Market Needs and Unified Communications

Market Needs and Unified Communications 1

Table of Contents

1. Introduction .......................................................................................... 4 1.1 Avistar Overview............................................................................. 4 1.2 Unified Communications Overview ..................................................... 4 1.3 Purpose of This Document ................................................................ 5

2. Managing and Leading Dispersed, Complex Enterprises ............................... 5 2.1 Continuing Globalization................................................................... 5 2.2 Dispersion of Enterprise Workforces................................................... 6 2.3 Growing Product Complexity ............................................................. 6 2.4 Persistence of Major Cultural Differences ............................................ 7 2.5 Growing Organizational Diseconomies of Scale .................................... 7 2.6 Social Disconnection and the Visual and Social Imperatives ................... 7 2.7 Continuing Need for Leadership and Command-and-Control of

Organizations ................................................................................. 8 2.8 Difficulties In Sustaining Corporate Cultures and the One-Firm Concept .. 8 2.9 Implications Re: Command-and-Control and Leadership ....................... 9

3. Creating and Managing Larger and More Complex Virtual Teams................... 9 3.1 Growing Importance of Larger and More Complex Teams ...................... 9 3.2 Complex “N-Dimensional” Collaboration with Multiple Teams ............... 10 3.3 Breaking Down Organizational Silos and Cultural Barriers.................... 10 3.4 Need for “Virtual Co-Location” Environments..................................... 10 3.5 Growing Need for Intra- and Inter-Enterprise Team Rooms ................. 11 3.6 Implications Re: Teams.................................................................. 11

4. Supporting “Anytime, Anywhere” Work ................................................... 11 4.1 The Persistence of Business Travel................................................... 11 4.2 Blurring Distinction between Home, Work and Other Sites................... 12 4.3 Demand Accelerators..................................................................... 12 4.4 Implications Re: Anytime, Anywhere Work........................................ 13

5. Delivering Expertise-On-Demand ........................................................... 13 5.1 The Best Are Few In Number .......................................................... 13 5.2 Pockets of Shortages of Expertise .................................................... 13 5.3 Shortages Exacerbated By Demographic Shifts .................................. 13 5.4 Physical Limits and “Hitting the Wall” ............................................... 13 5.5 Need To Tap Expertise – Globally, Inter-Enterprise............................. 14 5.6 Implications Re: Expertise-On-Demand ............................................ 14

6. Improving Meetings, Productivity, and Business Capacity........................... 14 6.1 Introduction: Time Is Money .......................................................... 14 6.2 Challenges to Productivity .............................................................. 15 6.3 Need to Reduce Number of Meetings................................................ 15 6.4 Saving Unproductive Time Traveling To/From Meetings ...................... 16 6.5 Need To Improve Meeting Effectiveness............................................ 17 6.6 Need To Reduce Effective Meeting Duration ...................................... 17 6.7 Recapping Meeting Results ............................................................. 18 6.8 Reducing Technology Costs of Meetings............................................ 18 6.9 High Costs of Special Events ........................................................... 18

Avistar October 2007


6.10 Leveraging “Presence” To Contact People More Quickly and Easily........ 18 6.11 Finding and Synthesizing Information............................................... 19 6.12 Implications Re: Meetings, Productivity and Business Capacity............. 19

7. Permanently Downsizing The Enterprise Cost Structure ............................. 20 7.1 Introduction ................................................................................. 20 7.2 Automation of Manual and Paper-Based Processes ............................. 20 7.3 Business Process Re-Engineering..................................................... 20 7.4 Arbitraging Cost Differentials .......................................................... 21 7.5 Implications Re: Cost Structure....................................................... 22

8. Better Managing Communications Networks and Risks .............................. 22 8.1 Introduction ................................................................................. 22 8.2 Dissatisfied End-Users and IT Organizations...................................... 22 8.3 Growing Communications Complexity and Risk .................................. 23 8.4 High Communications Costs............................................................ 23 8.5 Inadequate Understanding of Applications Profiles.............................. 24 8.6 Many “Islands of Automation” Handled By Organizational Silos ............ 24 8.7 Inadequate Management Discipline and Controls ............................... 24 8.8 Lack of Centralized Planning/Management and Out-Of-Control Costs .... 24 8.9 Inadequate Skill Set To Manage Technical Complexity ........................ 25 8.10 Uneven Global Communications Infrastructure .................................. 25 8.11 Opaque Network Service Providers .................................................. 25 8.12 High Bandwidth Cost Variances ....................................................... 25 8.13 Poor Planning For New Services....................................................... 25 8.14 High Costs of Traditional Room Videoconferencing ............................. 26 8.15 Limited Use of Software Tools ......................................................... 26 8.16 Limited Backgrounds of CIOs .......................................................... 26 8.17 Implications Re: Communications Networks ...................................... 26

9. Better Integrating Acquisitions, Remote Sites and New Employees .............. 27 9.1 Challenges in Integrating New Hires................................................. 27 9.2 Growing Need for Cross-Border Supervision ...................................... 27 9.3 Integration of Outlying Sites ........................................................... 27 9.4 Limited Training Tools and Techniques ............................................. 27 9.5 Expensive, Risky Integration of Acquisitions ...................................... 28 9.6 Implications Re: Integration of M&A/Sites/Employees......................... 28

10. Accelerating “Idea Velocity”, Time-To-Market, Knowledge Transfer and Decision-Making .................................................................................. 28 10.1 Introduction ................................................................................. 28 10.2 Replacing Slow, Serial, Impersonal Business Processes....................... 28 10.3 Accelerating “Idea Velocity” and Time-To-Market ............................... 29 10.4 Improving Knowledge Transfer........................................................ 30 10.5 Implications Re: Cycle Times .......................................................... 30

11. Improving Risk Management ................................................................. 30 11.1 Limits of Traditional Risk Management ............................................. 30 11.2 Need for More Expansive View of Risk Management (Including Business

Continuity) ................................................................................... 31 11.3 People-Dependent Reputational Risks............................................... 31 11.4 Slow Identification, Escalation and Resolution of Operational Errors...... 31 11.5 Implications Re: Risk Management .................................................. 32



12. Appendix: Selected UC Metrics [Source].................................................. 33 12.1 Introduction ................................................................................. 33 12.2 Broadband Internet ....................................................................... 33 12.3 Business Continuity Management (BCM) ........................................... 33 12.4 Businesses and Buildings................................................................ 33 12.5 Business Travel and Telecommuting................................................. 33 12.6 Conferencing ................................................................................ 34 12.7 Costs........................................................................................... 34 12.8 Messaging.................................................................................... 35 12.9 Network Planning and Management ................................................. 35 12.10 Switches.................................................................................... 35 12.11 Unified Communications............................................................... 35 12.12 Video ........................................................................................ 36



1. Introduction

1.1 Avistar Overview Avistar is defining the future of Unified Communications and Collaboration by inventing and delivering integrated visual communications software that helps companies of all sizes improve business results. Nothing is as effective as face-to-face interactions when employees need to communicate concisely, speed decision-making, resolve complex issues and build strong relationships. From the desktop, from the laptop, and from conference rooms, Avistar delivers enterprise-quality and easy-to-use audio/video calling, multi-party conferencing and integrated data sharing anywhere in the world. Avistar not only provides best of breed UC, but also interoperates with other communications technologies, integrates into existing collaborative technologies, and incorporates Avistar and other applications into a single managed network environment. Avistar's recently introduced, fully managed, affordable, turnkey and subscription-based Hosted Video Services solution incorporates this technology while also making it easy for companies to quickly deploy video to respond to changing market conditions. By integrating visual communications with enterprise application software, Avistar incorporates communications into the daily workflow and seamlessly connects communities of users within and across enterprises. Avistar customers experience superior business productivity, increased team and organizational leverage and stronger, more competitive client management, conducted faster and more efficiently. Companies using Avistar not only improve their business results, but also save travel costs and reduce associated carbon emissions by up to 22% with significant reductions in T&E and other meeting costs are proportional to Avistar usage. With more than 15,000 users across 40 countries, Avistar unified visual communication software deployments are among the largest in the world. Avistar’s technology—which is backed by an extensive intellectual property portfolio—is based on a decade long thoroughbred of innovation and technical problem solving and has made Avistar one of recognized leaders in solving the significant challenges of scale, quality and performance required to deliver today’s standards of enterprise competitiveness, service and strategic value.

1.2 Unified Communications Overview The telecommunications industry is currently undergoing a fundamental paradigm shift: a move away from communications equipment towards application software. Hardware appliances and equipment are inherently unable to adapt to changing demands. They are designed to provide a small and fixed set of capabilities and any features beyond those fixed capabilities will feel complicated and non-intuitive. Software applications, by contrast, are designed to support a rich set of capabilities and are intended to evolve over time as market requirements change.



