Category Archives: Polycom

HP Keeps UCC Options Open

When it comes to unified communications and collaboration (UCC), HP isn’t ready to bet the house on a single partner. It has struck UC-related partnerships with Microsoft, Avaya, and Alcatel-Lucent, and it also has the capability, through products obtained as a result of its 3Com acquisition, to develop a home-grown alternative.

It isn’t surprising that HP’s channel partners and customers, as well as neutral observers, are confused by HP’s seemingly promiscuous approach to UCC solutions. I’ll try to shed a bit of light on the situation, but I suspect nothing is carved in stone and that HP’s strategy will be subject to change.

HP’s latest UCC-related move involves Avaya.  The two companies announced a three-year alliance in which HP will sell and service Avaya UC and contact-center products as part of HP’s UCC enterprise-level services portfolio. The deal was inked in the aftermath of a similar 10-year accord that HP struck with Alcatel-Lucent.

Avaya and Alcatel-Lucent struck their deals with HP’s services business, which will act as a system integrator in bundling and delivering solutions to customers. It’s worth noting that HP also has a video-collaboration and UC partnership with Polycom.

The partnership with Microsoft is a bit different. That relationship primarily involves HP’s product and marketing groups, and it entails ongoing product integration and joint-marketing programs that stemmed from  the companies’ Frontline Partnership. Another difference is that Microsoft is taking a desktop-oriented approach to delivering unified communications whereas HP’s other partners, Avaya and Alcatel-Lucent, are addressing it from the IP PBX.

HP has decided to play the field for a couple reasons. First, the UCC space remains an underdeveloped market whose best days remain ahead of it. Despite years of hype, unified communicaitons has yet to fulfill its potential. To be fair, the reasons for that underachievement have more to do with industry politics and macroeconomic circumstances than with technological factors. Nonetheless, the market is one that has seemed perpetually on the cusp of better times.

Another reason that HP has cast a wide net with its UCC partnering efforts is that the predilections of the market, both with regard to vendors and architectural approaches, have yet to be revealed. Neither the PBX approach from Avaya and Alcatel-Lucent nor the desktop gambit from Microsoft has been declared a definitive winner. Moreover, the possibility exists that hosted UCC solutions might prove attractive to a significant number of enterprise customers. HP is getting into the game, but it’s spreading its bets across a number of leading contenders until the odds shift and one vendor establishes a clear market advantage.

As for why HP is getting into the game, well, the answer is partly that the company detects improving fortunes for UCC and partly that it feels compelled to respond to Cisco. One thing that HP and all its UCC partners have in common is competition against Cisco. HP needs an enterprise alternative to what Cisco is offering, and these partnerships provide it with various options.

Even though HP focused on the SME space with its latest Microsoft UCC announcement, I can’t see clear horizontal- or vertical-market delineation in HP’s partnering strategy.

Consequently, HP’s technology partners can’t feel overly secure. Any of these deals could fall apart, in real (revenue-generating) terms, without much warning. HP will follow its customers’ money. At the same time, it might be tempted to build or buy its own alternative. Further chapters in this story are sure to written.

Apple Isn’t in the Cisco Cius Picture

I don’t want to spend a lot of time on it, but I’ll offer a relatively brief assessment of Cisco’s Cius enterprise-tablet announcement yesterday.

Look, folks, the Cius is not competing with the iPad for the affections and disposable income of tablet-buying consumers. That’s not Cisco’s game, is not part of Cisco’s plans, and is just not happening. So, as difficult as it might be to do, forget about Apple and the iPad for now. Put it out of your minds. Apple gets more than its share of attention already, and I’m sure we’ll have many other reasons to pay homage to the iPad, the iPhone, and the other iWonders best0wed upon us by the wizards of Cupertino.

Now that we’ve determined what the Cius (as in “see us,” get it?) is not, what exactly is it? For starters, it’s clearly an extension of Cisco’s enterprise videoconferencing and video-collaboration portfolio. Cisco has been working from the high end to the low end, starting with luxury, room-based telepresence, buying its way into a wider range of corporate telepresence and videoconferencing through its Tandberg acquisition, and now developing its own low-end tablet, the Cius, to make enterprise video mobile and to deliver it to desktop docking stations.

So, one way of understanding the Cius is as a means for Cisco to  extend telepresence, videoconferencing, and video collaboration to areas of the enterprise it has yet to penetrate. It’s Cisco’s way of making sure video proliferates throughout its customer base, giving Cisco opportunities to derive sales not only from video-based products, but also from the enterprise-network upgrades that inevitably result from widespread utilization of high-bandwidth video on a corporate campus. For Cisco, there’s a revenue multiplier effect that is concomitant with the spread of enterprise video.

