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Summary:

European Union’s decision to approve the Microsoft & Skype merger without any objection isn’t sitting well with Cisco, the unified communications giant who is worried that Microsoft will use Skype to dominate the video calling industry. Sour grapes for a company caught in it own business-model.

gavel

While Cisco Systems, the San Jose, Calif-based IP communications giant was busy making a fortune selling expensive video conferencing system to large companies, Skype was making it dead simple for little people to video call each other. No big screens to buy, no big special Cisco boxes – just plain simple software and you were good to go. As luck would have it, the concept of virtual offices and distributed workforce took off and gave Skype Video a big boost in small and medium sized business.  Of course, when Microsoft bought Skype last year, the idea of Skype everywhere including the corporate offices became a reality.

Oops, said Cisco, which today announced that it wants the European Union to block the Microsoft and Skype merger, because it is worried about the lack of interoperability between the world’s largest video calling service and Cisco’s own video conferencing offerings. Cisco thinks it is bad not just for them, but also for other video conferencing equipment makers such as Polycom and Lifesize. European Union has approved the deal and didn’t find any problems with it.

Juniper Research forecasts that the number of mobile video callers will hit 130 million by 2016, thanks to the introduction of mobile video calling services from most major companies and improvements in video calling technology. And as such it has become a hotly contested market. Here is what Marthin De Beer, Cisco’s SVP of emerging business group wrote in a blog post:

Our goal is to make video calling as easy and seamless as email is today. Making a video-to-video call should be as easy as dialing a phone number. Today, however, you can’t make seamless video calls from one platform to another, much to the frustration of consumers and business users alike. Cisco believes that the right approach for the industry is to rally around open standards. The video communications industry is at a critical tipping point with far reaching consequences. As video collaboration becomes increasingly mainstream, multiple vendors will have to work together to enable global scale and broad customer choice. Microsoft’s plans to integrate Skype exclusively with its Lync Enterprise Communications Platform could lock-in businesses who want to reach Skype’s 700 million account holders to a Microsoft-only platform.

Microsoft in an email responded with its own statement:

The European Commission conducted a thorough investigation of the acquisition, in which Cisco actively participated, and approved the deal in a 36-page decision without any conditions.  We’re confident the Commission’s decision will stand up on appeal.

I was surprised by this catfight considering that the Commission had rejected all claims by Cisco during the investigation. I always thought that Cisco and Skype played in two different ends of the market. Cisco hasn’t done a good job in the past being as open with its competitors. Tandberg, anyone? Apparently Cisco was asking the European regulators to make Microsoft give access to Skype’s entire customer base.

A world changing…

The company that once championed SIP and sold expensive PBX gear and expensive handsets for the offices has been losing influence in the new world of collaboration and communication. For a long time Cisco has dominated the unified communications business. Cisco, thanks to its nose-bleed inducing price tags, is aimed at companies with deep pocket books. Skype, on the other hand, is for real people and small businesses.

Cisco is extremely worried that Microsoft will now take Skype further into the corporate community, and that big companies will stop buying its gear. Cisco’s De Beer in his conversation earlier this morning wouldn’t go as far to admit it outright, but he did say that it was causing them problems with their corporate clients. The argument De Beer made was that just like any voice phone can talk to any other voice phone, video calls should have similar interoperability.

When asked if Cisco’s video calling was interoperable with Google’s video call services or Apple’s FaceTime, Cisco’s De Beer said they are in talks with those companies. I pinged my friend Erik Lagerway, a veteran of VoIP business (who once wrote a blog called SIPthat) and asked for his opinion. He was pretty blunt in his assessment:

They have few users in comparison to Skype’s 700+ million and SIP is already dying, they are concerned they will become irrelevant. The standards (SIP, H.264 etc.) are either broken, mired with patents and legal issues or have huge royalties attached to them making them unsuitable for any kind of real innovation.

Case in point, the IETF & W3C are currently debating which video codec to include in the proposed WebRTC standard and are having a hard time coming to a consensus, no surprise there. The open standard codecs (Eg. H.264 AVC) are hampered by royalties and the open source codecs (eg. VP8) are hampered with patents and legal issues, which is weird considering they are “open source”.

I too was in the “standards only” camp for a long time, after all my blog URL is SIPthat.com! But I have softened on that considerably. If you don’t have the users maybe you should focus on fixing that instead of whining to the EU about it.

In other words, there really is only one standard, the one that has the most users. When I think about it, Cisco’s actions are symptomatic of a larger trend in the world of communication — a move away from complex (even if standards-based) systems to more software-oriented and lightweight tools of communication.

Skype has been part of this shift and with more than 700 million people signed up for its network, the company has helped redefine how we talk and how we work. And while Skype was building a network, Cisco was too busy trying to hold on to its legacy approach to the business and now is forced to contend with this new reality.

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  1. It’s always easier to scale up than down, good for MS bad for Cisco.

    As to open, it becomes more and more synonymous with designed by committee and squabble forever. At one time it stood for free to tinker with.

  2. If I recall correctly, it was EU Commission that forced Cisco to open up TIP in order to approve the Tandberg acquisition so suppose Cisco hoping for similar.