The market has started to refer to this new category of communications software as Unified Communications (UC): the convergence of many different and stove piped telecommunications technologies under a common umbrella that provides a singe software interface to access these technologies. The vision of UC is ambitious. UC seeks to deliver a more robust and integrated set of capabilities that a) deliver a simpler, more powerful and less disjointed communications experience to business end-users, b) allow IT and networking organizations to manage communications in simpler and better integrated ways (with fewer “islands of automation”), and c) enable enterprises to reduce and better manage costs and risks to the business. The UC marketspace includes 1) ad communication, collaboration and messaging (including IM, VoIP, desktop video, whiteboarding, et. al.), 2) larger meetings (audio, data, Web, video and integrated), 3) UC-enabled applications (e.g. call handling for customer relationship management), 4) community/shared services (e.g. “presence”, directories), 5) multimedia content (including creation, publishing, and storage), 6) network service provider services (e.g. WAN bandwidth, IP VPNs), and 7) associated professional services and related software tools (including network planning, network management, support, systems integration). In total, UC addresses what Avistar estimates to be a global value chain in excess of $900 billion dollars.

1.3 Purpose of This Document Given the large scope and great potential impact of UC, it is imperative that it be driven by the needs of business. This document sets forth the key business challenges faced by all enterprises, and most acutely by large global ones. As such, it seeks to answer the question: What are the most important problems we and our customers are trying to solve with UC?

2. Managing and Leading Dispersed, Complex Enterprises

2.1 Continuing Globalization It is a truism that globalization continues. Exports, imports, foreign direct investment, international securities transactions, and international communications traffic continue to grow much faster than world GDP. After the success of eBay, even the smallest local businesses face global competition; international business accounts for a growing share of many companies’ profits; and leading brands are global brands.1 As Tom Friedman correctly concludes in his recent book, the world is not totally flat yet, but it’s getting flatter at a rapid rate. Even regional development authorities, states and cities find themselves competing in a global marketplace:

“To attract jobs from higher-cost cities such as San Francisco, we’ve been putting a lot of emphasis on our technology infrastructure and our new biotech complex. But now we find we’re competing not just with surrounding communities and other U.S. biotech

1 For example, Business Week reports that luxury consumer brands Coach and Hermes are doing a land office business in China and Japan.



centers, but with Singapore and other places around the world.” – City Planning Manager, San Francisco Bay-area community

2.1.1 The Rise of Developing Nations and Asia

A noteworthy aspect of globalization is the success of many developing nations, most notably in Asia, and most notably India and China, who now have among the highest GDPs in the world. One CEO of a leading U.S. player in the payments business made a stunning statement at a recent conference: After great success breaking into European markets, her company did not enter the China market because it’s simply too big. In Avistar’s marketspace, the #1 source of Google queries on desktop video has been India, which has an educated, affluent population larger than that of the U.S.

2.1.2 Explosion of Connectivity (including Broadband)

Accompanying globalization has been an explosion of connectivity. Thanks to mobile phones, much more of the developing world is connected. Worldwide, the number of people with broadband connections is expected to rise from 281 million in 2006 to 790 million by 2010 – a reasonable proxy for the maximum theoretically accessible market for unified communications.2 Mobile broadband in particular has been growing explosively in the U.S. and around the world.

2.2 Dispersion of Enterprise Workforces The vast majority of companies with more than $2-3 million in sales have 2+ sites and therefore must cope with the dispersion of their workforces. This physical dispersion increases with company size until it reaches immense proportions in the largest enterprises. Prior to divestiture, the Bell System had more than 27,000 buildings. More recently, an executive stated that he was proud to have been able to visit 3% of ExxonMobil’s physical sites over his 30+ year career. Today multinational enterprises routinely do business in 100+ countries; IBM and Accenture have 58,000 and 35,000 employees in India, respectively.

2.3 Growing Product Complexity It is a truism that commodity products and services are being outsourced and offshored to developing countries. The corollary is that those that remain in the U.S., Europe and Japan are more complex, higher-value products and services. One Avistar customer in the global securities business said that all of his company’s profits now come from complex new products.

2 By 2010, 3.3 billion people will have phone connectivity, and there will be 1.5 billion internet users, 1.3 billion PCs, 790 million broadband connections, 300 million mobile broadband connections and 80 million adult gamers. See, for example, internetworldstats.com, March 2007 (citing Nielsen/NetRatings, International Telecommunications Union, et. al.) and Deloitte Touche Tohmatsu, “Eye To The Future: How TMT Advances Could Change The Way We Live In 2010,” 2006 (citing ZD Net, “Global PC Market To Double By 2010,” Dec. 14, 2004, Silicon.com, Aug. 11, 2005, and Business Week, “Making A Play For All Those Non-Players”, Oct. 3, 2005).



2.4 Persistence of Major Cultural Differences The world may be getting flatter, but major cultural differences remain and are exacerbated by language differences.

“I manage a team of developers in three cities on two continents. Beyond the language differences, the cultural differences are major. The work-life balance thing is big with the people in Oslo, so they don’t want to stay late. So just finding a time to get people together is a problem. And if I let them communicate only by email and IM, which is what most of them are used to, misunderstandings fester and holy wars break out. Even on the most technical issues, I’ve got to make sure that the communications are as personal as possible.” – Group Manager and Team Leader, Application-Specific Integrated Circuit (ASIC) Development, High Tech Company "Don’t underestimate the cultural difficulties of integrating (securities exchanges' businesses) across markets." - Dushyant Shahrawat, Research Director, Securities and Capital Markets, TowerGroup, May 31, 2007

2.5 Growing Organizational Diseconomies of Scale There are clear advantages of scale – in treasury operations and in building global consumer brands, for example. However, size and complexity create major diseconomies in human and organizational terms. For example, a TowerGroup survey found that the quality of bank custodians’ customer service is inversely related to size: As custodians grow, expand globally, and extend to support a broader spectrum of asset classes and complex new products, their customer service quality deteriorates.

“Anybody who downplays the tremendous difficulties of managing a complex global business, or even a single offshore unit in India, has never had to do it.” – Bank Operations executive

2.6 Social Disconnection and the Visual and Social Imperatives With 100 trillion interconnections, the human brain is the “thickest density of connectivity known to science.”3 In addition to handling intellectual processes on a conscious level, the brain uses in-person, face-to-face and eye-to-eye inputs to manage our social interactions on an unconscious level through multiple complex brain systems (often centered on the amygdala). Among the processes that take place – rapidly (in as little as 17 milliseconds), automatically, in parallel and “in the background” -- are listening, detecting lies, building empathy, establishing trust, “social cognition” (understanding how the social world works), managing interpersonal relationships, and self-presentation and “influence” (i.e. persuasiveness). Bottom line: “Our brain’s very design makes it sociable”4; we humans are hard-wired to learn5, communicate6 and build trusting

3 Daniel Goleman, Social Intelligence: The New Science of Human Relationships, 2006, p. 80. 4 Daniel Goleman, Social Intelligence: The New Science of Human Relationships, 2006, p. 4.



working relationships7 socially and visually. We have “A Social Imperative” and “A Visual Imperative.” Today’s dispersed, complex and global enterprise environment violates the Social and Visual Imperatives – creating centrifugal forces that tend to create pull organizations apart and create the diseconomies cited above. Physical separation makes social and visual contact difficult, infrequent, prohibitively expensive or logistically impossible. Instead businesspeople often receive an array of impersonal communications tools – email, Blackberries, chat – each of which has its own interface and message queue. Information arrives faster in more numerous, sterile and less persuasive forms, and hence takes longer to integrate.8 Action is impeded by inadequacies in the cognitive impact, social context, trustworthiness, and persuasiveness of the information communicated. This social disconnection – the gap between the Social and Visual Imperatives and the blizzard of messages delivered by disjointed and largely non-visual mechanisms -- explains the persistence of business travel. It also explains the interest in social networking software, the continuing purchase of expensive and unsatisfying room videoconferencing systems and the untapped opportunity for desktop video, both stand-alone and integrated with other technology tools in unified communications solutions.

2.7 Continuing Need for Leadership and Command-and-Control of Organizations Organizations will never run themselves. Indeed, the need for command-and-control and true leadership is growing in parallel with the size, complexity, diversity and physical dispersion of today’s enterprises.

2.8 Difficulties In Sustaining Corporate Cultures and the One-Firm Concept Given the above, it is not surprising that top executives face major difficulties in sustaining their corporate cultures, maintaining command-and-control, and sustaining the one-firm concept:

5 Studies at Harvard/Columbia and Wharton both concluded that face-to-face interactions led to a 38-40% increase in information absorption and retention. A University of Wisconsin study found 200% higher learning with face-to-face meetings. 6 Albert Mehrabian’s Silent Messages concluded that face/body language has a communications content that is 12 times higher than words. A RoperASW study of 625 executives and professionals found that face-to-face was superior to audio interactions by 62% vs 10% for enabling quick decision-making. 7 The RoperASW study found that 90% of executives felt that face-to-face is best at establishing a high level of trust. Only 5% felt that audio or Web interactions were best. 8 One Avistar user, an equities portfolio manager, was fed up with the increasing time and effort required to integrate information from multiple message queues and other information streams. She directed her assistant to print out all messages and organize them in folders. The cumulative effect of technology advances was to motivate her to take a big step backwards.



“We really believe in the ‘One-Firm Concept’ here. We’ve grown, especially internationally, have many different practice areas, and struggle to keep things together.” – Senior Partner, International Law Firm

2.9 Implications Re: Command-and-Control and Leadership The need for Avistar desktop video, Virtual Meeting and other UC tools increases in parallel with physical dispersion, product and organizational complexity, and cultural and language differences Given the low chances of significantly more business travel, UC tools that include visual components are the only viable way for complex organizations to satisfy the Social and Visual imperatives, sustain their one-firm concepts and support command-and-control.