Not coincidentally, this move also precludes potential competitive encroachments by competing vendors of low-end videoconferencing and video-collaboration products. Cisco had a hole at the low end of its video product portfolio, and it has closed it with this announcement.

With the Cius, Cisco also integrates its enterprise-wide video-collaboration tributaries with its preexisting IP phone, unified communications (UC), and data-collaboration (as in WebEx) product streams. The docking station that comes with the Cius isn’t just an ornamental device holder; it is intended to act as the physical point of integration between personal video-collaboration and Cisco IP phones.  Competitors cut off at the pass here include Microsoft, HP, Avaya, and scores of others.

Finally — and Cisco’s reach might exceed its grasp on this one — the networking giant would like enterprises to view the Cius as an office-computer replacement. In defense of that argument, Cisco cites the Cius’ notebook-caliber Atom chip, its capacity to accommodate a monitor and keyboard, and its support for virtualization. I think Cisco has to put more meat on these skeletal bones, but I can see where they’d like to go and why. Again, Microsoft is a big target. It will be interesting to see how closely Cisco and Google, whose Android OS runs the Cius, can work together to disrupt their common foe.

All in all, the Cius was a logical move for Cisco, a practical and broad-based extension of its video-collaboration strategy. Apple, though, isn’t in this particular picture.

Magor Offers “Telecollaboration” to SMEs

Some have accused telepresence of being the preserve of the rich.

To be sure, room-based telepresence has an exclusive aura, conferred by its prohibitive price and imperious requirement. It is a proficient, if costly, means of bringing meeting participants together around a virtual boardroom table, but it is relatively inflexible and stiffly formal when asked to share the stage with data-based collaboration.

For verisimilitude, though, telepresence sits at the pinnacle of the video-meeting throne. It is followed in the hierarchy by videoconferencing, which covers a broad swatch of ground and extends from specialized systems to software-based services that provide a best-effort experience on nearly any device with a broadband Internet connection. With regard to the latter, think Skype.

It has become readily apparent, in fact, that the market for video communications is richly segmented rather than monolithic. Cisco would like to get more than its “fair share” of the market action, but its current portfolio (even with Tandberg) remains vulnerable to competitive incursions in the SME space, where price sensitivity is more acute than in the rarefied environs of the world’s largest transnational corporations. To be fair, though, even the world’s corporate kingpins are holding their wallets a little tighter as we move into a “new normal” of permanent cost controls and reduced growth scenarios.

Macroeconomic misgivings aside, there is also that unsettled question about how elegantly collaboration can be brought, figuratively and literally, into the videoconferencing picture.

One company taking its best shot at addressing the challenge is Magor Communications Corporation. The company calls what it does “telecollaboration,” which it defines as an “emerging category of communications solutions (that) . . . . combines high-definition (HD) videoconferencing and advanced collaboration capabilities to enable life-like interactions and experiences no matter where people are located.”

Put simply, Magor is trying to fuse adaptable high-quality (1080p, where possible) videoconferencing with data-based collaboration.

The company, which is now raising a round of financing, recently gave me an opportunity to experience its technology firsthand.  I came away impressed by the price-performance proposition, the quality and naturalness of the videoconferencing experience, and the smooth interplay of collaboration and videoconferencing. The user interface also seemed uncluttered and surprisingly simple. Like the best telepresence and videoconferencing systems, Magor’s facilitated a natural eye-to-eye conversation without getting in the way.

The Magor technology doesn’t give you all the visual brilliance of, let’s say, Cisco’s telepresence, but it also won’t give mid-sized enterprises sticker shock. That factor, and some others I’ll mention at the end of this piece, could be pivotal to the company’s success.

If you ask Magor what sets it apart from the pack, it cites four main differentiators.

At the top of its list is a patented video-compression technology that allows Magor to stream HD video at 2 Mbps, peaking at 4 Mbps. In contrast, it says, its competitors transmit at 5 Mbps, peaking at 30 Mbps, to accommodate one 1080p stream. When the network is heavily congested, Magor says, its system can dynamically and gracefully adjust the video quality to accommodate constrained resources. If network conditions improve, Magor readjusts video quality accordingly. To effect these quality adjustments, Magor’s software samples the video stream multiple times per second.

A second point of differentiation, according to Magor, is that its functionality is delivered entirely in software that runs on industry-standard, off-the-shelf hardware. Magor says it is looking to port its software to a range of platforms, including increasingly powerful notebook PCs, tablets (such as the iPad), and smartphones.

Magor says another distinguishing characteristic is its support for original-format data collaboration rather than for a bandwidth-sapping H.323 “collaboration image” pushed through a side channel.

Finally, Magor points to how easy its systems are to use. To add users or data collaboration to a conference, participants need only push a button on a SIP phone or click on a mouse.

