Here's a slightly dated yet informative article on the videoconferencing outlook in Europe. There are some common issues we face...
A Market Analysis of Videoconferencing in Europe
By Jean-Pierre Aubertin,
Industry Analyst, Frost & Sullivan
The market for videoconferencing systems, MCU, and services in Europe is gaining in importance. In 1997, this market was worth $3.46 billion. It is expected to grow at a rapid rate as companies begin to incorporate videoconferencing as part of their telecommunication needs.
The market is rapidly growing due to the need of companies to remain competitive in a global business environment that is dependent on telecommunications for its success. Corporate headquarters are increasing their reliance on videoconferencing to communicate with their subsidiaries and affiliated companies on a worldwide basis. This technology enables them to save money on travelling costs and makes it possible to better utilize the time of their key personnel. This enables them to improve their productivity level and gives them increased leverage in a global market.
From Group to Desktop Systems
Initially, the market was dominated by group systems. In 1997, these accounted for a shipment of 15 thousand systems that corresponded to revenue of $375 million. The recent introduction of standard-based desktop systems is changing the nature of the market. Companies are gradually introducing these systems in an effort to improve their communications within and outside the corporation. In 1997, there were 81.5 thousand desktop videoconferencing systems shipped in Europe. This corresponded to revenue of $89.8 million.
Videoconferencing is changing the manner in which people work, unnecessary trips can be avoided, teleworkers can remain in contact with their offices as well as with their colleagues, which makes them feel less isolated.
More Than Just Business
The impact of this technology can be felt outside the business sector as applications are being developed in the fields of education and healthcare. These sectors are being driven towards a greater dependence on videoconferencing through the needs they have to reduce costs and improve their efficiency. For instance, in healthcare, this may lead to the implementation of remote diagnostic facilities and the delivery of medical services in remote locations. Another example is in education with the establishment of distance learning programs geared at people living in far away places. In 1997, the business sector accounted for 86.4 percent of the revenue for the total videoconferencing market; education accounted for 7.8 percent, and telemedicine followed with 5.6 percent.
The demand for videoconferencing systems is expected to increase substantially as end-users increase their use of advanced telecommunications systems and services in order to conduct virtual meetings at all organizational levels. The need to communicate with several sites simultaneously is expected to give rise to an increased demand for MCUs. In 1997, this lead to the shipment of 3.8 thousand MCU ports which represented revenue of $16.4 million. The increased size of the established base of videoconferencing systems is expected to create a flourishing service industry.
The Services Market
In 1997, the total revenue for the European services market amounted to $61.8 million. The provision of bridging facilities for multipoint conferencing accounted for 40.8 percent of the above revenue. Demand for consulting services accounted for 1.9 percent, and the maintenance and management sector accounted for the remaining 57.3 percent.
The cost of owning a videoconferencing system and the charges levied by network operators are rapidly decreasing. These systems will thus become more affordable to a wider range of end-users. In 1997, revenue attributable to the European transportation market amounted to $2.89 billion. This consisted of ISDN utilization charges. In 1998, corporations are expected to decide on the transport method they are going to choose for their video traffic. They are going to have to decide between H.323 or H.320 standard-based products. These standards, plus the recent introduction of the T.120 standard, mean that companies can now be assured that their systems can communicate with other products.
Desktop Videoconferencing
Demand for desktop videoconferencing extends to the consumer market, which also include SOHO (small office/ home office) users. In 1997, this market accounted for a shipment of 45.1 thousand systems. This represented revenue of $22.8 million. These systems were either H.323 or H.324 based. The desktop market can be sub-divided into a number of categories whether systems are hardware based or software based. The business market currently relies almost exclusively on hardware based products because of their greater processing power. Conversely, the consumers market consists mainly of software based products because of cost issues.
Factors Driving the European Market
The European market for videoconferencing is being driven by a number of factors. These include:
(1) The increased availability of ISDN across Europe, which is bringing videoconferencing into more enterprises. Geographical differences, nonetheless, continue to exist between countries.
For instance, Germany has been actively promoting the use of ISDN within the consumers as well as business markets while the United Kingdom is only beginning to promote the use of ISDN to the business sector.
(2) Failing prices are bringing videoconferencing technology into the economic reach of more companies. Videoconferencing was, until recently, the domain of a select few multinationals able to allocate substantial resources for maintaining and operating this technology. However, increased competition is causing prices of group and desktop systems to fall.
(3) Telecom deregulation is driving communications prices down and is leading more competitors into the value-added services. Manufacturers of videoconferencing systems are expanding their range of services to include maintenance and management of systems on behalf of their customers. Likewise, PTTs are offering similar services to their existing customers and are developing new services.
In spite of the success of videoconferencing within given business sectors, growth of this market is still being hampered by some factors. These include:
(1) Cost of ISDN connections remain too expensive in some European markets for small companies. Although ISDN is rapidly gaining in popularity across Europe, the connection cost and subsequent line rental continues to differ substantially between countries.
(2) Low margins threaten small players. The increased level of competition in the European videoconferencing market is causing companies to lower their margin in order to maintain market share. Large players like PictureTel and Intel are able to make up the loss through an increase in shipment volume. However, small players, which include manufacturers and some system integrators, don't have the leverage of the big industry participants and are threatened by a decrease in margins.
(3) Lack of awareness among potential end-users of videoconferencing is slowing down growth in this market. Large manufacturers such as PictureTel, Intel, and Sony are still finding out that many would be buyers lack the necessary understanding of the technology and its benefits. This is resulting in long sale cycles, especially for expensive group systems and MCUs.
A Look Toward The Future
Companies that are active in the videoconferencing market are facing a number of challenges which need to be addressed if they are going to be successful in the coming years. These include:
(1) Lack of awareness among potential customers is lowering the potential size of the market. The difficulty lies in convincing the management of SMEs (Small and Medium Enterprises) of the benefits that videoconferencing can bring to an organization. Manufacturers of videoconferencing systems still have a lot of groundwork to do with respect to educating potential end-users.
(2) A shortage of new applications could potentially damage the market. Growth within the videoconferencing market could rapidly increase with the development of new applications. How companies use videoconferencing in conjunction with other business activities could determine how rapidly the market will expand.
(3) Companies feel the cost of marketing their products into a deregulated European telecommunications market. In order to expand into the opening market created by deregulation, videoconferencing companies must be able and willing to spend large sums of money on expensive marketing strategies before realizing any profits. Consequently, videoconferencing manufacturers should be prepared to allocate a large proportion of their revenue to their plans for an extended period of time.
Frost & Sullivan has been following the European market for videoconferencing on a regular basis. This article is based on its recent report on the European market for group systems, MCU, and services, and its current research on the European Desktop videoconferencing market. |