3. Creating and Managing Larger and More Complex Virtual Teams

3.1 Growing Importance of Larger and More Complex Teams A high percentage of professionals and other knowledge workers participate in teams, and team-oriented work consumes a high and growing percentage of time. Teams differ greatly on many dimensions. A manager‘s direct reports may collaborate intensely as a team (e.g. in software development or industry sector research); In other cases, each team member may report to a different supervisor. Some teams are created ad hoc and then quickly disbanded; other teams for capital-intensive investment projects can be highly structured and remain in place for decades. Some teams are “vertical” (within a particular business), some “horizontal” (functional specialists across businesses), some inter-enterprise, and some a mixture. As a result of globalization, physical dispersion and the importance of high-value, high-profit products, teams are becoming larger and more complex because a wider range of domain expertise must be integrated. New securities products often involve multiple asset classes (including derivatives) and specialized legal and risk expertise. Global brand management requires inputs from country/market experts around the world. Planning and rolling out new systems requires inputs from business users around the world, experts on country-specific legal/regulatory requirements, and an array of technical experts. And law firms report that team sizes are growing because multi-practice, multi-office assignments are increasingly common.

3.1.1 Inter-Enterprise Teams

Increasingly, teams are likely to involve members from other companies within a company’s ecosystem, including customers and strategic service providers. Securities lawyers are often on deal teams, particularly on complex transactions involving mergers/acquisitions or derivatives. New initiatives often involve outside management or technical consultants. And advertising projects routinely include



many specialized service providers, including small firms and “one-man bands” working out of home offices.

3.2 Complex “N-Dimensional” Collaboration with Multiple Teams Individuals sometimes participate in a single all-consuming team endeavor, e.g. a securities deal team or consulting assignment. More typically, executives, professionals and other knowledge workers participate in multiple teams simultaneously, creating time management and collaboration challenges:

“Our collaboration patterns can be surprisingly complex. We collaborate in n-dimensions-- across multiple client and industry sector teams, across many offices around the world, across many asset classes in many markets 24x7, and with many institutional clients and retail channels. We collaborate internally with front-line people and a host of support areas. We also collaborate externally with a large number of broker-dealers, as well as third-party research providers, consultants and other service providers. And many of us get involved in all sorts of special project working groups, standing committees and mutual fund boards.” -- Director, Marketing, Global Money Manager

3.3 Breaking Down Organizational Silos and Cultural Barriers Executives and team leaders often cite the practical real-world difficulties in overcoming the “silo” mentality, bridging cultural differences, and overcoming the lack of prior personal relationships among people who must work together. Many like Avistar for its ability to address the Social and Visual Imperatives.

“If you want to really work as a team, you have to know each other on a personal basis.” – Managing Director and Head of Equity Sector Funds, Global Money Manager “This (Avistar) facilitates communication across geographies, something that we haven’t done well.” – Director and Portfolio Manager/Analyst, Commodities, Global Money Manager “The real value of Avistar is better relationships between the U.S. and Europe. If I don’t establish relationships with colleagues in Europe based on quality face-to-face collaboration, its ‘us versus them.’ Avistar helps to break down barriers. (And it saves me more than 20 minutes a day.)” – Director and Portfolio Manager, Cash, Global Money Manager

3.4 Need for “Virtual Co-Location” Environments With complexity, dispersion and individual participation in multiple teams, it is increasingly impossible to physically co-locate everybody. “Virtual Co-Location” technology is required to address the Social and Visual Imperatives.

“I just can’t be in Milan in the morning, and Frankfurt and London in the afternoon, and squeeze Tokyo in there somewhere!” – Managing Director, New Business, Global Securities Firm



“On-all-the-time” Avistar has enabled the creation of “virtual” environments. In securities trading, for example, traders in different locations (e.g. NY/London or Singapore/Sydney) are in constant visual and audio contact with each other.

"The immediacy and richness of the Avistar system enabled the company (UBS) to create its first virtual global trading team.... (Konchan) says video calling has already become a 'mission critical' application." - Andy Konchan, Executive Director of E-Commerce, UBS9

3.5 Growing Need for Intra- and Inter-Enterprise Team Rooms Team room systems are increasingly used to support document and data collaboration. Securities law firms use these inter-enterprise to collaborate and refine, distribute and archive deal documents.

3.6 Implications Re: Teams Enterprises clearly need better tools to create and manage larger, more complex and more virtual teams, both intra- and inter-enterprise. Avistar is proven to aid in this process by a) breaking down “silos” based on line of business, job function, geography and time zones, language and culture, b) helping team members communicate more quickly and effectively on a global scale, and c) supporting virtual environments. Avistar’s Virtual Meeting capability (developed by combining Avistar’s networked multiparty desktop video with data conferencing, IM other collaboration technologies) is a major step forward in unified communications. It mimics in virtual space almost all of the elements of an in-person team meeting. As such, this significantly expands the scope of applications addressable by desktop video. Collaboration technology players need to improve support for inter-enterprise teams, including small firms and individuals working from home offices. This raises access control, permissioning, and inter-networking issues. There is a significant opportunity to extend the Virtual Operations concept beyond Virtual Trading into Virtual Deal Team, Virtual Project Teams, et. al.

4. Supporting “Anytime, Anywhere” Work

4.1 The Persistence of Business Travel The proliferation of communications tools, the rapid growth of audio- and data-conferencing, and the increasing costs and hassles of air travel have made only a small impact on business travel. Economists have been surprised by this “inelasticity” of demand. Bottom line: Executives, professionals and all knowledge workers will be “calling in from the road” for the foreseeable future.

9 Cited in Jason Ader, Thomas Weisel Partners, e-Learning/Teleconference Magazine, July 2001



For the typical businessperson, 4.4-7.3 meetings per month require air travel (60-100 meetings per month x 7.3%). (Despite the extensive use of communication and collaboration tools, 10,000 IBMers continue to fly daily to satisfy the Social and Visual Imperatives.) In addition, 11.6-19.3 meetings per month require local travel (60-100 meetings per month x 19.3% local offsite).

4.2 Blurring Distinction between Home, Work and Other Sites The distinction between home, work, and other sites is blurring – spurring the demand for anytime, anywhere connectivity.

• An increasing fraction of work is performed at home. According to Deloitte Touche Tohmatsu, 100 million people are expected to work out of their homes at least a day a month; For example, an increasing percentage of sales reps work primarily out of their home offices. A small minority of people telecommute full-time. And at the turn of the century one in seven U.S. homes had one or more home-based business in it.

• Virtually all knowledge workers communicate at least part of the time from third-party sites -- client and supplier locations; planes, trains, buses, and cars; hotel rooms and lobbies, Starbucks, et. al.

• The vast majority of workers continue to commute to work, and many feel the need to stay in touch while commuting –a prime driver of the explosive adoption of Blackberries. And, of course, some occupations assign prime importance to 24x7 accessibility, e.g. doctors, traders, field support personnel.

• The success of many Business Continuity Management ("BCM") and Virtual Corporation scenarios depend on home or “anytime, any place” connectivity

4.3 Demand Accelerators Demand for “any time, any place” work is being accelerated by growing connectivity and broadband penetration, globalization, desktop video, and “green” pressures. Growing connectivity, particularly the 790 million people expected to have broadband within a few years, and most particularly the availability of mobile broadband will accelerate the blurring of work sites. Time zone differences and globalization will make before- and after-hours work increasingly necessary. On the margin, pressures on companies to support “green” initiatives will accelerate the blurring of work sites. And desktop video and Virtual Meeting solutions, and particularly the availability of same in homes, will blur work locations.

“Avistar is a great way to have meetings with the entire group since we have several colleagues located out of the New York office, some working out of home offices.”—Manager, Institutional Client Service, Cash, Global Money Manager “When I travel seeing clients, I miss what’s going on back in Frankfurt. I can miss three days of (internal) meetings (with staff and others in Frankfurt)…. I have a lot of presentation responsibilities…. When traveling, it’s good to sit (virtually) with (my) three guys and work through presentations in advance.” – Managing Director and Head of Currency Group, Global Money Manager



4.4 Implications Re: Anytime, Anywhere Work With the introduction of wireless support in 2006, Avistar is proven to allow knowledge workers to work “any time, any place, face-to-face.” (Product demos in Starbucks usually draw quite a crowd.) All unified communications providers will need to improve their ability to install, support and inter-network large numbers of mobile and SOHO users. The mass diffusion of desktop video, Avistar Virtual Meetings, and UC-enabled software applications could dramatically increase home work (and associated Green benefits) by a) addressing the Social and Visual Imperatives of telecommuters, b) improving the integration of telecommuters into teams and other day-to-day work, and c) improving management’s comfort with supervision of home-based workers.

5. Delivering Expertise-On-Demand

5.1 The Best Are Few In Number By definition, the most talented and knowledgeable individuals in any organization are few in number. As organizations disperse and globalize, it becomes increasingly untenable to make these individuals available when and where they can add the highest value.