With regard to pricing, a single-display system goes for approximately $15,000, with a dual-display system selling for about $30,000, and a three-display configuration going for $45,000. The two- and three-display configurations are offered with the option to purchase additional HDTV cameras, which increases the price of the packages by about $2,000.

Launched in 2006 under the aegis of Wesley Clover — an investment firm chaired by Terry Matthews, founder of Mitel and Newbridge Networks — Magor sports an accomplished executive team. Mike Pascoe, the company’s CEO, served in the same role at Meriton Networks and PairGain Technologies. Dan Rusheleau, Magor’s executive VP of product development, co-founded Newbridge. Not surprisingly, considering its progenitor, the entire executive team comprises alumni of Terry Matthews’ corporate constellation.

I suspect there’s a potentially sizable market for what Magor is selling, but it will face competition from above — Cisco, HP, Polycom — and from below, where Logitech’s LifeSize and the cheap-and-cheerful Skype are among the players.

The big challenge for Magor will be to establish strong business partnerships that give it the industry profile, channel reach, and business scalability to gain separation from the pack. It is busily building OEM strategies, vertical-market plans, and reseller networks. It already has Mitel in its camp, and it is working on a series of other agreements.

Cisco Makes Compelling Business Case for Video and Telepresence

Andy Greenberg of Forbes asks some good questions in his brief interview with Cisco’s Marthin de Beer, a former colleague of mine who has gone on to run the networking behemoth’s emerging technology group. (Meanwhile, I’m blogging about it, which tells you that our paths have diverged considerably over the years.)

Cisco’s executives might want us to forget how difficult the mechanics of the Tandberg acquisition were, but I have to agree with de Beer’s assertions regarding the compelling value proposition represented by telepresence and videoconferencing. I also agree with what he says about the considerable pull-through value that videoconferencing and telepresence brings to sales of Cisco’s bread-and-butter routers and switches.

On the first point, I think increasing numbers of corporations grasp the hard and soft quantitative business benefits of telepresence and videoconferencing. They see that the ROI isn’t just based on a linear calculation of travel bookings versus the amortized cost of the videoconferencing system.  Travel expenses, properly understood, involve not just the costs of airfare, cabs, accommodations, and meals, but also the harder-to-quantify costs of spending a lot of time in transit and what I’ll call, for want of a better term, travel purgatory.

Speaking of which, let’s considerable the hellish experience that modern commercial air travel has become. What Jack Nicholson reputedly said about attending Los Angeles Raiders football games almost applies to commercial air travel in the early 21st century:

“It was a hateful situation to put yourself in, sitting out there in the smog with a mob of criminal swine full of warm beer. At a Raiders game, you could get beaten and robbed without ever leaving your seat. It was like an outdoor jail.”

Okay, you don’t have the smog and the “criminal swine full of warm beer” (most of the time) on commercial aircraft, and you probably won’t get robbed in your seat. Still, commercial air travel is a terrible experience, replete with depressing and time-consuming security screenings, indifferent or abusive customer service, alarmingly frequent travel delays, and cramped quarters that are a claustrophobia sufferer’s worst nightmare.

I try to avoid the experience whenever possible, and I suspect I’m not alone. I really wish North America had not abandoned the concept of high-speed rail, but that’s another discussion for another time, and probably in a different virtual venue.

So, yes, I think Cisco’s got a good value proposition with its video conferencing and telepresence, as have others, such as Polycom, who compete with them for business.

The other point de Beer made, regarding the multiplier effect that videoconferencing and telepresence brings to sales of Cisco’s routers and switches, is just as valid. In reply to a question Greenberg asks about whether videoconferencing and telepresence represent a “sideshow” for Cisco or whether they boost its core business, de Beer replies:

We would not have spent $3.4 billion for a company that’s $1 billion in size playing in a market that’s only $2 billion if we didn’t expect, first of all, that telepresence would become a $10 billion market. And that’s just part of the bigger $34 billion collaboration market.

But yes, in every transaction, people have to upgrade and think about the network. High-definition video communications is the killer app for any network. If you haven’t got the right equipment, it just won’t give you that great experience. And so yes, customers are upgrading the networks to deploy telepresence. Customers save enough that both the upgrades in the network and the end systems are paying for themselves. The business case is there.

I think it’s difficult to argue otherwise, but I open the floor, as always, to those who offer dissenting opinions.

Cisco’s Tandberg Acquisition Officially Approved, Dance for Polcyom Begins

When I first learned of the alleged acquisitive interest Apax Partners was said to have expressed toward Polycom, I dismissed it as nothing more than a media head fake.

Let’s consider: When news of that sort is leaked, it’s made public for a reason. In this context, it seemed, the reason was to bring others to the table. Somebody who has an interest in Polycom being acquired wanted to engender a bidding war for the company. It happens all the time.

