Polycom CEO Robert Hagerty: Video Vanguard

For decades, videoconferencing was touted as The Next Big Thing for companies, promising to bring far-flung employees together in a virtual huddle realistic enough to replace in-person meetings. For much of that time, though, the technology sported obscene price tags, while offering only mediocre quality with awkward time lags and choppy images. Today, thanks to upgrades in bandwidth and lower-cost high-definition technology, meeting via high-end video systems feels so realistic, “it’s spooky,” says Robert Hagerty, CEO of videoconferencing technology provider Polycom. “We’ve had people instinctively reach across the table to shake hands when they were leaving a meeting,” he notes. “It’s just amazing behavior.”

With companies under mounting pressure to cut travel costs and, increasingly, to reduce their environmental footprints, adoption of video-conferencing technology has accelerated worldwide. Pharmaceutical companies use the systems in their labs to educate their sale forces on new product rollouts; physicians view patients’ diagnostic tests remotely; consulting firms employ video to leverage their experts’ brain power without having to trot them around the globe physically. And global 2000 companies convene geographically dispersed directors in virtual boardrooms to cut travel expenses while meeting governance covenants.

As adoption has crept up, so has Polycom’s bottom line. The $1 billion company, which offers voice, video and data solutions, has seen its video business growing at a healthy 25–30 percent clip, Hagerty reports, and its telepresence business soared 500 percent from second to third quarter of 2008. At the high end of the conferencing spectrum, telepresence offers users complete rooms outfitted with special lighting and sound systems to replicate the feeling of an in-person conference, at a cost of roughly $350,000. According to technology firm Frost & Sullivan, telepresence revenues are expected to reach $1.44 billion by 2013, up from $165.3 million in 2007. As expensive as the technology still is—$10,000 for a single-user, off-the- shelf system—Hagerty expects videoconferencing adoption to continue its pace because of the technology’s attractive ROI. “When I take one international trip it’s more than $10,000,” he says. “So you save it just on the travel costs.”

Not surprisingly, the economic recession—expected to deepen in the first half of 2009—has already slowed growth, particularly in the voice business, which represents 40 percent of Polycom’s revenue. Still, in December the company reported fourth-quarter earnings above market estimates and, in an effort to stay ahead of lean times, announced it was reducing its work force by 6 percent. Hagerty points to Polycom’s consistent annual cash-flow generation of $100 million or more as evidence of its solid financial foundation. And he notes that much of the global market—with some 30 million conference rooms, by his estimates— has yet to get videoconferencing religion, leaving plenty of open field for both Polycom and its chief competitors, Cisco and HP. “We’ve probably got a million penetrated in the industry, so that’s a pretty untapped market,” he says.

Founded in 1990, Polycom has already lived through a couple of downturns, and strategically used the 2001 dot-com meltdown as an opportunity to gobble up a series of complementary businesses and rivals, including PictureTel, which Polycom’s founders started in the mid- 1980s. Though one of the youngest players in a nascent industry, Polycom has managed to grow its brand to near ubiquity, with its signature triangle conference phone now a staple in corporate conference rooms around the globe. Hagerty believes even a global recession can’t stem the widespread adoption of videoconferencing that has just begun. “We helped create this industry, and we think that our time has come,” he says. “Our aspiration is that video everywhere—on every desktop, every conference room, at home, in your office—has got the Polycom triangle on it.

“That’s a personal passion as well,” he adds, “because I’m so lousy at golf.”