5.2 Pockets of Shortages of Expertise There are particular pockets of shortages of expertise: Financial engineers able to structure the most complex multi-legged transactions; Derivatives specialists of all kinds (including Middle Office, Operations and IT); Chemical engineers in the U.S.; and English-speaking engineers in China. McKinsey estimates that India already faces a shortage of 500,000 knowledge workers capable of working with multinational corporations.

5.3 Shortages Exacerbated By Demographic Shifts Birth rate declines in the developed world, the accelerating pace of the retirement of the Baby Boomers, and the smaller size of the age cohorts behind them present many companies with shortages of management and threats to corporate memory.

5.4 Physical Limits and “Hitting the Wall” Global enterprises can “hit the wall” where it becomes physically impossible to conduct business in traditional ways.

“With each promotion, the travel demands rose. First 30,000 miles a year, then 80,000 miles a year, then 150,000-200,000 miles a year, when I had both Europe and the Americas. And then they wanted to have me take over responsibility for Asia as well. This is just not possible physically, even for the youngest and most energetic person.” – Assistant Treasurer, Multinational Consumer Products Company



“I had this one project where I had a five-day trip that took me from California to Sydney to Buenos Aires and then on to London before returning to California. That trip nearly killed me.” – Project Manager, Management Consulting Firm

5.5 Need To Tap Expertise – Globally, Inter-Enterprise The intra-enterprise challenges extend globally and inter-enterprise because the best experts are often based elsewhere, and often at other companies.

“I have subject matter experts all over the world – mostly inside the company, some outside.” – CFO, Global Commercial Property Manager “My success depends on tapping into the best expertise, wherever it resides, anywhere in the world. The quality of our internal equities research is uneven, and in general I don’t trust broker-dealers to deliver the best research in an objective fashion. So 90% of my contacts are outside the Company and broker-dealers.” – Managing Director and Equities Portfolio Manager, Global Money Manager

5.6 Implications Re: Expertise-On-Demand All UC vendors must enhance their ability to support inter-enterprise collaboration because corporate boundaries are less and less meaningful. Avistar directly addresses the need to deliver expertise on-demand in one of the most effective ways possible – any time, any place, face-to-face.

“Offshoring, virtual teams and remote working should all become much more widespread (within a few years), as technology allows firms to bring together the best people for any task, no matter where they are in the world.” -- Deloitte Touche Tohmatsu10 “We’re constantly involved in working with client groups, research, portfolio managers. We weren’t getting enough conversations in other parts of the world, especially on (credit) research matters. Avistar creates a human link and an opportunity for instantaneous interactions. The major benefit of Avistar is to stimulate conversations that didn’t take place before.” -- Managing Director, Fixed Income Credit

.

6. Improving Meetings, Productivity, and Business Capacity

6.1 Introduction: Time Is Money It is a truism that productivity is vital to enterprises because it determines how much gets done with a given level of resources. For the 20-25% (on average) of employees who are involved in customer-facing functions, productivity determines business capacity, i.e. revenues and profits. The related truism is that time is valuable. An hour saved or wasted has a cost basis of $50 per hour for a $100,000 knowledge worker who works 2000 hours per year. The cost basis is $120 per hour for a $300,000 securities industry

10 Deloitte Touche Tohmatsu, “Eye To The Future: How TMT Advances Could Change The Way We Live In 2010,” 2006, p. 7



professional who works 2500 hours per year. The “value” of revenue-producers’ time is, on average, four times higher than these cost numbers.

6.2 Challenges to Productivity After major technology advances, many executives, managers, professionals and other knowledge workers now feel that productivity growth has slowed. After major gains from better software applications, the Internet, and better communications tools, they complain that they continue to spend a significant amount of time on unproductive activities, including traveling to/from meetings, participating in meetings that are too long, recapping meeting results for others, expending too much time and effort to contact people, and finding and synthesizing information from multiple communications mechanisms and other information streams. Information arrives faster, but it takes longer to synthesize and act on because there are more places to check. The time savings from the better meetings possible with UC are significant, and can translate directly into higher business capacity.

6.3 Need to Reduce Number of Meetings Many people complain that their companies suffer from “meetingitis”: That they spend far too much time in internal meetings that are too numerous and poorly run. The average professional or knowledge worker participates in 70 meetings per month11, somewhat more than 3 per work day. These require traveling within the building or campus, within the metropolitan area or over longer distances (involving air travel).

“I sometimes have to run from (two locations a few blocks away) up to six times a day.” – Senior Vice President and Head of Sales, Marketing and Client Relationship Management, Custodian Bank

The number of meetings tends to rise with level in the organization; Top executives typically participate in more than 100 meetings per month. Research shows that at least half of meetings are internal meetings, not client or supplier meetings. The mix of meetings varies depending on a company’s physical topology, its corporate culture, its customer base and its technology infrastructure. In general, the following norms apply:

• Internal on-site 55.0% (38.5/month) • Local off-site 19.3% (13.5/month) • Off-site requiring air travel 7.3% (5.1/month)

11 Avistar has observed 60-100+ meetings per person per month.



• Audio- and data conferences 14.8% (10.4/month) • Room videoconferences 1.1% (0.8/month) • Missed meetings 2.5% (1.8/month).

By definition, meetings have multiple participants. Avistar has observed multi-modal distribution in terms of meeting participants. Most have few participants. Some have up to 12. Others have up to 20-25. And a very few have 80-120 (e.g. Morning Meetings in the securities business) or even thousands (in Town Meeting or executive “broadcasts to the troops” scenarios).

6.4 Saving Unproductive Time Traveling To/From Meetings Executives, professionals and other knowledge workers spend a lot of time getting to and from meetings – a weighted average of 35.6 minutes apiece12 – of which half is truly wasted time. Mobile communications devices have reduced the amount of lost time of people traveling to and from meetings. But most people feel that their overall productivity continues to be reduced by half when they are in transit. Substituting Avistar desktop video or Virtual Meetings for a fraction of these meetings saves travel time in proportion to their substitutions for meetings that require travel. Typically savings average 2.1-4.3% of total time.

“Before Avistar, it used to take me 7-8 minutes each way to get to room videoconferences and other meetings here in the building (a skyscraper in New York City). That’s 15 minutes per meeting. And I often had to do it 4-6 times a day. So I was spending more than an hour a day just riding the elevators. What a huge waste of time. And that’s before you count the time going across town or jumping on airplanes.” – Managing Director and Global Head of Capital Markets, Leading Global Bank "Avistar, he says, provides a TV quality, two-way video connection system that enables easier and more frequent communication.... At the press of one button, you can be in Tokyo.... We have lower costs because we travel less and get increased productivity..." -- Andy Konchan, then Executive Director of E-Commerce, UBS13

These percentages increase with Avistar internal meeting substitution and as video calling extends inter-enterprise.

“I just had a situation going out to Omaha with Mr. X (Managing Director and Portfolio Manager, Equities). Because of limited flights in and out of Omaha, we had to leave a day early. It took two days of travel for a 30-minute meeting…. (Avistar Virtual Meeting) allows high-value people to save unproductive travel time and spend more time in the office managing the portfolio” – Director, Institutional Client Service, Global Money Manager

12 The components of this weighted average: Internal on-site and traditional room videoconferences (10 minutes), local off-site (40 minutes), off-site requiring air travel (5 hours). 13 Cited in David Ne, "Video Calling A Hit At UBS Warburg," Datamation, September, 2001



Local off-site and long distance trips involve significant travel costs that can also be reduced by the extent to which video and Virtual Meetings are substituted for other types.

• Off-site trips requiring air travel now average $1022 and $3913 for domestic and international trips, respectively, according to American Express. At Avistar customers, each trip supports an average of two meetings.

• Off-site local meetings typically cost $51-$79 in ground transport costs, including mileage, tolls, parking, taxis and other ground transport.

6.5 Need To Improve Meeting Effectiveness Impersonal audio- and data conferences come in for particular criticism as being ineffective. Participants routinely tune out and perform other tasks, notably managing their email.

“I love it (Avistar Virtual Meetings). It makes a big difference in my life. I conduct lots of meetings… When we have conference calls, I can’t really visualize whether they’re getting it, especially when dealing with multiple countries. The Germans are very reserved….. I like the fact that anybody can participate.” – Director, Bank Operations “This (Avistar Virtual Meetings) is a fabulous tool, especially with international…. I see different types of meetings. With colleagues in Frankfurt, this is better than audio conferences.” – Managing Director and Portfolio Manager, Quantitative Strategies, Global Money Manager

6.6 Need To Reduce Effective Meeting Duration For many, overly long and poorly run meetings are more irritating than getting to and from meetings. Part of this irritation stems from people’s having to sit through entire meetings (averaging 46-58 minutes) when only a small portion (5-15 minutes) pertains to them. Another part of the irritation stems from the truism that meeting time expands to fill the time allotted for it. Typical meetings are scheduled in half-hour blocks, often for an hour. The average data conference runs nearly an hour. Each of these 70 monthly meetings requires an average of at least 46.4 minutes apiece.14 In contrast, the average Avistar video meeting duration at two clients is 14 and 19 minutes, respectively. Even assuming that two video meetings are required to accomplish the same objective, the time savings are an absolute minimum of 17%.

