Since the past several months, networking giant Cisco (NASDAQ:CSCO) has been transitioning its collaboration services from telepresence to less expensive cloud-based software applications. For that matter, it currently operates WebEx and Jabber. The former provides web conferencing, while the latter contains a variety of tools like instant messaging, IP-based voice and video, and desktop sharing.
Recently, the company acquired Assemblage, a collaboration start-up that offers screen sharing, whiteboarding, web presentations, and is able to support up to 40 different types of files. As Cisco incorporates Assemblage's strengths in its current collaboration unit, it could further differentiate itself from top rival, Polycom (NASDAQ:PLCM). Overall, Cisco is taking action to expand its reach in the collaboration tech service market, simplifying its systems and favoring interoperability as part of its Internet of Things plan.
Growing cloud-based collaboration software unit
In past years, Cisco made substantial, growing revenue from telepresence and sales of hardware equipment, charging high prices that were mainly targeted to large enterprises. However, this service's growth has started to slow down due to the appearance of cheaper and simpler cloud-based software for web conferencing. Cisco experienced an annual 6% drop in sales of collaboration products from 2012 to 2013.
Yet, while its videoconferencing hardware experiences difficulties, its cloud-based collaboration applications are growing. In its latest quarter, its total collaboration sales fell 12% year-over-year, but revenue from WebEx increased by 7%.
Merging hardware with system and software service
In May, Cisco launched two new desktop endpoints for video conferencing, the DX80 and DX70, which are priced between $1000 and $2000. Its aim is to enable organizations to engage in video meetings outside of the habitual conference room.
Although it seems like an expensive service, the company is confident that its user-friendly and sophisticated aspects justifies the price. Moreover, it offers the SX10 and MX200 (along with larger sized models) for the lower and mid end of the industry.
Whether they are low or high end, Cisco's video conferencing devices favor the usage of the WebEx system, which could engage customers to the cloud-based collaboration software ecosystem. With Assemblage, the company can simplify its software collaboration systems to a great extent, as the start-up offers short links that enable its users to share screen content, video, and use other collaboration tools without the need to download any apps.
The newly acquired start-up also worked to include its services with Google and Box. Now, Cisco looks forward to replicate this in its software collaboration unit, and so increase its interoperability. In that sense, the company differentiates itself by offering an efficient collaborative work environment, and getting rid of the usual technology difficulties involved in the conferencing process.
Rivalry with Polycom
One of Cisco's top rivals is Polycom, which aims strongly at large enterprises in order to sell its high-end service called RealPresence. In that manner, it competes directly with Cisco's TelePresence. In its most recent quarter results, Polycom reported revenue of $329 million, decreasing 2.9% year-over-year yet beating analyst expectations by $1.51 million.
As several cloud-based software conferencing companies emerge, Polycom's high-end services undergo risk. So far, Cisco shows more signs that it is adapting to this market, as the organization launches new initiatives and constantly improves its software collaboration unit.
On the other hand, in regards to Cisco, it might seem like its cheaper conferencing alternatives could cannibalize its own expensive offers. Yet, a key factor that keeps both Cisco and Polycom going in the high-end segment is the high willingness to pay and invest from large enterprises. Certainly, these may make up a small portion of the total collaboration tech and software customers, but both companies are still on the lookout to capitalize the existing demand.
Final foolish takeaway
Cisco aims to improve its collaboration tech unit by taking advantage of the varied willingness to pay of customers. As a result, it offers hardware devices that suit enterprises from the low to high end of the market. Moreover, it provides the user-friendly, sophisticated software, WebEx for video conferencing, and Jabber for other collaboration tools. Through Assemblage, the company can improve its collaboration software, simplifying it and adding interoperability with other cloud services. Since it could expand its reach in the market, Cisco is placing itself in a threatening spot for rival Polycom, which mostly limits itself to high-end collaboration services.
Alvaro Campos has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Polycom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.