There was something else, too. Apax didn’t seem a likely acquirer. Where were the direct synergies with Polycom in Apax’s investment portfolio? Where were the connections between Apax’s people and major vendors in the videoconferencing and unified-communications worlds? The deal didn’t offer enough risk mitigation for Apax; the pieces didn’t fit together.

Even if Apax had wanted to acquire Polycom, I’m not sure it had the conviction or the stomach to conclude the deal at the price Polycom would have commanded.

Now, though, Cisco’s acquisition of Tandberg has been consummated, and Polycom stands exposed. Polycom was Tandberg’s videoconfencing rival, and it’s a company of considerable importance to the UC strategies of more than one vendor.

We must consider the Cisco-Tandberg context, because contrivances like the leaked report of Apax’s interest in Polycom tend not to occur in a vacuum. Who’s supposed to step from the shadows and make a welcome bid, at an appetizing price, for Polycom?

There are a few candidates, including one that already has tipped its hand. That player is The Gores Group, 51-percent owner of Siemens Enterprise Communications. But The Gores Group’s bid was leaked, too, and we have to wonder why. Expect others to enter the picture, publicly or otherwise.

An obvious candidate is Avaya. Even though Avaya has barely digested its acquisition of Nortel’s enterprise business, it might feel as though it cannot let Polycom fall into other hands. In a perfect world, Avaya would not have to pursue Polycom now, immediately after assimilating and integrating Nortel.

Nonetheless, strategic imperatives might necessitate a move. Avaya is backed by the high rollers at Silver Lake, who rarely think small. They might not be willing to pass up the opportunity of taking Polycom off the board.

Who else? Not Dell. I can’t see it happening.

I don’t think HP will make the move, either. It’s got is own telepresence systems already, it’s very close to Microsoft in unified communications, and it wants to leverage Microsoft in the battle against their common enemy, Cisco.

Juniper is a possibility, but the company has signaled that it will grow organically, not through big-ticket M&A. Juniper will stay focused on building its intelligent network infrastructure and try not to get distracted by the action in the M&A casino.

IBM could make a move for Polycom, but I don’t think it will. Microsoft also enters the equation.

Yes, Polycom sells hardware, and Microsoft has steered clear of stepping on the toes of hardware partners such as HP. But there’s a way Microsoft could structure a deal that would be amenable to HP and its other hardware partners. All it takes a little creativity and ingenuity, and Microsoft retains plenty of that commodity on the enterprise side of its business.

If I were making book on which company will acquire Polycom, I’d make Silver Lake-baked Avaya the favorite, with Gores-backed Siemens Enterprise Communications the second choice, Microsoft the third option, with IBM next. Of course, in no way do I encourage illicit gambling on prospective M&A activity.

If you have theory on whether Polcyom will be acquired, and by whom, feel fee to share your thoughts below.

UC Won’t Follow WiFi’s Path

At his No Jitter blog, Zeus Kerravala recounts a panel discussion he co-moderated yesterday at VoiceCon.

The panel — ostensibly convened to discuss “next-generation communications architectures” — comprised representatives from most of the industry’s heavyweights, including Cisco, Microsoft, Avaya, HP, IBM, and Polycom. While the vendor representatives seemed initially in agreement regarding how communication architectures are shifting away from vertical integration into distinct layers, they didn’t take long to eschew common cause in favor of recrimination and one-upmanship.

That’s the nature of the beast, of course. I’ve been on these sorts of panels, and I know that everybody there has an agenda that involves promoting his or her company’s products and vision, often in contradistinction to those of your counterparts. Salesmanship never sleeps, especially when it’s on a dais. Away from the panels, too, each vendor continually looks for an edge over its rivals.

Later in his blog post, Kerravala wonders why unified communications can’t be like WiFi, where everything just works together and interoperability between and among different vendors’ products isn’t a problem for customers.

Kerravala cites two main reasons why UC isn’t like WiFi. First, he says, vendors have trouble agreeing on common standards. In Kerravala’s words: “Everyone wants their standard to become the industry standard.” He’s absolutely right.

Second, he argues, WiFi-scale standardization changes the economics of the industry. That’s true, too. As he points out, standardization and commoditization of WiFi resulted in low-cost embedding of the technology in nearly anything and everything, changing the business models of infrastructure vendors in the process.

On that point, we should mention that the major vendors who drove WiFi standardization clearly foresaw how commoditization would eviscerate profit margins on underlying infrastructure. They knew what they were doing, and they went into it with eyes wide open.

They did it because they knew the value of the applications and content WiFi unleashed would create new business opportunities and drive growth in adjacent markets that were of compelling interest to them. Standardized WiFi paved the way for new market opportunities — including increased sales of preexisting and future products — and that’s why the industry movers and shakers got behind the standards effort. In more ways than one, WiFi was a foundation technology.