“(Avistar Virtual Meetings) is very helpful for people who have to do lots of meetings. (The value to be gained) is really by the role (one plays) in each product…I’m in meetings half the time…. I’m on the Investment Committee, the Brokerage Committee, the Pricing Committee, the Proxy group… It saves me 20% of my time in meetings…. With status meetings, this (Avistar Virtual Meetings) is actually be better than in-person. (Before) We’d go around the table, and only a couple of people care about everything.

14 Avistar has observed average meeting durations in the range of 45-60 minutes. Data conferencing vendors such as WebEx tend to cite average meeting durations of 57 minutes.



I’d have to waste time sitting through the whole meeting. I wouldn’t always have to be fully engaged. – Managing Director and Portfolio Manager, Quantitative Strategies, Global Money Manager

6.7 Recapping Meeting Results Avistar improves the productivity of post-meeting activities. One executive observed that a hidden time-waster was post-meeting recaps. After meetings, subordinates and others routinely seek “color” on meetings, particularly regarding internal political and other sensitive matters that are seldom put in writing.

“I spend just as much time disseminating information after the meeting (as I do in the meeting itself). I tell much the same story over and over.”– Head, Strategic Initiatives Group, Custodian Bank “I spend a lot of time organizing meetings, reaching out to 5-10 attendees…. (Then) after meetings I joined by audio conference, (because there were no visual cues) I spent a lot of time after the call calling around to see how the meeting went… It (Avistar) definitely saves me more than 20 minutes a day.” – Director, Portfolio Manager/Trader, Money Markets, Global Money Manager [1/3 hour savings / 10 hours per day = 3.3% time savings]

6.8 Reducing Technology Costs of Meetings Traditional room video conference meetings cost $2.50-$8.33 per minute ($150-$500 per hour). Audio conferences typically cost $0.063-$0.103 per minute. And data conferences typically cost $0.25 per minute. Avistar desktop video and Virtual Meetings cannibalize portions of these costs as well as travel costs.

6.9 High Costs of Special Events Special events represent a special case. At one Avistar customer, attendees average 120. One Avistar customer executive argued for doing much shorter and purely social events (to address the Social Imperative) and supplementing this with virtual content-oriented meetings..

6.10 Leveraging “Presence” To Contact People More Quickly and Easily Businesspeople complain that the time and effort to contact people has started to rise again because contact mechanisms have proliferated but “presence” (aka “awareness”) information is not shared.

“I spend a lot of time sending emails asking if and when somebody will be available.” – Director and Portfolio Manager, Cash, Global Money Manager

Avistar “presence” information allows users to save 5 to 20 minutes per day, particularly when this information is shared with IM, as it is in our Virtual Meeting product.

"Before Avistar we had boardroom video, but now you can make a (video) call right from your desk and it's more efficient," says Konchan.... A directory of names shows who is on the system and potentially available for a call. You can also send a text message if



the receiver is busy or doesn't answer." -- -- Andy Konchan, Executive Director of E-Commerce, UBS15 “I have only a limited time window to talk to Europe. I’ve been trying to reach my business manager (who’s traveling in Germany), for two days. With Avistar, I can see if he’s logged in.” – Director and Portfolio Manager, Cash, Global Money Manager “I like the presence factor… to know exactly who is online. This is very helpful for individuals dealing with multiple locations.” - Assistant Vice President and Product Specialist, European Equities, Global Money Manager

6.11 Finding and Synthesizing Information Many Avistar users report that instant on-demand video meetings truncate long chains of text messages. In addition to shortening cycle times, this reduces the time needed to check multiple message queues and other information sources for needed information.

6.12 Implications Re: Meetings, Productivity and Business Capacity Avistar desktop video helps clients save time and improve productivity by 2.1%-4.3%+ by reducing travel time to and from meetings, reducing the length of meetings, reducing meeting wrap-up time, and reducing the time and effort to contact people. Avistar’s Virtual Meeting capability significantly expands the applications that Avistar addresses and significantly improves meetings, thus saving significant professional time and hard-dollar costs.

“This (Avistar Virtual Meeting) is a ‘10’ (on a 10-point scale), especially for internal meetings.” –Managing Director and Senior Portfolio Manager, Fixed Income, Global Money Manager

Avistar also increases productivity in new ways – for example, increasing market reach with video sales calls and Virtual Road Shows.

“People in Asia have been asking me to come, but I can’t. With my schedule, I have too many logistical constraints.” – Managing Director and Head of Currency Group, Global Money Manager “I like the convenience that (Avistar) Virtual Meetings offers. It allows me to work desk-side with all portfolio tools and presentation materials at my disposal.” – Assistant Vice President and Product Specialist, European Equities, Global Money Manager “These roadshows in the Middle East are pure stress. The relationship managers organize ten meetings a day, during which time you’re totally disconnected from your

15 Cited in Jason Ader, Thomas Weisel Partners, e-Learning/Teleconference Magazine, July 2001



office. And getting there and back takes a lot of time too.” – Director and Portfolio Manager, Enhanced Money Market Strategies, Frankfurt, Global Money Manage

7. Permanently Downsizing The Enterprise Cost Structure

7.1 Introduction Many companies are under pressure to reshape and permanently downsize their cost structures. By addressing the Social and Visual Imperatives of knowledge workers doing non-routine work, Avistar desktop video and Virtual Meetings can be the driver of major structural changes.

7.1.1 Growing Competitive and Shareholder Pressures

Globalization, the Internet and technological change have exposed more companies to greater competition and pressure to have a competitive cost structure. Growing shareholder militancy also reduces tolerance for sub-par profitability.

7.1.2 The Resilience of Costs

In the very short term, costs can be constrained by fiat. During tough times, companies often make across-the-board staff cuts or mandate that non-client travel or certain types of capital spending be cut. These initiatives are temporary fixes rather than structural changes. Costs tend to bounce back.

7.1.3 Permanent, Structural Cost Reduction Opportunities

Enterprises have focused on several key areas to achieve structural cost reductions: Automation of remaining manual and paper-based processes, business process re-engineering and taking advantage of (“arbitraging”) geographic cost differentials, including via outsourcing and offshoring.

7.2 Automation of Manual and Paper-Based Processes The Internet and related self-service processes accelerated the automation of manual and paper-based processes. In the largest banks and industrial companies (e.g. GE), for example, this process will continue for many years.

7.3 Business Process Re-Engineering The next wave of business process re-engineering involves moving from slow, serial processes to fast, parallel processes aided by the UC “anytime, anywhere” communications paradigm.

Avistar is used extensively to improve many business processes. Avistar usage is particularly high among many Operations/Fulfillment and Information Technology professionals, who are using Avistar to streamline and redesign business processes. They use Avistar to stay in sync with each other and the evolving needs of each business; deliver face-to-face expertise on-demand when and where it’s needed; Manage the rollouts of new products and new systems; Propagate best practices around the world; More quickly escalate and resolve transaction errors and other problems, and; Reduce cycle times for arranging large in-person team meetings



“UBS Warburg is using (Avistar) TV-quality desktop video to significantly enhance all aspects of our business.” -- Simon Bunce, Global Head of Fixed Income, UBS16

7.4 Arbitraging Cost Differentials 7.4.1 Overview

Geographic cost differentials remain high. Communications technology reduces the importance of distance, allowing resources to be sourced differently. Some refer to this as “geographic cost arbitrage.” In financial services, for example, over the past few decades low-value processes moved to lower cost (and more remote) U.S. sites and then on to developing countries, but high-value processes tended to remain in higher-cost sites to meet the Social and Visual Imperatives of non-routine work. With UC, corporations now have greater flexibility on where executives, professionals and other knowledge workers work. Employee relocation, offshoring and outsourcing can be used to reduce compensation, premises, supplier services and other costs, but also exacerbate communications problems. Avistar’s UC solutions mitigate these problems, and allow a greater degree of cost arbitrage. Ultimately, the entire company and its ecosystem become virtual.

7.4.2 Arbitraging Physical Premises Costs

Global weighted average premises costs are $39.52 per square foot in one global financial institution. At 150 square feet per employee, this translates to $494 per person per month. (Costs in major financial centers such as New York, London and Tokyo are much higher, of course.) Employee relocation from center cities to suburbs can often save 50% of these costs, saving in excess of $245 per person per month. Possible savings in exurbs and developing countries are even higher. By addressing the Social and Visual Imperatives in new ways, Avistar allows the relocation of a higher percentage of employees. The resulting lower commuting effort translates into significant green benefits.

7.4.3 Arbitraging Compensation Costs

Central city-suburban compensation differentials were estimated by one Avistar customer at a minimum of 5-10%. Relocation of a $25,000/year worker saves $104-$208 per person per month. Savings for higher-paid knowledge workers, professionals and executives are many multiples of this figure, as are savings from exurban or international relocation. One investment bank estimated that using advanced UC technologies would allow them to locate investment bankers and other originators closer to their clients. For example, pharma bankers could be based in New Jersey (closer to their clients and to their homes in Short Hills) rather than New York City. They recognized, however, that “selling” this requires a) better support for mobile video and other UC solutions and b) a major education campaign to address fears of disconnection from office politics. 16 In 2002, Simon Bunce was Co-Head of E-Commerce



7.4.4 Arbitraging Supplier Costs with Offshoring and Outsourcing

Outsourcing and offshoring is widely used by financial services companies, among others.17 But they have only scratched the surface of the opportunity. One major financial institution discovered that it was paying over $500 million per year for legal services, that the regional (international) cost differentials were at least 20-30% (50%), and that the regional (international) firms often had expertise that rivaled or exceeded that of their current law firms. Firms were picked in part on the basis of perceived proximity and personal relationships, however. The institution reasoned that if it could use advanced UC technologies to link its executives to regional firms to address the Social and Visual Imperatives, it could begin to realize millions of dollars in savings. This logic extends to software developers, PR firms and many other types of suppliers. One Avistar client in particular is acting on this Video-Enabled SmartSourcing strategy for third-party research and software development. The objective is for strategic service and systems vendors to become seamless extensions of the company itself.

