing 2004 Order Form Please fax or mail to Thinkofit (address & fax number above) or order by phone at RMC 2004 Option I: Full Series Subscription 1 printed copy of each volume: Vol 1, Vol 2, & Vol 3 Electronic copy of each volume with limited organizational use license (Acrobat.pdf file) Invoice $11,995 USD + shipping on receipt of first report; ($9,995 for repeat subscribers) RMC 2004 Option II: Individual Reports - please indicate number of individual report copies desired: paper copies or electronic option Vol 1: Multimedia Network Infrastructure Products paper copies or electronic option Vol 2: Videoconferencing Client Endpoints paper copies or electronic option Vol 3: Audio, Video, and Web Conferencing Services Prices: $3,495 USD first paper copy of each report, additional paper copies $400 USD Electronic option: $4,995 USD one paper copy of report plus electronic copy with limited organizational use license (Adobe Acrobat.pdf file); Shipping & handling charges are additional. Payment Options: Company Purchase Order: PO # Credit Card Order: Visa MasterCard American Express Credit Card # Expiration Date: / Name on Card: Marketing Contact Billing Address (If different) Contact Name Contact Name Company Company Address Line 1 Address Line 1 Address Line 2 Address Line 2 City, State, Zip or Postal Code City, State, Zip or Postal Code Contact Phone Number Contact Phone Number

6 Table of Contents CHAPTER 1 EXECUTIVE SUMMARY...9 Market Overview...9 Market Segments...9 Methodology...11 Major Trends...12 Forecast Summary...13 Providers Covered in This Report...14 CHAPTER 2 THE YEAR (2003) IN REVIEW...15 The Top five...15 The Conferencing Industry in General...16 Mergers, Acquisitions, Exits, and Other Business Deals...17 Pure Technology Developments...17 Audio, Video, and Web Conferencing Infrastructure Products...18 Endpoints for Group and Personal Videoconferencing...18 Audio, Video, and Web Conferencing Services...19 CHAPTER 3 MARKET SEGMENTS & TECHNOLOGIES...20 Current Market Segments...21 Recent CSP Trends & Events...24 The Rich Media Conferencing Food Chain...27 Some Definitions...28 Technology...30 CHAPTER 4 VENDOR ANALYSIS...45 ACT Teleconferencing...45 Arkadin SA...48 AT&T Teleconference Services...50 Bell Canada (includes ACCUTEL)...53 British Telecom Conferencing...56 Centra Software...58 Citizens Conferencing...61 Conference Plus...63 Deutsche Telekom AG...65 ECI Conferencing Services...67 Enunciate Conferencing...69 France Telecom...71 Genesys Conferencing...73 Glance Networks, Inc Global Crossing Conferencing...78 GlowPoint...81 InterCall...83 MCI Conferencing...86 MeetingZone...88 Microsoft...90 MVC...94 NTT BizLink, Inc Premiere Conferencing...99 Raindance Communications SingTel Wainhouse Research, LLC Page 5

7 SNT Conferencing Services (to be re-integrated to KPN Q4 2004) Sprint TeliaSonera Telstra Conferencing V-SPAN WebEx Communications CHAPTER 5 INDUSTRY FORECAST Market Overview Forecast Assumptions Definitions Methodology The North American Market Europe Asia Pacific Worldwide APPENDIX A SURVEY RESULTS APPENDIX B COMPLETE LISTING OF SERVICE PROVIDERS & MATRIX OF SERVICES List of Figures Figure 1: CSP Market Segmentation...10 Figure 2: CASP Segmentation By Type...11 Figure 3: CASP Segmentation By Size...11 Figure 4: Unified Conferencing...12 Figure 5: Worldwide forecast of conferencing service revenues...13 Figure 6: CSP Market Segmentation...21 Figure 7: Three implementations of conferencing services...22 Figure 8: Channel Structure...23 Figure 9: CASP Segmentation By Type...23 Figure 10: CASP Segmentation By Size...24 Figure 11: The Role of Presence...25 Figure 12: Unified Conferencing...26 Figure 13: Match the Media to the Message...27 Figure 14: Three tools for network quality of service...31 Figure 15: Network address translation...32 Figure 16: Web conferencing and PSTN architecture...34 Figure 17: Functions of a Gateway...36 Figure 18: IP Media Server Configuration with Conferencing...38 Figure 19: Components of an IP Media Server Platform...39 Figure 20: IP Media / TDM Hybrid Deployment...40 Figure 21: ITU-T Standards for Multipoint Conferencing...42 Figure 22: North America Revenue Forecast by Segment Figure 23: North America Revenue Y Figure 24: North America Revenue Y Figure 25: North American CSP Total Revenue Figure 26: North American Audio Minutes Forecast Figure 27: North American Audio ASP Per Minute Forecast Figure 28: North American Audio Revenue Forecast Figure 29: North American Web Conferencing Revenue Forecast Page Wainhouse Research, LLC