Can the same be said for UC? That’s the crux of the matter, because if UC is more a market end rather than a means to manifold other market ends, vendors have limited motivation to standardize.

Another difference between WiFi and UC is that the former clearly sits at the bottom of the OSI protocol stack whereas UC, in its breadth and depth, ranges all the way up the stack. Generally, standardization occurs more readily at the bottom of the stack, starting at the PHY and MAC layers, and gets more difficult at the higher layers, especially at the application layer, where differentiation and proprietary advantage often confer great rewards.

In all likelihood, UC always will be more proprietary in design and implementation than WiFi. The two are too dissimilar in their technological and market characteristics to share similar fates.

Vendors refrain from standardizing UC products and technologies because they have neither the desire nor the need to do so. The customers, the buying community, want standardization, which would lower solution costs and result in interoperability and product interchangeability; but the vendors don’t want to go there, for obvious reasons.

UC and collaboration looks more like an application or application service to me than like an 802.11 IEEE networking standard. It’s not so much a cornerstone or foundation for other markets and services as it is an end in and of itself. As such, vendors contesting the space will continue to seek proprietary advantage and resist homogenized standardization.

Despite vendor pieties and platitudes on interoperability and openness, customers shouldn’t hold their breath waiting for UC purveyors to make buying decisions cheaper and easier.

EU Makes Cisco Wait for Tandberg

Despite protestations to the contrary, Cisco is not having an easy time closing its $3.34 billion Tandberg deal.

First, Cisco had to endure a protracted period of haggling and negotiation with recalcitrant Tandberg shareholders. Eventually, after the gamesmanship and ultimatums receded, Cisco sweetened tis offer and persuaded the Tandberg resistance movement to acquiesce.

Everybody thought it was a done deal. Now, though, regulators at the European Union have extended their review of Cisco’s pending Tandberg acquisition so that they can more closely examine redress of competitive concerns.

Even though Betfair doesn’t yet run a market on whether Cisco’s deal for Tandberg or HP’s pending bid for 3Com will go through, I’d have to think the odds remain heavily in favor of Cisco getting a somber nod of approval from the EU regulators when the review expires on March 29.

Still, Cisco could hardly have known that its pursuit of Tandberg, a videoconferencing vendor of considerable strategic value to the networking titan, would become a Nordic melodrama.

Meanwhile, potential acquirers of Polycom might wait until the end of this month before deciding whether the time is right to close their deal.

Rumor Musings: Avaya Acquisition of Polycom Plausible

Rumor buzz this week has intensified, and at least some it involves a mooted acquisition by Avaya of videoconferencing vendor Polycom.

Unless one is an insider — which, in this instance, I am assuredly not — one never knows whether rumors of these deals represent anything other than an optical illusion of smoke without fire. Insiders know what’s happening behind the scenes, but they’re not supposed to tell anybody, notwithstanding apparent evidence to the contrary as exemplified by the scandal involving Galleon Investments and others.

So, we’re left to play Sherlock Holmes in the technology markets, looking for clues and employing deductive reasoning to ascertain whether a given rumor possesses anything more than surface plausibility.

As it turns out, a case can be made for an Avaya acquisition of Polycom. It could happen. That doesn’t mean it will happen, and I am not advising anybody to bet the farm on such an outcome. It’s just that looking at Avaya’s strategic ambitions and how Polycom could further them, I could envision a scenario in which Avaya takes an acquisitive shine to its longstanding business partner.

The partnership, while not evidence that a closer relationship will ensue between the companies, represents coincident interests and a history of working together.

Additionally, let’s remember that Polycom might be amenable to a takeover in the wake of Cisco’s purchase of its primary videoconferencing rival, Tandberg. Polycom could continue to stand alone, but shareholders and other major stakeholders might be thinking that the timing and circumstances favor a sale.

Let’s also consider Avaya. The company bought insolvent Nortel’s enterprise business for more than $900 million at auction last fall. It’s still assimilating that purchase, dealing with product overlaps, roadmap questions, and channel issues. Still, when one considers the searing ambition that drove that acquisition and that continues to power the strategic thinking in Avaya’s executive suites, it would be folly to completely dismiss the potential for Avaya to make further M&A moves.

Avaya’s CEO is Kevin Kennedy, a former Cisco executive who subscribes to the same GE-inspired mantra as John Chambers regarding market focus, specifically the part about aiming to be first or second in every market a company enters.

Cisco and Avaya go head to head for market leadership in enterprise VoIP and unified communications. Meanwhile, video-based communication and collaboration are seen as the next major wave, with Cisco betting heavily on the space and Polycom moving into a prominent market position in videoconferencing on the back of its voice-conferencing franchise. Avaya could see ownership of Polycom as both a competitive necessity and a natural adjunct to its existing business.