7.5 Implications Re: Cost Structure Avistar’s UC solutions make it possible to extend the Virtual Operations paradigm to a higher percentage of employees (plus outsourced service providers), thus enabling cost arbitrage on a much greater scale.

8. Better Managing Communications Networks and Risks

8.1 Introduction Enterprises face daunting communications challenges. Beyond the rising potential for out-of-control costs, the future presents major risks to core business processes.

8.2 Dissatisfied End-Users and IT Organizations Businesspeople are increasingly dissatisfied with their communications environment. They see individual tools as advancements, but do not like the sum total of what all these tools add up to. They complain about the proliferation of tools they must use; the proliferation of message queues and information streams they must check; the resulting greater difficulties in “pulling all the information together”; the increasingly impersonal nature of text-based communications; the limitations of traditional room video conferencing, audio conferencing, and data conferencing; and perceived inadequate support by both IT and vendors, both of whom are criticized for “drop-shipping new technology.”

“It’s enervating to try to communicate with people over the phone for an extended period of time.” – CFO, Commercial Real Estate Firm

17 See, for example, Deloitte Touche Tohmatsu, “Offshoring: Scaling The Heights”, Nov. 2005



“Boards of Directors hate room videoconferences because they’re too difficult.” – Director and Portfolio Manager, Cash, Global Money Manager

Part of this criticism is justified; part is a natural human reaction to the rapid pace of change. Clearly, however, users see a need for unified communications – which to them means making things simpler, better integrated, less time-consuming and more personal. IT professionals have related but different complaints. They feel stressed by the need to support a proliferation of end-user tools and associated infrastructure, none of which is easy to integrate. They too see a need for better “unified” communications, but define this to mean simpler and less expensive to administer.

8.3 Growing Communications Complexity and Risk The growing complexity of today’s communications environment is a thorny problem. Large enterprises must support hundreds or thousands of applications, all of which place different demands on their network and other infrastructure. But the days of relatively simple data and voice applications are gone. Rich media applications will continue to proliferate, as will the new and unfamiliar technical standards associated with them. In total, these place greater – but much less well understood -- stresses on endpoint devices, network infrastructure, and human resources.

8.3.1 Complex Standards and Inter-Networking Issues

Compounding the general problem of greater networking complexity are immature standards and complex inter-networking. There is widespread consensus on the movement to the SIP standard, but SIP is not yet “fully baked.” Many companies have great difficulty getting their internal MPLS networks to talk to each other. VoIP rollout is proving to be more difficult than anticipated. And inter-networking high-def video conferencing with H.323 videoconferencing is a very tricky problem.

8.4 High Communications Costs In the first few years of this new century, many enterprises were able to negotiate major reductions in their global bandwidth costs – as high as 90% in the case of one global Avistar customer. Today, however, enterprise communications costs are high and rising: The average Fortune 500 company spends 3.6% of revenues on telecommunications and related services.18 In some cases, this is money well spent. For example, the securities industry has substituted higher communications costs for lower premises and compensation costs. In other cases, however, communications spending is simply wasted. The Aberdeen research firm concluded:

“Enterprises are hemorrhaging tons of money by not managing their telecom spend in a more standardized, accurate and centralized way…. Enterprises forfeit 12-18% of

18 Aberdeen, “The Cost of Not Acting: The Total Telecom Cost Management Benchmark Report,” Nov. 2006.



telecom spending if they do not have a proactive approach to cost management that leverages technology and process improvements through business process outsourcing, hosted or licensed software.”19

8.5 Inadequate Understanding of Applications Profiles A decade ago many large insurance companies, for example, didn’t know the mix of their voice and data traffic. Although enterprise understanding has improved, applications have proliferated even faster.

“I just finished a major assessment of a Fortune 100 company’s network. Their problem is that they have a very large number of applications, but don’t understand the profiles of most of these applications.” – Technology Consultant

8.6 Many “Islands of Automation” Handled By Organizational Silos Large enterprises have developed highly specialized organizations to administer individual applications, leading to limited interoperability and integration, plus unduly high costs. Room video is one of many costly “islands of automation.”

8.7 Inadequate Management Discipline and Controls Two-thirds of Fortune 500 companies pay their telecom bills late and incur late-payment penalties.20 This suggests a fundamental breakdown of management discipline and controls.

8.8 Lack of Centralized Planning/Management and Out-Of-Control Costs Many areas of communications suffer from a lack of centralized planning and management. This often results in costs that are shockingly high and out of control. Three examples:

• As happened with email a decade ago, many multinationals left instant messaging to business units, and now must cope with a half-dozen IM tools used throughout their companies, some of which do not comply with recent legal/regulatory mandates.

• Decentralized bandwidth provisioning has led to many situations in which

companies have hundreds of network service providers globally and in which IP traffic handled by different carriers cannot be peered.

• Uncoordinated management of room video conferencing has led to wasted

money and very high costs. One multinational manages centrally only those video conferencing rooms in its major hub cities -- the politically “visible” sites used most by top executives – and abdicates responsibility to in-country

19 Aberdeen, “The Cost of Not Acting: The Total Telecom Cost Management Benchmark Report,” Nov. 2006 20 Aberdeen, “The Cost of Not Acting: The Total Telecom Cost Management Benchmark Report, “Nov. 2006



staff for the other 100+ countries in which it does business. As a result, total global costs are sky high, and more than half of all video rooms have not been used in three years. Similarly, two law firms (with a few thousand lawyers apiece) manage room video in this decentralized fashion, and were recently shocked to learn that global room video costs were in excess of $100 million and $200 million, respectively.

8.9 Inadequate Skill Set To Manage Technical Complexity Many large enterprises do not have the skills in-house to manage their increasingly complex networks. The most common manifestation of this: They are unable to diagnose the source(s) of many highly technical problems.

“It’s sad but true: Even the former regional Bell telephone companies have been gutted. They’ve lost all their best technical people and don’t even understand how their own networks work these days. All the best networking expertise resides outside their walls, and they’re constantly beinf forced to go outside to get it.” – Chief Technology Officer (CTO), High-Tech Company

8.10 Uneven Global Communications Infrastructure Global companies face the somewhat unavoidable problem that service availability and pricing varies drastically, particularly in some parts of the developing world. It’s very difficult to plan and implement a single global network even if bandwidth provision is centralized (which it often isn’t). As a practical matter, then, global enterprises must cope with an uneven global infrastructure cobbled together by centralized experts and local staff.

8.11 Opaque Network Service Providers Network service providers carrying the exploding volume of heterogeneous traffic don’t make life easy for business. Their pricing, billing and contracts are complex and opaque, and their quality of service (QoS) is highly uneven and difficult to measure.

8.12 High Bandwidth Cost Variances Avistar has witnessed vast differences in the prices large enterprises pay for bandwidth. This is due to opaque network service providers, and to the complacency of bandwidth provisioning staff, who use carrier opacity as an excuse for inertia.

8.13 Poor Planning For New Services Many enterprises do a poor job of planning for new services such as wireless/mobility and voice-over-IP (VoIP). Aberdeen’s research found that enterprise wireless device costs are up to 10 times more than wireline devices, that this cost differential came as a shock, and that many “enterprises do not have visibility into what they are currently paying for wireless services.”21 Similarly,

21 Aberdeen, “The Real Cost of Enterprise Wireless Mobility,” February 2007



Aberdeen concludes that enterprises are “unprepared for the proliferation of smartphones.”

8.14 High Costs of Traditional Room Videoconferencing Because in-person, face-to-face interactions are often impossible in today’s physically dispersed, fast-paced, and 24x7 business world, over the past few decades many had high hopes for traditional room videoconferencing to address the basic human Social and Visual Imperatives. However, traditional video vendors have been able to capture only a 1.1% share of meetings (and a far lower share of total interactions), which equates to usage of far less than 1 minute per person per day. Given total cost of ownership (“TCO”) in the range of $150-$500 per hour, the non-networked room video paradigm has proven to be inherently inflexible, cumbersome, inconvenient, expensive and little used. And, from an overall network perspective, room video remains an “island of automation” outside the mainstream. Despite these facts, enterprises continue to spend money on room videoconferencing, including extremely expensive high-def rooms offered by Cisco, HP, et. al. These are better implementations of a limited paradigm and are not extendable down below top executives due to very high costs.

8.15 Limited Use of Software Tools By and large, enterprises do not take full advantage of software-based tools and services for network monitoring and management, including end-to-end QoS monitoring.