8 Figure 30: North American Video Bridging Revenue Forecast Figure 31: European Revenue Forecast by Segment Figure 32: Europe Revenue Y2003 by Segment Figure 33: Europe Revenue Y2008 by Segment Figure 34: European CSP Total Revenue Figure 35: European Audio Minutes Forecast Figure 36: European Audio ASP Per Minute Forecast Figure 37: European Audio Revenue Forecast Figure 38: European Web Conferencing Forecast Figure 39: European Video Bridging Revenue Forecast Figure 40: APAC Revenue Forecast by Segment Figure 41: APAC Revenue Y Figure 42: APAC Revenue Y Figure 43: APAC Total CSP Revenue Forecast Figure 44: APAC Audio Minutes Forecast Figure 45: APAC Audio ASP Per Minute Forecast Figure 46: APAC Audio Revenue Forecast Figure 47: APAC Web Conferencing Revenue Forecast Figure 48: APAC Video Bridging Revenue Forecast Figure 49: Worldwide Revenue Forecast by Segment Figure 50: Worldwide Audio Revenue Forecast Figure 51: Worldwide Revenue Forecast by Geography Figure 52: Size/type of respondent's enterprise Figure 53: Type of company Figure 54: Geographic distribution of respondents Figure 55: Service plans today Figure 56: Service plans in 12 months Figure 57: Top two service provider selection criteria Figure 58: Top reasons for using an outside CSP Figure 59: Main reasons for NOT using a CSP Figure 60: Purchase decision makers for audio, video, and web conferencing Figure 61: Purchase plans 2005 vs List of Tables Table 1: North America Market Forecast Table 2: North America Audio Conferencing Forecast Table 3: North American Web Conferencing Forecast Table 4: North American Video Bridging Forecast Table 5: European Market Forecast Table 6: European Audio Forecast Table 7: European Web Conferencing Forecast Table 8: European Video Bridging Forecast Table 9: APAC Market Forecast Table 10: APAC Audio Forecast Table 11: APAC Web Conferencing Forecast Table 12: APAC Video Bridging Revenue Forecast Table 13: Worldwide Forecast by Market Segment Table 14: Worldwide Forecast by Geography Wainhouse Research, LLC Page 7

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10 Chapter 1 Executive Summary This report presents a comprehensive study of the audio, web, and video bridging services market. Our review includes an individual treatment of Conferencing Service Providers (CSPs) and their related markets in North America, Europe, and Asia Pacific. Included in this report is our analysis of the current state of the market, a review of the underlying technologies, background and analysis of 32 vendors, current market sizing, our 5-year forecast by service type (including revenue, volume, and average sales prices), results of an online survey from over 500 respondents, and a list of all of the providers in our database with their major services. This report places the current market conditions and emerging trends in context and provides opinions and recommendations grounded in a comprehensive view of the internal and external forces driving conferencing services. Market Overview The past year has seen continued strength in the market for hosted conferencing solutions. Attended audio minutes, attended revenue, and web conferencing each grew more than 30%. However, multiple conditions within the market and conditions outside are beginning to challenge the traditional role of CSPs and their individual growth. Within the Market The market demand for audio conferencing is extraordinary and has remained strong for multiple years. While attended audio has declined, total audio minutes driven by unattended audio has increased year-over-year. Web conferencing usage continues to climb with many CSPs report a doubling of usage in the last year. Recent quarterly data indicates that web conferencing revenue in North America now accounts for over 20% of total CSP revenue. European usage of web conferencing kicked in during the first half of 2004 and we expect APAC to gain a foothold in Through VPN PoPs (point-of-presence) and centralized, low cost IP media servers, even the smallest CSPs can now have a local market presence and an increasing number do. It has never been easier to claim local service in countries. Outside the Market Many factors outside of the immediate conferencing arena,are having a profound impact on conferencing services. CSPs are increasingly being squeezed by users deploying VoIP and their own IP-based backhaul networks. The last piece to fall in place is public packet switched voice networks. Interestingly, many within the industry acknowledge that the ROI for VoIP has run its course and end user benefits will remain soft until new features and services are offered that either compliment the way users work, make communication easier, and/or reduce costs. Enhanced conferencing services offered on top of VoIP offer all these benefits. At the same time, telecom equipment providers with a VoIP strategy are pushing clients to buy and run their own Customer Premisis Equipment (CPE). Alcatel bought edial, Avaya bought Spectel, Cisco bought Latitude, and we believe that every major telecom equipment vendor will need to own a conferencing and collaboration asset. There are more trends to indicate that, in the end, a hosted or managed service wins the day allowing a big role for CSPs but these are big companies with a lot of marketing power to change minds. Market Segments The conferencing services market has evolved over the past two years, responding to an industry-wide move to IP on the part of many customers, to the changing role of voice, video, and web media capabilities in the service provider mix, the emergence of converged solutions, and new customer demands to remove or hide the complexity of increasingly sophisticated unified 2004 Wainhouse Research, LLC Page 9