Remember, too, that Avaya is a private company, richly backed by the munificence of private-equity houses Silver Lake and TPG. Being private, Avaya has more liberty than most public companies to devise and pursue a long-term strategy. Having the backing of Silver Lake and TPG potentially gives Avaya the means to swing for the fences.

There are reasons, perhaps many, why an Avaya-Polycom deal won’t transpire. This rumor, though, seems to have more plausibility than most I hear during an average week.

Tandberg Shareholder Dissent Grows as Cisco Ponders Options

As another group of Tandberg shareholders steps forward to demand a sweetened bid from Cisco, the networking giant will have a difficult decision to make before Monday, when the deadline expires on its current offer to acquire the Norway-based videoconferencing-systems vendor for $3 billion.

To close the deal, Cisco needs 90 percent of Tandberg’s outstanding shares to be tendered at the offer price by November 9. That clearly is not going to happen, not with dissident shareholders in possession of more than 30 percent of Tandberg’s stock.

The latest faction to express dissatisfaction with Cisco’s offer is Panta Capital, which represents owners of less than 1 percent of Tandberg shares. Although it officially manages only a modest proportion of Tandberg shares, Panta contends that its reasons for objecting to the Cisco offer are shared by others who oppose the deal.

In an open letter to Cisco, addressed politely to Mr. Chambers and Mr. Hooper, Panta makes its case, which essentially is that Tandberg is worth more than Cisco has offered and that Cisco ought to give greater consideration to Tandberg’s growth profile and synergies.

It’s irrelevant as to whether we agree or disagree with the holdout Tandberg shareholders. The fact is, there are enough of them to represent a formidable obstacle to Cisco’s aspiration to own Tandberg. Cisco can argue all it wants that it has made a fair offer. In the end, Cisco’s remonstrations will fall on deaf ears, or at least on a sufficient number of deaf ears to render the entire debate pointless.

Its powers of persuasion having failed it, Cisco now must decide what it will do about the significant dilemma it confronts.

Reuters published a story earlier today that unfurled some potential scenarios. Cisco could, for example, extend the deadline for the offer at the current price. That seems a road to nowhere — and I’m not talking about the Fjords.

Another alternative is a raised bid. Cisco’s original bid for Tandberg was at 153.5 Norwegian crowns per share. Panta and others believe a minimum bid of approximately 170 crowns could seal the deal. Many analysts think Cisco will relent and sweeten its offer. I personally think it’s the best of several disagreeable options.

Cisco could walk away from the deal. I’m not sure how seriously Cisco is considering this option, but CEO John Chambers says Cisco has walked away from deals before and will do so again. Still, Cisco put a lot of stock (pardon the pun) in Tandberg’s videoconferencing potential when the acquisition was announced earlier this month, and it still seems unlikely that Cisco would kick it into touch, even though winning the prize will require setting an unappetizing precedent with a slightly higher bid.

One other scenario Reuters mentions involves Cisco waiving some conditions of the deal, particularly the requirement that 90 percent of Tandberg shareholders must tender their shares. In this scenario, Cisco initially would accept a smaller stake in the company and increase its holdings over time. This sort of arrangement would be inherently complicated, however, introducing more ambiguity and uncertainty than Cisco or Tandberg would want.

Reuters mentions the possibility of a rival bid surfacing for Tandberg. While anything is possible — heck, the Cleveland Browns won an NFL game this season — no white-knight bidder has emerged from the shadows. I don’t think one will materialize.

Although Reuters didn’t cite it as a scenario, Cisco could decide to pursue Polycom instead of Tandberg for its low-end telepresence and videoconferencing-systems needs. It’s possible, but not probable. Tandberg is a better overall fit.

The problem with the Tandberg deal wasn’t so much its conception as its execution. That’s still true.

Regardless of Tandberg Resolution, Cisco’s M&A Reputation Dented

If Cisco thought it could acquire Tandberg with the $3-billion all-cash proposal it has on the table, the networking giant’s braintrust might want to think again.

To close the deal, Cisco needed 90 percent of Tandberg’s shares to be tendered at the offer price of 153.50 Norwegian crowns per share. Almost from the outset, just after the proposed takeover was announced, Cisco was fighting resistance from approximately 24 percent of Tandberg’s shareholders who wanted more money than Cisco offered.

Upset at having to deal with such intractability, Cisco decided to reach for sticks and vinegar as opposed to carrots and honey. Cisco spokespeople repeatedly said they felt the bid was fair, with some suggesting that Cisco might walk away from the deal rather than sweeten the original offer.

Cisco’s stance hardened further with a blog post from Ned Hooper, chief strategy officer and senior VP at Cisco. He not only asserted that the offer was fair, but he pointed out the risks as well as the rewards associated with Cisco’s proposed Tandberg acquisition.