8.16 Limited Backgrounds of CIOs CIOs tend to have mainstream IT backgrounds, and thus lack the experience necessary to manage the networking of rich media applications and entire converged networks. Given the arcane nature of networking, their inclination is to push this down into their organizations and/or abdicate responsibility to a trusted large vendor.

8.17 Implications Re: Communications Networks There are major opportunities for those capable of addressing these many communications problems: Networking consultants, networking software publishers, outsourced service providers, managed service providers, hosted service providers and network service providers. Without upgrading their skills, many enterprises will be unqualified to select, manage and benefit from the array of alternatives available to them. Enterprises’ networking organizations deserve top management attention. Today’s stovepiped organizations cannot easily develop the integrated perspective that is needed.



Avistar’s networked architecture and centralized TCP/IP-based management tools allows customers to mainstream video, improve network planning, and reduce network management costs.

9. Better Integrating Acquisitions, Remote Sites and New Employees Maintaining a corporate culture and a one-firm concept faces particular challenges in the cases of new hires, satellite sites and newly acquired firms.

9.1 Challenges in Integrating New Hires All organizations face employee turnover and the challenge of quickly and cost-effectively integrating new employees. These challenges are exacerbated by growing physical dispersion -- including rapid headcount growth in developing countries -- and the limitations of existing training tools and techniques. Problems are particularly acute in industries where turnover is high, e.g. securities and investments and portions of high tech.

9.2 Growing Need for Cross-Border Supervision Cross-border supervision of direct reports is increasingly required:

“From here in New York I have 17 direct reports in 9 countries in all three regions of the world, including Sydney.” – Managing Director, Derivatives IT, Global Broker-Dealer

The challenge of integrating new hires is most acute when one’s boss is located elsewhere, an increasingly common occurrence.

“I’m a year out of school. It’s difficult sometimes. I’m all alone here in Zurich: I work for a boss in Edinburgh and with team members in Paris and Amsterdam.” – Junior Analyst

9.3 Integration of Outlying Sites The vast majority of the millions of businesses with more than $2-3 million in annual revenues face the challenge of ensuring that employees in satellite sites are integrated with those at headquarters. This challenge increases with enterprise size and complexity, in outsourcing/offshoring situations and in certain large countries such as Canada.

“One problem we face here in Canada is just the sheer scale of the country, and how we make people in outlying locations feel like they’re important to the company. And they are. But we have difficulty incorporating their views. Beyond reaching out to key Sales and Relationship Management like (Mr. X) in Vancouver and Calgary (from Toronto), we need to be thinking about how to use Avistar for, for example, internal focus groups on HR issues.” – Senior Vice President and Head of Human Resources, Large Canadian Company

9.4 Limited Training Tools and Techniques Many companies rely on updated versions of apprenticeships, a modus operandi that is increasingly difficult in a global business. In-person classroom training is



generally effective but often prohibitively expensive and logistically impossible. eLearning offers great potential, but is impeded by the high cost of visual content capture and integration and limited face-to-face interactivity.

9.5 Expensive, Risky Integration of Acquisitions M&A activity continues at a high rate, stimulated by the large pools of private equity capital; some large MNCs buy a company every week. Post-deal integration of acquired companies can be very expensive – the $350 million publicly announced in the case of BNY-Mellon. And it is a truism that most mergers and acquisitions are notoriously difficult to digest; most deals are disappointing and a significant percentage are outright failures.

“We just bought another small firm to give us a presence in a growing new practice area. I worry about whether we’ll be able to integrate these people effectively.” – Senior Partner, International Law Firm

The high implementation risk in M&A traces back to the Social and Visual Imperatives. It’s difficult for people to make good decisions when they don’t have trusting working relationships with each other and when it’s not possible to get all the needed “face time.”

9.6 Implications Re: Integration of M&A/Sites/Employees Avistar’s new hosted offerings make it possibly to deploy desktop video quickly and inexpensively. This opens up new applications such as M&A Integration and Video-Enabled Outsourcing. Desktop video players have a significant untapped opportunity for low-cost video content capture -- for example, to plug into eLearning applications.

10. Accelerating “Idea Velocity”, Time-To-Market, Knowledge Transfer and Decision-Making

10.1 Introduction Customer expectations and competitive pressures continue to feed the need for “Internet speed” in “idea velocity,” knowledge transfer, time-to-market, and overall decision-making. “There are not enough hours in the day” is a common complaint of knowledge workers today. This is exacerbated if any industry is growing at above-average rates, has short product life cycles, or is working at capacity, as is often the case in parts of the securities industry.

10.2 Replacing Slow, Serial, Impersonal Business Processes There is a need to replace slow, serial business processes with faster high-quality collaboration among executives, project team members, et. al. Avistar solutions help clients move faster and reduce business process cycle times by up to 80-93% by putting team members and decision-makers together anytime,



in any place, face-to-face, thus reducing serial business processes and long chains of impersonal text messages. Instead it’s “let’s meet face-to-face (in virtual space) -- now!”

“We consider desktop video to be a transformational technology and are committed to being at the leading edge of changing the way information flows within the financial services industry....(Avistar) allows users to remain at their desks where they have access to data and resources, and builds collaborative global teams, enhancing productivity and reducing project time lines." -- Gregg Healey, Managing Director, Deutsche Bank22

10.3 Accelerating “Idea Velocity” and Time-To-Market One Avistar CEO client is obsessed with “idea velocity.” His perspective is that superior growth and profitability come only to those who can tap the best talent to generate great ideas and then bring them to market with great force and speed on a global scale. Anything short of this ideal, he feels, attracts voracious competitors who quickly drive down prices and profitability to unattractive commodity levels. In this executive’s view, travel for in-person meetings is too expensive and, more importantly, much too slow. The vision he is driving through his organization includes the following elements:

• Professionals worldwide use to establish trusting working relationships, exchange rough ideas and market intelligence (e.g. regarding client needs), and refine the best ideas to bring to market

• Product Structurers, Product Developers and Product Managers use Avistar to

deal with the many other internal areas required to create and roll out new products

• Avistar (including video content publishing) is used to educate Sales, Client

Relationship Management, Client Service, and channel partners around the world in order to quickly gain mindshare and share-of-wallet

Others have perspectives consistent with this CEO’s:

“Our CEO is pushing us to roll out new many complex new products, which are the most profitable. I have a backlog of 25 products -- 5-6 new products in the pipeline, plus 20 new ideas. Each one requires international collaboration with my colleagues in (another European city), plus Legal, Sales, Marketing…. My daily work is working on these projects…. Avistar helps…. If we’re doing a presentation for a new product, it makes sense to record it for salespeople and for new joiners…. We had lengthy conference calls to work through complex new products. It’s easier and better to do this with Avistar.”-- Director, New Product Development/Structuring, Retail Structured Products, Global Money Manager

22 “Desktop Video: Client Connect, Face To Face With Just One Click”, Presented at Collaboration West conference, November 5, 2002



“Avistar is a powerful communications tool. It has increased revenues by impacting our speed of decision-making and the effectiveness of our global teams.... For a firm of our global scope, effective, quick communications is vital to us. Avistar enables us to have 'face-to-face' visual communications between our teams worldwide right from people's desktops. It's been an extremely valuable tool for our business.“ -- Managing Director and Head of North America Credit Markets, Leading Global Bank

10.4 Improving Knowledge Transfer Many businesspeople seek broader improvements in knowledge transfer, including providing better training and mentoring at lower cost, and better integrating outsourced service providers.

“We are faced with continuous rollout of new systems and client delivery. After economizing to train multiple clients in one trip, my travel costs for in-person training are still too high." -- Head, Client Connectivity, Custodian Bank “We don’t as much coaching and training out in the branches as we should, especially on very important soft skills." – Vice President and Head of Human Resources, Large Canadian Corporation

10.5 Implications Re: Cycle Times Avistar solutions make particular sense in businesses in which "time is of the essence" -- when markets are volatile, when product life cycles are short, where innovation is high, when competitive/market intelligence has a short half-life. In these situations, people need to put their heads together – face-to-face and eye-to-eye -- and make decisions NOW.

11. Improving Risk Management

11.1 Limits of Traditional Risk Management In his recent book, The Black Swan: The Impact of the Highly Improbable (2007), Nassim Nicholas Taleb makes a persuasive case that traditional risk management is fundamentally flawed. We humans, he argues, overanalyze what we have experienced and can quantify, downplay unlikely events that are difficult to quantify (the “outliers”), and deny that many of the most important events (and their consequences) are both massively important and unpredictable. All swans were assumed to be white until a black one was discovered in Australia. Taleb’s contention is that our lives are dominated by the unpredictable “black swans”, including the rise of all of the world’s dominant religions; the duration and outcomes of all major wars; the popularity of genres of music, art and fashion; the impacts of tsunami, droughts, hurricanes and other natural phenomena; the rise and fall of cities, ideologies, dictators and empires (e.g. Hitler, the USSR, communism, Islamic fundamentalism); the spread of epidemics; the market crashes of 1929 and 1987 (and the subsequent market boom); 9/11; and the timing and degree of success of technologies and the companies associated with them. Artificial intelligence (“AI”) was predicted to succeed but hasn’t (so far).



