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Video start-ups vie with tech giants in $7B market

Video conferencing
Thomas Barwick | Getty Images

The crowded video-conferencing market has turned into an all-out landgrab.

Industry giants Cisco, Microsoft, Citrix and Polycom, consumer-friendly services from Google and Skype and a host of start-ups headlined by Blue Jeans Network and Zoom are vying for dollars as businesses adopt cloud-based video systems that work on all devices.

And now there's Lifesize, which split from Logitech at the end of 2015 and raised $17.5 million from three venture capital firms.

Companies are dumping their expensive, proprietary systems for technology that works on smartphones and in web browsers as well as on commodity cameras and big-screen TVs. They're seeking the consumer elements of Skype with the security and support of enterprise software.

Lifesize, in making its first public comments since the spinout two weeks ago, sees a $7 billion market opportunity.

"We've been waiting 20 years for the video collaboration market to become mainstream," said Craig Malloy founder and CEO of Lifesize. Consumers have gotten used to simple communication on iPhones and texting apps and "when they walk into the office in the morning they want to have that same level of engagement with customers and suppliers."

Video has broadly moved from just transactions and meetings to become a primary way that teams collaborate on projects. According to a 2015 report from analytics company Vyopta, median video usage in the enterprise doubled over the past two years.

Cisco is going all in on the transition. In November, the networking vendor announced plans to spend about $700 million on a start-up called Acano, whose technology focuses on interoperability. Almost a decade ago Cisco was pushing $300,000 telepresence systems designed for chief executives and dealmakers.

Former Cisco executive Krish Ramakrishnan started Blue Jeans in 2009 with an eye towards software. The idea was that for video to gain ubiquity inside companies, it had to be accessible from anywhere and allow employees to join conferences with just a couple of clicks. His Mountain View, California-based company has raised $175 million and counts Facebook, Sephora and MetLife as customers.

Ramakrishnan predicts a wave of consolidation in the next couple of years as the big software companies that don't have a video product realize they need one. Companies such as Salesforce.com, Oracle and Amazon.com, which are supplying critical I.T. services, are sacrificing business if they don't have video, he said.

"There's a scramble out there to get footprint," Ramakrishnan said.

For Lifesize, gaining independence has required two years of cutbacks as the company moved its business under Logitech to the cloud. Operating expenses have been slashed by half over that stretch and its headcount dropped to 250 from 550.

Malloy, who started in video in 1996 and sold his first start-up ViaVideo to Polycom, said Austin, Texas-based Lifesize has reached 2,000 paying customers in the past 18 months. Like Blue Jeans, Lifesize's software works with Skype, Google Hangouts and Cisco. However, Lifesize also sells its own camera.

In its new structure, Logitech still owns about one-third of Lifesize. Silicon Valley firms Redpoint Ventures, Sutter Hill Ventures and Meritech Capital Partners contributed the outside capital.

Jeff Brody, a partner at Redpoint, has a long history with Malloy, having backed ViaVideo and the original Lifesize. Despite the highly competitive nature of the market, he likes his chances.

"There's a very clear execution capability of the team we just invested in," Brody said.