He also mentioned that, while Cisco saw potential riches in video collaboration — a $34-billion opportunity, according to Cisco — most collaboration today was done with voice technologies. Tandberg doesn’t offer voice collaboration, but Polycom — Tandberg’s primary rival in videoconferencing systems — does. Hint, hint, wink, wink, and nudge, nudge.

So, did Hooper’s blunt words and implicit warnings have the desired effect? Did Tandberg’s dissident shareholders, who don’t appear to have a white-knight bidder waiting in the wings to top Cisco’s offer, fold their tents and reluctantly acquiesce to Cisco’s demands that they just take the proffered money and go away?

Not quite.

Reuters reported late yesterday that investment adviser OppenheimerFunds, on behalf of funds and accounts owning a 5.78 percent stake in Tandberg, said it will not agree to sell the shares it manages to Cisco at the current offer price.

Never one to cut off its nose to spite its face, OppenheimerFunds also said it remains open to improved offers from Cisco or from anybody else who wants to pay to play with Tandberg.

As a result of OppenheimerFunds’ declaration of intent, Tandberg shareholder opposition to the Cisco acquisition has grown. Investors owning as much as 30 percent of Tandberg’s shares are now telling Cisco to reach into its prodigious reserves of foreign cash to get this deal done at a higher price.

Endorsed wholeheartedly by Tandberg’s board of directors, the deal must be approved on or before November 9 by those possessing at least 90 percent of Tandberg’s shares. As it stands, with just four days on the calendar remaining, Cisco seems a long way from that goal.

It seemed unthinkable when Cisco announced its intention to acquire Tandberg at the beginning of October, but this deal could unravel completely.

Just after Cisco made its offer, I was mildly surprised that Cisco walked into a hornet’s nest of significant minority-shareholder dissent at Tandberg, but I felt the networking giant would soon manage a dignified, quiet resolution, perhaps boosting the offer marginally, albeit reluctantly. From Cisco’s perspective, such an outcome wouldn’t have been ideal — it sets a bad precedent, after all — but it would have been better than the dilemma it faces today.

Cisco has backed itself into a corner at Tandberg, and now its only options are backing down, backing away from the table, or considering an alternative transaction involving Polycom, a fit that would be less complementary than Tandberg.

How did it get to this point? How did Cisco misread the investor situation so badly at Tandberg? Did it rely too much on Tandberg’s board, not doing its own due diligence into the composition and constitution of critical shareholding blocs at the Norwegian company?

For a great many years, Cisco was an acquisition machine, conceiving and executing deals as fluidly and seamlessly as any company on the planet. Regardless of the eventual outcome, that’s not what happened at Tandberg.

Instead, something went wrong, practically from inception. What we must ask ourselves is whether this was an anomalous exception — resulting from Cisco’s first attempt to buy a large, public company based in Europe — or whether it’s a portent of more trouble ahead.

Cisco Takes Harder LIne with Dissident Tandberg Shareholders

At this point, only those within Cisco’s inner sanctum know whether the company will stick to its guns and refuse to negotiate with dissident Tandberg shareholders who stand in the way of the networking giant’s $3-billion acquisition of the Norway-based videoconferencing-systems vendor.

The latest salvo in the gamesmanship standoff was fired in a blog post from Ned Hooper, chief strategy officer and senior vice president of the consumer business at Cisco. Seeming a bit peeved at “significant speculation and rumor in the media” regarding Cisco’s pending offer to acquire Tandberg, Hooper seized the moment to stress that there are risks, as well as rewards, associated with a Cisco acquisition of Tandberg.

Hooper makes his case by first asserting that Cisco made a fair offer for Tandberg. Then, he cites the risks associated with the deal, including integration of a large European public company — unprecedented for Cisco — as well as the “overall integration complexity associated with engineering and sales spread across both Norway and the UK.” Another risk he mentions are onerous currency-exchange rates.

He then puts these cards on the table:

The bottom line is that Cisco will always act with fiscal prudence. The collaboration market is a $34 billion dollar opportunity where voice is currently the largest application. We believe that video will become the core of the collaboration market, but, it will require substantial innovation and investment to drive this market transition. We’ve already seen increased competition for the traditional video players in the market, as broad based collaboration vendors increasingly focus on video. For all these reasons we believe the time is right for Cisco and Tandberg to come together to help accelerate global adoption of collaboration technology through interoperable, standards-based products. However, no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness.

Given all the speculative “noise” last week, I wanted to take the time to reiterate these points because it is important to me, and to Cisco, that all of our stakeholders understand our position as we near the end of the offer period.

Did you notice the none-too-subtle intimation Hooper dropped into his statement? It’s contained in one word: voice. Although he includes the word within the context of pointing out Cisco believes video will become the core of a collaboration market that represents a $34-billion opportunity, he says “voice is currently the largest application.”