11 solutions. We believe the following chart represents the current market segmentation that is applicable to most service providers. Conferencing Service Providers Conferencing Application Service Provider Managed Service Provider Video Network Service Provider Figure 1: CSP Market Segmentation Conferencing application service providers (CASP) are companies that provide hosted services for audio, video, and web conferences. Many of these companies were known as bridging service providers in the past, since they focused on multipoint audio and video services. Customers traditionally paid by the minute for CASP services, though pricing models are quickly evolving for IP-based services. Managed service providers (MSPs) traditionally manage, operate, and maintain equipment that is physically located on the customer premises or a third party collocation facility and may or may not be logically located behind the customer s firewall. Sometimes these services are provided by remote personnel, and sometimes by dedicated MSP personnel located at the customer site. The equipment itself can be owned by the customer, or made available on a lease-back program. The managed services model is growing in popularity, with some equipment resellers and some CASPs deciding to get into this end of the CSP business. Video Network Service Providers (VNSPs) enable rich media communications by providing IP network services optimized for or dedicated to videoconferencing traffic. Several companies specialize in this business, but the larger VNSPs are providing MPLS-based IP networks that handle voice, video, and data on a single network with quality of service (QoS) built in to support the needs of voice and video. For many of these companies, attempting to separate out video revenues from overall network revenues is an exercise of questionable value. Some service providers today are attempting to provide services in all three sectors, while others are content to remain in one segment only. This report focuses on the CASP segment of the market. Page Wainhouse Research, LLC

12 CASP Segmentation Wainhouse Research depicts the CSP industry as consisting of three tiers by type and four tiers of players by size. Telcos AT&T, BT, DT, FT, MCI, NTT, Telstra, etc. Independent Audio CSPs ACT, Arkadin, Genesys, InterCall, Netspoke, Premiere, etc. Video & Web Application Service Providers Centra, GlowPoint, Microsoft, WebDialogs, WebEx, V-SPAN, etc. Figure 2: CASP Segmentation By Type Telcos are typically large companies, including the well known carriers such as AT&T, Bell Canada, British Telecom, France Telecom, MCI, NTT, and Telstra. While these companies often have large market shares in their local markets, conferencing itself represents a very small piece of their business. In general, these companies own their networks, have a business unit that is an original audio service provider and resell web conferencing services. Independent audio CSPs generally comprises a group of 5-10 players who garner a significant share of their revenue from audio conferencing services and resell web conferencing. Video and web application service providers consist of a small group of providers who primarily sell video bridging or web conferencing as an original service provider. These services can be sold directly or through audio CSPs either Telco s or independents, however, most services are sold directly. Tier 1 > $250M AT&T, MCI Tier 2 $100M - $250M InterCall, Premiere, Genesys, WebEx, etc Tier 3 $10M - $100M ACT, BT, FT, etc. Figure 3: CASP Segmentation By Size Tier 4 < $10M An increasingly small field of players that have grown or been acquired The largest group of CSPs are in Tier 3, however an increasing number are in Tier 2. Tier 4 often includes start ups within the first three years of business or older companies that focus in a niche market. Aggressive smaller companies often move up into Tier 3 by their fourth year or become acquired by larger companies (Connect-US, ConferenceCall.com, RCI, etc). Very few companies break into Tier 1, however InterCall, Premiere, and WebEx are each on revenue run rates to accomplish this either in 2004 or Methodology Wainhouse Research monitors the entire rich media conferencing market through its consulting, seminars and WR Summits, SpotCheck quarterly industry reports, and user activities, as well as by maintaining continuous contacts with the vendor and end user communities. Part of the research in support of this report included an on-line survey, details of which are included in an appendix to this report. In order to assess the current state of the market and to ground the forecast figures of this report in hard reality, we also interviewed and collected data from 35 suppliers Wainhouse Research, LLC Page 11

