Hardware & Infrastructure
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4/16/2004
04:25 PM
William Schaff
William Schaff
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Taking Stock: Businesses Turn To Web Conferencing

WebEx commands half the market, despite Microsoft's offerings

Events on Sept. 11, 2001, changed our desire to travel across continents and oceans. One alternative that has since gained ground is Web conferencing, through which conference-call participants can talk and simultaneously view PowerPoint presentations or other applications. Additional uses focus on long-distance collaboration in a smaller team environment.

The first companies to enter the market were small, such as PlaceWare, Raindance Communications, and WebEx Communications, among others. In the past two years, the growth prospects of the Web-conferencing market have attracted large companies such as Cisco Systems, IBM's Lotus, and Microsoft, which acquired PlaceWare in April 2003 for $200 million and changed the division's name to LiveMeeting. Cisco purchased a smaller private company and is integrating its technology into its Avvid multimedia infrastructure platform. Lotus has a long history of delivering collaboration software such as Lotus Notes.

Web conferencing is generally offered in one of two ways. The first is as a service in which no hardware or software other than a Web browser and a regular telephone are required. You go to the Web site of the Web-conferencing company, register, and upload your presentations. Of course, there's always the issue of how to pay for this. Payment is either in the form of a per-user, per-minute rate, or a subscription plan that allows a certain number of users to Web conference. Raindance, WebEx, and, to some extent, LiveMeeting are the major providers of Web conferencing as a service.

The other way to offer Web conferencing is via software installed at the company. This is the route that Lotus is taking, and Microsoft also may go down this road.

Microsoft's entry into the Web-conferencing market led to the premature conclusion that it would obliterate Raindance and WebEx. So far, that hasn't happened. WebEx continues to command well over half the Web-conferencing market, while Raindance has about a quarter.

Whether Microsoft will attempt to integrate LiveMeeting into its next major operating-system release is unknown. Microsoft may offer its customers the PlaceWare APIs and let customers integrate it into their own portals and applications. However, Microsoft's plan is still a well-guarded secret. My guess is that Microsoft would rather sell software than a service, attempting to control Web conferencing from the inside. So far, users appear to prefer the service offering.

WebEx increased revenue 35% last year and pro forma earnings per share increased from 28 cents to 63 cents. The company also increased guidance for fiscal 2004 and expects revenue and EPS to grow 27%. Raindance saw its revenue increase by 16% during 2003, while EPS went from a loss of 7 cents to a profit of 7 cents. WebEx trades at almost eight times book value and 36 times 2004 First Call EPS estimates. Raindance isn't cheap, either, on a price/earnings basis, trading at 273 times depressed 2004 First Call consensus estimates, but it does have a price-to-book multiple of only 1.4 times. Only time will show who the market winner will be, but it may not be that large company from Redmond.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at bschaff@bayisle.com. This article is provided for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Bay Isle has no affiliation with, nor does it receive compensation from, any of the companies mentioned above. Bay Isle's current client portfolios may own publicly traded securities in one or more of these companies at any given time.

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