Well — hey, now! — which vendor does video- and voice-based collaboration and is one of the leaders in the videoconferencing-systems market? Hint: It isn’t Tandberg. It’s Polycom.

Is Cisco willing to drop Tandberg like a bag of rotting spuds and run toward Polycom? Probably not, but one never knows — which is why Hooper interjected the voice dimension into his online epistle to Tandberg’s holdout shareholders. Whether one wants to deem it a veiled threat or a blunt statement of fact, Hooper has implicitly suggested a new alternative for Cisco to pursue if Tandberg’s refusenik shareholders continue to block the deal.

Just to recap, the rebellious shareholders own about 24 percent of Tandberg’s stock. To close the deal, Cisco requires that 90 percent of Tandberg’s shares be tendered at the proposed per-share offer price on our before November 9.

To put this in perspective, some of the disgruntled Tandberg shareholders have said a slightly higher Cisco bid — perhaps adding $300 million or $400 million to the current offer — will be enough to win their support.

Many wonder why Cisco doesn’t just quietly sweeten the offer a bit to get the deal done. It now seems to be about precedent, specifically the precedent of Cisco getting squeezed by recalcitrant shareholders in a company it seeks to acquire. Cisco is probably saying to itself: “If we do this for Tandberg, we’ll have to do it for everybody.” It is a dangerous precedent, and one can understand why CIsco would play hardball.

What happens now? Well, Cisco’s stance is clear. It has taken a hardline negotiating position — which is to say it isn’t negotiating at all — and it’s up to Tandberg’s dissident shareholders to respond.

Cisco could simply boost its offer modestly to close this deal, and that still might be what happens before this saga is done, but it apparently has taken stock of the situation and determined that it can do without that sort of precedent. Cisco also seems to be confident that it can intimidate the Tandberg mutineers into submission.

Cisco has signaled that it has options, whereas Tandberg’s options are less obvious. Cisco, at least theoretically, could drop its Tandberg offer and make a pitch for Polycom, while Tandberg doesn’t have a white-knight acquirer waiting in the wings. If Cisco’s drops its bid, Tandberg’s only recourse would be to continue as the independent company it is today.

Will Tandberg’s dissident shareholders stand firm in their demand for a sweetened deal? If they do, they had better be sure Cisco is bluffing.

Cisco’s Brinkmanship with Tandberg Shareholders

Cisco Systems seems to be indulging in some brinkmanship in its showdown with dissident Tandberg shareholders obstructing the networking giant’s acquisition of the Norway-based videoconferencing-systems vendor.

A Reuters report, quoting a “source familiar with the matter,” indicates that Cisco is reviewing its options in relation to the Tandberg transaction. Those options include withdrawing or raising its $3-billion bid.

Hamlet was set in Denmark, not Norway, but that historical footnote won’t prevent Cisco from doing some procrastination of its own. According to the Reuters source — who likely is from within the Cisco camp — Cisco probably will not decide whether it wishes to buy or not to buy before the tender offer for Tandberg’s shares expires on November 9.

Investors holding approximately 24 percent of Tandberg’s shares rejected the Cisco offer, even though Tandberg’s board of directors recommended that shareholders approve the deal. To consummate the transaction, Cisco must gain the acceptance of shareholders possessing 90 percent of Tandberg’s stock.

Cisco actually has multiple options. Rather than increasing the value of the offer or withdrawing it altogether, Cisco could extend the original offer. Given that no white-knight buyer has appeared on the horizon, as I mentioned previously, Tandberg’s recalcitrant shareholders must consider their next move carefully.

For its part, Cisco is saying that it has made a fair offer. It has made noises about rescinding the takeover bid, but the Reuters source indicated that Cisco “is far from deciding that it will withdraw its bid, although it is being strongly considered by top executives.”

Said one of the restive Tandberg shareholders:

“It would seem odd to me that (Cisco) would walk away for a few hundred million dollars … I think for 170 NOK they will probably get it through.”

Maybe that’s all Cisco needed to hear.

Cisco clearly wants to fill out its top-heavy telepresence offerings with Tandberg’s broader, market-leading videoconferencing product portfolio. In theory, CIsco could spurn Tandberg and consider Polycom as an alternative, but the fit would not be as good, with Cisco having to pick up audioconferencing products it probably wouldn’t value.

Cisco probably isn’t elated about having to deal with a Tandberg shareholder uprising. That said, it will not behave irrationally.

If it makes a sweetened bid, Cisco will make sure it’s a modest one. If that Tandberg shareholder’s sentiments are representative of 14 percent of holdout shares, then Cisco would have to boost its offer by a little more than $300 million to close the deal.

Cisco will make the Tandberg rebels sweat — it doesn’t want to go through this sort of ordeal every time it attempts to buy a company — but the deal will get done.