    In addition to Cisco’s concerns about Skype moving “up market”, which I’m sure are significant as you state, would say the other aspect is Cisco’s desire to move “down market” where video endpoints go into the billions (add mobile phones)…

  3. So Cisco’s argument here is akin to companies that press vinyl records complaining that their product won’t work on ipods. Or that Kodak film doesn’t work in digital cameras. Or an TV antenna manufacturer stopping cable company mergers. Good God, Cisco has either bought technology or innovated in ways that have put SO MANY telephone equipment and network hardware companies out of business that for them to take this route is despicable.

    1. Totally agree! This is the innovators dilemma. When you have your core business at stake SaaS, commoditization of networking gear, software based UC- what can you do?

  4. Could Cisco be carrying water for the carriers who make up more than 70% of their revenue base?

  5. You’ve got it all wrong: this is Chambers trying to rehire Tony Bates.

  6. How could anyone disagree that interoperability is key for video conferencing becoming more widely accepted and used in the marketplace. As more people use video as a daily tool, this will become a larger pain point and more important.

    One way to fix this is to have all of the vendors get together and use the same standards (like what Cisco is proposing). Another is to let the respective vendors innovate along their own lines but use a service provider to integrate all of the video islands, regardless of what standards or approaches are using.

    This is what our company, Vidtel, is doing and our service has been focused on solving this problem longer than anyone else in the market (since 2008). Today, we can integrate both Cisco and Skype video devices as well as others that support standards like SIP and H.323 as well as Google Talk through XMPP.

    Eventually there might be a single standard for video conferencing but with new players choosing different approaches (like Hookflash and Tango) and existing players moving further away from standards (like all the vendors with their pseudo-proprietary H.264 SVC implementations), the only practical way to skin this cat is though a network-based service stitching all of the major approaches together.

    Scott Wharton, CEO
    Vidtel, Inc.
    http://www.vidtel.com

    1. Er- isn’t that why the EU specified that Cisco-Tandberg open up TIP? Isn’t this why the more forward thinking companies have signed up to UCIF? Why are Cisco dragging their heels?

      Forget standards what wins in this game is adoption- I’m sure there are still supporters of Dvorak key boards, HD DVDs, OS/2, Sony betamax.

      While you are fighting the standards battle customers are adopting technology based on their business needs.

      Thanks for the advert for Vidtel. Best of luck turning back the tide.

  7. @Scott.. its called UCIF http://ucif.org/AboutUs/UCIForumMembers.aspx.. A group Cisco has refused to support.. Dont know where you see vendors moving away from standards.. We are all here..

    1. Steve: I agree that UCIF is doing important work to try to make the standards tighter. But the reality is that we already have many standards (e.g., SIP, H.323, XMPP) and even still many vendors (yes even those that belong to UCIF) are de facto deploying new approaches that are not compatible with everyone else (like Microsoft and Skype for example). So as Stu said below, hurray for standards and let’s pursue them but let’s also not wait around while the market and standards bodies are sorting themselves out.

  8. Scott is right. There is a role (and opportunity) for service providers to deliver the interoperability needed in video conferencing while the endpoint vendors remain focused on their core competencies. There are solutions out there already TODAY that can seamlessly bridge together these seemingly incompatible islands. Blue Jeans Network (http://bluejeans.com) for instance already has deployed a global service that brings together video participants on Cisco/Tandberg and Skype along with Microsoft Lync/OCS, Polycom, Lifesize, Sony, Huawei, etc…. and the good old fashioned PSTN too. We’re all for standards… but no reason to wait for the standards process to sort itself out.

  9. Excellent article. I remember a presentation I attended in 2007 or so (that was before OCS 2007 R2 was released), where a MSFT representative showed a pie chart of the UC market and its players as it was at the time. MS had a little fraction of the pie, the rest was distributed among the big boys. And then the guy said (quote): “This is not good. We want it the other way around”. Maybe Cisco (and a few others) should have taken that statement a little more serious.
    Here’s a study from Yankee Group of 2006: http://www.cisco.com/en/US/prod/collateral/voicesw/ps6788/vcallcon/ps556/prod_white_paper0900aecd8051ed29.pdf

    The conclusion they had was “Ultimately, this is not a Cisco or Microsoft decision. It’s
    more a decision about where to use each vendor. Both are
    committed to interoperability, as evidenced by the joint
    announcement between Cisco and Microsoft in March. The
    partnership announced interoperability between Cisco’s UC
    and Microsoft LCS/MOC. Users will get the benefits of
    some presence federation such as CUPS to LCS and the
    ability for MOC to access some Cisco services such as
    click-to-call. Therefore, customers that standardize on
    Outlook and MOC can use Cisco’s UC, and vice versa. This
    type of partnership enables organizations to leverage the
    strengths of each vendor for the best possible solution”.

    Yeah, sure. Anyone with eyes to see could recognize RIGHT THERE at this presentation, that Cisco was a mere stepping-stone for MSFT to market domination. I don’t mind (as a happy Lync user), but Cisco should stop kidding themselves.

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