UPDATE 4-Cisco unveils $599 home videoconference system

Wed Oct 6, 2010 7:33pm EDT

* Cisco expands further into consumer market

* "Umi" available next month for $599, plus $24.99/month

* Analysts say price may hinder sales (Adds background on Tandberg, Skype)

By Gabriel Madway

SAN FRANCISCO, Oct 6 (Reuters) - Cisco Systems Inc (CSCO.O) launched a $599 home videoconference system, a high-quality rival to Skype and other low-cost providers, as the network equipment maker seeks to expand in the consumer market.

The high price, and a $24.99 monthly fee, may make it tough for Cisco to win much of a following among consumers, many of whom are using free, online video chat services, analysts said.

But they also said the move shows the company is set on keeping up double-digit revenue growth even as its traditional routing equipment business matures, by expanding its target from business clients to consumers.

"I think the difficulty is probably the monthly price. $300 a year forever, that's a lot of money," said Gartner analyst Ken Dulaney. "But this is a premium product. And I think it will set the imagination off with a lot of people."

The home TelePresence system, called "umi," features a camera and console that connects to a standard high-definition TV and works over high-speed Internet. Its biggest selling point is high quality, real-time video without the pixelations and interruptions of low- or no-cost online services. It also allows unlimited calls, video messaging and video storage.

The product will be available next month, and can be pre-ordered on Cisco's website. Best Buy (BBY.N) will sell it starting next month, and Verizon Communications Inc (VZ.N) will sell it starting next year, Cisco said.

BOARDROOM TO LIVING ROOM

Cisco already sells a high-end videoconference system for businesses. These systems, often built to simulate boardroom-like settings, can cost around $300,000 per unit. They feature high-quality video and sound, with limited delays, making users almost feel like they are meeting in person.

Despite initial skepticism over whether many businesses would pay so much, particularly in a weak global economy, TelePresence has become one of Cisco's fastest-selling products as companies seek ways to save on travel costs. Its recent acquisition of Norway's Tandberg also made it the world's leader in videoconferencing systems.

The company had made no secret of its ambition to replicate that success in the consumer market, and Chief Executive John Chambers repeatedly vowed to come out with a cheaper version.

While Cisco has not yet established itself as a consumer brand, it wouldn't be its first foray into the living room. It has acquired home router maker Linksys, cable set-top box maker Scientific-Atlanta, and more recently, the company that makes the Flip video camera.

Cisco has also been advertising itself heavily in the past year, through product placements in shows like 30 Rock and advertisements using actress Ellen Page.

SKYPE COMPETITION

Analysts said the high price of umi may mean mass adoption is years away. Many predicted the price to come down over the next few years, but they also noted the likelihood that competitors like Skype would introduce higher-quality services in the meantime.

Skype said in its blog that a $599 device could be "subject to obsoletism at the hands of mass-market options."

"And, when unbeatable lower cost, high performance options are readily available, spending at the top-end can be like throwing money away, especially if you are buying a video calling system and there is no one else to call," wrote an executive, Jonathan Christensen.

In a sign of more rivalry ahead, Skype last month said it was teaming up with Avaya to sell communications systems to businesses. It also hired Tony Bates, a veteran Cisco executive, as its chief executive earlier this week.

Marthin De Beer, head of Cisco's emerging technologies business group, said umi's quality made it different from others.

"It is different, it's a new class of product and you will see that the experience is transformational," he said at a launch event in San Francisco.

He also predicted it would lead to new opportunities like distance-learning and remote medical care in the future.

Some analysts also said that even if Cisco has a hard time competing with the likes of Skype, it would not necessarily be a big loss. A growth in popularity of Web chats in general drives up Internet traffic, boosting demand for routers and switches, Cisco's traditional bread and butter.

"A lot of Cisco's efforts are dedicated to promoting greater demand for the other things if they sell, like the routers," said Gartner's Dulaney. (Additional reporting by Sinead Carew. Writing by Ritsuko Ando; Editing by Richard Chang)

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