13 Major Trends Our forecast and supplier reviews note several trends that are shaping the future of the rich media conferencing industry, and their impact on the market for conferencing services: The dramatic entry of Microsoft into the conferencing and collaboration market has galvanized the CSP industry in several ways. Microsoft is promoting the future integration between Live Communication Server (LCS) and Live Meeting, enabling a smooth continuum between server and services in the not-too-distant future; and LCS brings presence and presence management to the forefront of the conferencing industry, opening new opportunities for end users and service providers alike. Presence, whether Microsoft-based or based on another vendor s product, will have a profound effect on the conferencing industry as a whole, and service providers along with it. The past year has seen significant activity on the part of large enterprise software and telephony equipment vendors such as Avaya, Alcatel, Cisco, IBM, Nortel and Oracle. These vendors have captured the attention of the enterprise IT buyer, and they are now talking about unified conferencing, a concept that is not fully flushed out. However, it is clear that the big picture involves a comprehensive portfolio of capabilities that cross both synchronous (real-time) and asynchronous (non-real-time) domains. As these systems are deployed, Wainhouse Research expects that CPE, CSP, and blended solutions will all co-exist in order to satisfy a wide range of user needs. Asynchronous Collaboration Real-Time Collaboration E-Rooms File Exchange Unified Messaging IP Telephony RMC Portal Business Processes Communication Devices Infrastructure Services Media Servers, Rights Management, Directories, Presence Figure 4: Unified Conferencing Most CSPs still have audio/web integration on their development plans. Web conferencing is the fastest growing segment of the conferencing services industry, although it is still a small slice of the revenue pie (with the exception of Microsoft, WebEx, and a few smaller players that focus on web conferencing), and most services today require a customer to run two simultaneous conferences one for audio and one for web. Unattended audio calls now represent approximately 90% of the volume and 75% of the revenues for audio conferencing service providers worldwide. The massive shift from attended to unattended is largely over, but has wrecked havoc on the industry. With its lower costs and largely undifferentiated service, unattended audio has fed price reduction frenzy in the industry. Because of this market shift, we believe there is a trend within the audio conferencing service providers to simplify their product offerings on the lower, unattended level, but to introduce high touch, high priced fully attended minutes at the top end to service customer needs for special events. Page Wainhouse Research, LLC

14 Industry consolidation will continue as providers strive to reach critical mass, benefit from economies of scale, enter niche markets to flee price competiiton, and gain new customers. At the same time a continuing stream of new, small-to-medium-sized service providers are entering the market by capitalizing on customer disenchantment with the larger, established vendors or offering new low-priced services often tied to IP infrastructure or new technologies for bridging hardware, or coupled with increased customer service and hand-holding. This has become possible because the barriers to entering the automated audio conferencing business have never been lower on a technology scale. Forecast Summary We state here for clarity that our forecasts are for original service revenues and volumes. We make no attempt to measure the size of the agent or reseller markups or margins. Total Market Our overall CSP forecast results in the industry revenues growing from $2.9 billion in 2003 to $4.3 billion in 2008, producing a compounded annual growth rate (CAGR) of about 8%. The unit growth (minutes) and average selling price (ASP per minute) details behind this revenue forecast, as well as revenue by major geography, can be found in Chapter 5. W orldw ide Forecast - By Segment ($M) $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Total Audio Revenue Web Video Bridging Figure 5: Worldwide forecast of conferencing service revenues 2004 Wainhouse Research, LLC Page 13

15 Providers Covered in This Report Wainhouse Research has done extensive research into the conferencing services market. The following companies are reviewed in this report. ACT AT&T Teleconferencing Arakadin Bell Canada Conferencing Centra Citizens Conferencing ConferencePlus Deutsche Telekom ECI Enunciate France Telecom Genesys Glance Global Crossing GlowPoint InterCall MCI MeetingZone Microsoft MVC Netspoke NTT Premiere Raindance Singtel SNT (KPN) Sprint TeliaSonera Telstra V-SPAN WebDialogs WebEx Page Wainhouse Research, LLC