3 Billion Reasons Why Video Conferencing Is Hot

norway_headquartersCisco (s csco) today offered to buy Tandberg, a Norwegian company that makes video conferencing equipment, for $3 billion in cash, a move that would give it a broader customer base, a bunch of legacy gear as well as a name in the teleconferencing market. Cisco’s love of video conferencing is well known, thanks to its CEO John Chambers shouting it from the rooftops (or perhaps quacking it on the Flip cameras, whose maker Cisco purchased earlier this year), and this deal will extend Cisco deeper into the space.

And why wouldn’t Cisco love video conferencing? It’s an application that requires a fast network and a lot of bandwidth, something the communications industry is increasingly able to provide, not just at the high end but even to average consumers. And with those network expansions, Cisco wins, because it provides the underlying equipment to the service providers, as well as the video conferencing hardware and software to tweak the experience. Cisco sees video as a $20 billion revenue opportunity.

Which brings us back to the Tandberg buy and why Cisco made it. Its own Telepresence gear, which provides an immersive HD experience, is expensive, and is aimed squarely at the high end of the market, where it competes with services such as HP’s (s hpq) Halo. Tandberg gear, on the other hand, is cheaper and aimed at the middle market. Your CEO or top salespeople may meet with customers on Telepresence but internal meetings can happen on Tandberg gear. With teachers using video in schools to teach despite the swine flu, and health care workers using it for medical monitoring, having a less expensive product to offer those markets makes sense.

That still leaves the low or casual end of the market, where companies such as Skype and Logitech, which bought SightSpeed last year to add video capabilities, are jockeying for position. Applications such as iChat or GTalk, which also incorporate video as part of a unified communications scheme, are part of this casual video conferencing market, too, with Skype increasingly trying to integrate itself into unified communications as well. I’m not entirely sold on the need to video chat with my colleagues about a story when I can use voice, but for an engineer or visual thinker trying to map out a problem it might be a good channel to use to, say, quickly handle a design problem.

These low-end uses overlap with the consumer market, which includes families who are separated and myriad other folk who are turning to video instead of, or in addition to, voice. Cisco may enter this market by adding web connectivity to the Flip camera, but its decision to stay upstream of the casual user is a fine idea for now, as it needs to keep its margins up. However, the buy already has some competitors, such as Polycom, feeling a bit unsettled.

So as Cisco prepares to digest another large acquisition, it’s clear that faster broadband speeds are changing the way we communicate at a rapid pace, and that sometimes a picture is worth a thousand words. Or perhaps $3 billion.