Cisco’s Big Consumer Telepresence Fail

Cisco (s CSCO) is introducing new, lower-priced Umi video conferencing devices and reducing the price of its video chat service. This  may sound like good news for consumers, but it’s really just more evidence that the company’s consumer telepresence strategy is failing.

When its Umi telepresence service was introduced last November, we argued that Cisco would have a difficult time with consumer adoption due to the high price of the hardware and for the service. Predictably, at $599 for a dedicated set-top box and $24.99 a month to use the service, Cisco hasn’t hit the mainstream; a blog post today notes that “thousands” of people have chosen the technology. The problem is that success in the mainstream consumer realm isn’t defined by having thousands of users, or even tens of thousands of users, but by having millions of users.

Here are just a few of the problems with Cisco’s consumer telepresence strategy both at launch and now:

Competing with free

While Cisco is charging for consumer telepresence in the living room, multiple other providers are making their basic video chat services available for free. We’ve already seen Cisco pull back from this strategy to some extent, slashing the price of the Umi service from $24.95 to $9.95 a month or $99.95 a year. And the Mac and PC clients that Cisco plans to launch later this year will be free. At the same, however, Skype is aggressively making its free video chat service available on TVs and connected devices from the likes of Panasonic, Samsung, Sony (s SNE) and Vizio.

No market for a standalone box

Cisco’s hardware strategy is also a limitation for the company; its business model relies on selling standalone boxes that enable high-quality video chat on TVs. Umi telepresence theoretically makes any TV into a chat-enabled TV, but the market for standalone devices is quickly disappearing. As noted above, TVs from multiple manufacturers are being sold with Skype and other video chat services as a feature, with the purchase of a compatible USB-powered video camera. At some point, we expect Umi to be integrated into Cisco set-top boxes that are deployed by pay TV operators like Verizon, (s VZ) but until that happens, it’s difficult to justify buying another box to use the service.

“Good enough” is good enough for most consumers

Other entrants in the market might not boast the 1080p HD video quality that Cisco is selling with Umi — but then again, they don’t have to. Cisco has perhaps even realized this, with the release of its lower-priced 720p offering. Part of the issue is that many consumers don’t have enough bandwidth to fully take advantage of the 1080p HD quality delivered by Umi. That has been corrected, in part, with a 720p option that tops out at 1.5Mbps upstream. But even that quality might be aggressive for most video conference users, even those who are chatting on a big-screen TV. When forced to choose between a high-quality offering that they pay for and a lower quality offering that is free, most consumers will go for the free, “good enough” option.

Cannibalizing its enterprise telepresence business

While we’ve argued that Umi’s price tag has held it back as a consumer offering, the biggest issue with the service isn’t that its price was too high for consumers, but that it has the potential to cannibalize Cisco’s high-margin enterprise conferencing business. Cisco only reinforced that issue, making Umi interoperable with its enterprise product, and therefore an even more attractive alternative. No longer will enterprises have to choose between Cisco’s full-featured telepresence suite or to deploy the lesser Umi system; it can now deploy telepresence rooms in main offices and use Umi for remote networking with home offices. That might sound like a win for Cisco, but it also means that some businesses will eschew the enterprise product and choose solely to roll out Umi’s consumer offering instead.

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