Seven years ago WebEx went public just before the IPO market collapsed beating its closest rival PlaceWare, which filed just weeks after WebEx. PlaceWare eventually withdrew it's IPO and was later acquired by Microsoft for $200 million in 2003. Now WebEx is being acquired by Cisco for $3.2 billion. In my opinion, this is happening just as profits in the web conferencing market are about to dry up.
Now, don't take what I am saying the wrong way. WebEx is a great service. But, the technology upon which their web conferencing business is built was fantastic seven years ago. In 2000 companies like WebEx and PlaceWare were solving seemingly intractable problems. The methods they used were later employed by instant messaging products and other web services hoping to gain a foothold in companies whose Internet firewalls block the direct network path between desktop computers and servers on the Internet.
A few years before WebEx arrived, Microsoft NetMeeting showed many of us the value of sharing presentations and views of desktop applications. However, NetMeeting had a major deficiency, it could only work within an intranet. Getting NetMeeting screen sharing sessions working between companies was virtually impossible. It required specialized conferencing servers on the Internet in addition to complex firewall changes for all companies involved. So, in comes WebEx and PlaceWare and, like magic, we are sharing presentations and desktop applications with minimal effort. No IT involvement at all. It just works.
Low-Cost Web Conference Competition
In the past seven years a number of low-cost competitors have emerged. TechCrunch listed a few last week and Robin Good has previous published a list as well. WebEx's pricing model has changed to reflect this competition. For example, you can now get a monthly subscription for $49 which includes unlimited meetings with up to 10 participants. For a sales rep, that is a pretty good deal. But, for a corporation with thousands of teams and team members there is still room for improvement.
Looking a year or two out I see continued price pressure on the web conferencing market beyond the current set of low cost providers. "Internet 2009" will be quite different than "Internet 2000". There are now companies like Google, Microsoft, Yahoo, and Amazon willing to spend big bucks building out their server infrastructure and are looking for new applications to use them. As a result WebEx's MediaTone Network, once a compelling differentiator, seems less valuable today.
The Value of the WebEx MediaTone Network
According to slides from WebEx, the MediaTone Network is composed of 37 sites scattered around the world, all connnected via a private network. The goal is to provide shorter network paths and smaller bandwidth latency for customers using WebEx services. However, I have to wonder about the value of such a network today since most web conferences are one way presentations. In these scenarios the quality of the bandwidth mean much less than in application sharing scenarios.
To illustrate what I mean let's say we have a web conference with five participants. Two of them are from the sales department of a company and the other three are employees at a potential customer. Prior to the meeting the presenter uploads a set of slides to the web conferencing service. The service converts these into a set of image files that are automatically forwarded and cached by each meeting participant's desktop computer.
Once the presentation is cached the bandwidth required for this presentation is simply a matter of the central server sending signals out to all participants to move to a particular slide. So the amount of bandwidth used is very small. Of course, I am simplifying matters a great deal and there are scenarios such as sharing video clips that complicate matters but this is how many web conferences play out nonetheless.
Application screen sharing, on the other hand, places more demands on the web conferencing service since the contents of a computer's screen are transmitted from a participant to a central server and then back out to the other participants. In this case a lower latency network connection can make a big difference and the MediaTone network would likely improve the meeting quality. However the bandwidth required to do this is less than you might think and is now well within the low range of most residential broadband connections.
Internet 2007 and Infrastructure on Demand
Today we have applications running over the Internet that also require consistent bandwidth to work well. Online office suites, such as Google Docs and Zoho Office, are constantly sending updates back to a server. In addition, Skype has shown that you don't need a large server infrastructure for real-time communications. One could even say that Skype provides more "media tone" on the Internet today than WebEx.
In addition, the cost of providing an easily accessible server with high-connectivity bandwidth is becoming extremely cheap. Infrastructure-on-demand services like Amazon's Elastic Computing Cloud (EC2) provide powerful servers for 10 cents an hour. EC2 also just charges 20 cents per gigabyte of bandwidth.
The cost of web conferencing software is dropping too. For example, DimDim is an Open Source web conferencing system which is expected to finish beta testing this year. My brief testing with DimDim showed that, although not quite ready for prime time yet, it is looking pretty good. Once released for production use I plan on experimenting with it further.
So, let's go back to our previous example of a five person web conference (two sales reps, three customers). I can envision a scenario where an Internet entrepreneur combines the DimDim Open Source software with EC2 by providing a scheduling service that provisions an EC2 host with DimDim software in time to host a web conference. After the conference the EC2 server is terminated. The cost to host a web conference using Amazon's servers and bandwidth would be less than 40 cents. The only fixed cost assumed by the conferencing provider is the host providing the scheduling and provisioning functions. And you thought $49 a month was cheap!
WebEx is more than web conferencing
A little over a year ago WebEx acquired Intranets.Com, a company which provides a hosted online office suite. From a functional point of view the combined solution is complementary. However, the online office suite market is becoming very competitive, probably more so than web conferencing itself. With Google entering the market and providing an online office suite for free (or a for-pay enterprise version) in addition to Microsoft Office Live I wonder how much growth Intranets.Com will have long-term.
And, speaking of Google, why wasn't Google interested in WebEx? Web conferencing is clearly a gap in their office suite and I would expect the enterprise customers they are now talking with are inquiring about this as well.
Perhaps web conferencing is at the point where it is becoming a feature of an office suite, not the basis for an entire business. If this is the case then WebEx's timing is perfect, once again.
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