We’d had the Internet and search engines for decades, Taleb notes, but nobody predicted the sudden explosive impacts of the Internet, Google or “viral” services such as MySpace or YouTube. As a former “quant” and risk manager at CSFB, Taleb speaks with particular authority regarding examples that relate directly to financial professionals. He notes, for example, that the hedge fund Long Term Capital had the best quants in the business, but that the non-quantified “outliers” that impacted them nearly brought down the world financial system. This example and others are eerie, given that the crisis triggered by U.S. sub-prime mortgage defaults continues to ripple through world financial markets.

11.2 Need for More Expansive View of Risk Management (Including Business Continuity) Taleb’s Black Swan framework is instructive when considering most companies’ risk management and business continuity plans. One Gartner study found that only 13% of U.S. businesses have plans in place to avert work disruption the event of a BCM scenario. Only a tiny fraction of the 13%, in turn, have Chief Risk Officers (“CRO”) reporting to the CEO with a mandate to develop an integrated perspective on risks, including many non-quantifiable “softer” ones; One company that does have a CRO tracks 37 discrete types of risks Similarly, many large companies have backup and recovery procedures for static customer information, transaction data and other vital explicit and codified records, but few have plans for “recovering” the vast amount of tacit and non-codified knowledge that resides only in the heads of executives, managers, professionals and other knowledge workers. The technology tools and procedures to mobilize this non-codified knowledge are lacking, particularly if natural disasters, epidemics or other black swans prevent co-location of these individuals in their main work locations or backup sites. There are inter-enterprise dimensions of risk management and BCM that are vital in all communities, including the financial community. Here too technology tools and procedures are lacking. Directories in the global securities and investment community, for example, tend to be limited to certain asset classes and to include front office staff to the exclusion of vital Operations and IT staff.

11.3 People-Dependent Reputational Risks Many risks to companies’ reputations are highly dependent on the supervision of employees. Rogue traders typically display aberrant behavior, for example. “Management by walking around” can mitigate these risks, but this is increasingly difficult in a widely dispersed organization without visual UC tools.

11.4 Slow Identification, Escalation and Resolution of Operational Errors In many industries, the identification, escalation and resolution of transactional and other operational errors is slow, cumbersome, costly and risky. For example, many derivatives areas are still plagued by paper-based confirm processes, by



outmoded counterparty “chasing” processes, and by in-person counterparty review and negotiation from paper transaction folders (e.g. at bilateral meetings or quarterly meetings of the International Swaps and Derivatives Association). Beyond error-resolution costs that can run in excess of 1000 euros per error, the billions of dollars in outstandings is seen as a key risk to the world financial system by the Federal Reserve System.

11.5 Implications Re: Risk Management Avistar’s allowing a greater degree of location-independence holds great promise for risk management, particularly in business continuity management (BCM). Visual UC solutions such as Avistar’s, which allow supervision by “managing by walking around – virtually”, can mitigate reputational and other risks. Inter-enterprise team rooms and transaction-oriented workspaces hold promise in many areas, particularly if video-enabled.



12. Appendix: Selected UC Metrics [Source]

12.1 Introduction Following within categories are selected metrics relating to the UC marketspace. The sources are indicated in brackets [ ].

12.2 Broadband Internet • Broadband subscribers, global: 281 bil in ’06 [ITU], 790 bil by ’10 [Deloitte

Touche Tohmatsu] • Broadband wireless market revenues: $30.6 bil in ’07 [Insight Research] • Internet users added per year worldwide: 143 mil [ITU,

internetworldstats.com, et. al.]

12.3 Business Continuity Management (BCM) • Business continuity plans in place to avert work disruption: 13% of U.S.

businesses [Gartner]

12.4 Businesses and Buildings 12.4.1 Businesses

• Business sites: 11.675 mil in U.S. [D&B, ‘01] • Businesses created in China annually: 5 mil [Business Week]

12.4.2 Buildings and Tenants

• Business buildings: 108,000 total in U.S. (including 21,000 skyscrapers, 26,000 mid-sized) [US Dept. of Energy]

• Business tenants per building, average in U.S.: 33 in skyscraper, 10 in mid-size building [Avistar]

12.4.3 Cost of Occupancy/Premises

• Cost per employee per month - Occupancy: $1588 for U.S. securities industry, ‘06Q3 [Securities Industry Association]

• Cost of premises per square foot, global weighted average: $39.52 (for one global financial institution) [Avistar]

12.5 Business Travel and Telecommuting 12.5.1 Business Travel

• Business trip days away from office: 725 mil in U.S. ’06 [Travel Industry Association]

• Business trip miles: 240 bil in U.S. ’06 [GreenBiz.com] • Business trips: 207 mil in U.S. ’06 [Travel Industry Association] • Cost per business trip, 2007: $3913 int’l, $1022 domestic [American

Express] • Ground transport costs per local offsite trip: $51-$79 [Avistar]



12.5.2 Telecommuting

• Telecommuters: 51 mil in U.S. ’08 [In-Stat Research]

12.6 Conferencing 12.6.1 All Conferencing

• Conferencing – Hours, global: 455 bil in ’05 [Wainhouse Research]

12.6.2 Integrated Conferencing

• Conferencing: Integrated conferencing market growth: 96% CAGR ’07-‘11 [Ovum]

12.6.3 Audio/Data/Web Conferencing

• Conferencing – Audio conferencing service hours, automated: 368 mil • Cost of communications per hour -- audio conferencing: $3.78 automated,

$6.18 event services [Ovum] • Cost of communications per hour – data conferences $15.00 [Avistar]

12.6.4 Video Conferencing

• Cost of communications per hour -- room video conferencing: $150-$500 (excluding premises costs) [Avistar]

• Cost of communications per hour – desktop and team room video conferencing: $9.39-$18.76 for Avistar (@$100 TCO/month / 5.33-10.65 hours usage) [Avistar]

12.7 Costs 12.7.1 Cost of Time

• Cost of knowledge worker time per hour: $25 ($50K/2000 hours worked per year), $50 ($100K/2000), $120 in U.S. securities industry ($300K/2500)

12.7.2 Cost of Communications

• Cost per employee per month – Communications: $1391 for U.S. securities industry, ‘06Q3 [Securities Industry Association]



• Cost of communications per hour -- audio conferencing per hour: $3.78 automated, $6.18 event services [Ovum]

12.7.3 Cost of Occupancy/Premises

• Cost per employee per month - Occupancy: $1588 for U.S. securities industry, ‘06Q3 [Securities Industry Association]

• Cost of premises per square foot, global weighted average: $39.52 (for one global financial institution) [Avistar]



12.7.4 Cost of Business Travel

• Cost per business trip, 2007: $3913 int’l, $1022 domestic [American Express]

12.8 Messaging 12.8.1 Total Messages

• Messaging – All messages: 7.3 tril in ’05 (20 bil/day x 365) [ABC News] • Messaging – Email messages, ’04: 1.83 tril [Emarketer], 2.7 tril [Forrester

Research] • Messaging – IMs per day, corporate: 10 bil in ’04, 43 bil by ’08 [Radicati

Group in ‘05]

12.8.2 All Messaging Users

• Messaging – Email users, global: 1.57 bil in ’05 [Radicati Group] • Messaging – IM users worldwide: 400 mil in ’04 [CIMlogic], 250 mil

registered in ’04 [ComScore Media Metrix]

12.8.3 Corporate Mailboxes/Accounts/Users

• Messaging – Corporate mailboxes, global: 421 mil in ’05 [Radicati Group], 571 mil in’07 [Avistar]

• Messaging – Corporate IM users: 229 mil in ’04, 200 mil in ‘06 [IDC, at different times]

12.8.4 Messages/Usage Per Person Per Day

• Messaging – Email messages per user per day: 63 excluding SPAM in ’05 [Radicati Group]

• Messaging – Email messages per user per day: 36 in workplace in ’04 [Quris and Executive Summary Consulting]

• Messaging – IM messages per business user per day: 30 in ’04 [CIMlogic] • Usage per businessperson per day – telephone: 16 minutes [Yankee Group]

12.9 Network Planning and Management • Network planning and management costs as % of bandwidth costs: 190%

best practice benchmark [Dell’Oro Associates], 400% [top 10 U.S. bank]

12.10 Switches • Switches – IP PBX market size: $5.81 bil in ’07 [Avistar]

12.11 Unified Communications • Unified communications market size, global: $24-$30 bil in ’07 [Cisco,

Microsoft, et. al.], $50 bil by ’12 [Cisco], $177 bil in ’07 (including broadband network services, network planning and management and other omissions by others) [Avistar]

• Unified communications value chain, global: $910 bil in ‘07 [Avistar]



12.12 Video 12.12.1 Explosive Growth of Video

• Video - Percent of internet traffic, ’07: >33-50% [Level3 Communications, various others]

12.12.2 Usage Per Businessperson Per Day

• Usage per businessperson per day – desktop and team room video conferencing: ~30 minutes for Avistar (in multiple large customers at scale) [Avistar]

• Usage per businessperson per day – room video conferencing: <1 minute [Avistar and Wainhouse Research]

12.12.3 Costs of Video



12.12.4 Market Sizing

• Video – Video conferencing equipment and software market: $1.52 bil in ’07 [Wainhouse Research]

• Video – WebCam market size: $1.13 bil in ’07 [Avistar]


Documents

Market Needs and Unified Communications