Cisco to introduce video-chat feature for televisions

Cisco Systems, facing waning demand for networking equipment from businesses, is working with phone and cable carriers on products and services that let consumers hold video conferences through their televisions.

The offerings, which build on Cisco's TelePresence corporate-video conferencing system, will debut within 12 months. In addition to holding video chats, users will also be able to exchange messages and leave videos for friends, said Ned Hooper, head of the consumer business at Cisco.

Cisco, the largest maker of networking gear, is accelerating its push into the consumer market. In May, the company bought Pure Digital Technologies, maker of the Flip video camera, for $590 million. Cisco plans to use software from that company to expand in the market for home-networking gear, camcorders and video applications, which will grow 50 percent to $60 billion by 2013, Hooper said.

"There's a big opportunity for us," Hooper, 42, said in an interview. "You will start to see very big growth numbers on top of the base consumer business we report every quarter."

Increased use of video would also benefit Cisco's main business of selling routers and switches that direct Web traffic. Slowing demand in that business has resulted in back- to-back sales drops at Cisco in the past two quarters. Video, which Chief Executive John Chambers has called "the killer app," needs more bandwidth than voice and data, pushing service providers and consumers to buy more gear to accommodate the bigger loads.

Internet traffic will grow fourfold by 2013 as video consumption increases, Cisco said last month. Video now accounts for a third of consumer Web traffic and will jump to 91 percent by 2013, Cisco said.

"The consumer market is very critical to Cisco," said Erik Suppiger, an analyst at Signal Hill Capital Group in San Francisco. "Enabling consumer devices to connect to the Internet is more strategic for Cisco than being a provider of the device itself." Suppiger rates Cisco shares "hold" and doesn't own any.

The consumer TelePresence products will integrate software from Pure Digital, Hooper said. The Flip software automatically uploads video to the Web when users plug the camera into a personal computer's USB drive. Hooper, who also runs Cisco's mergers and acquisitions team, said Cisco may provide a product that includes a camera and allows two-way video conversations.

While Pure Digital had sold more than 2 million Flip cameras, Cisco bought the closely held company mostly for the software, Hooper said. Cisco will focus less on delivering devices and more on helping customers such as AT&T and Verizon Communications offer video conferencing to consumers, he said.

Verizon's FiOS television and Internet services can already deliver video chat on televisions, said Eric Rabe, a spokesman for the New York-based company. "We think there's some great potential there," Rabe said. "It's certainly something we're interested in."

AT&T, based in Dallas, is also studying video chat, spokesman Fletcher Cook said. Both AT&T and Verizon declined to say whether they are working with Cisco and said they aren't ready to announce a service.

Cisco may struggle to challenge services such as eBay's Skype, said Jayanth Angl, a Toronto-based analyst with Info-Tech Research Group. Skype, which lets people make voice and video calls from their computers, has more than 443 million users and increased its revenue 21 percent in the first quarter.

Cisco will also face competition from consumer brands such as Apple, which offers videoconferencing through its iChat service, and Google, whose Gmail program includes video chat.

By Rochelle Garner
Bloomberg News