News & Presse

We've all been there: You're sitting at a conference table staring at a
black phone box. After months of 12-hour workdays and sleepless nights, the
fate of Project Breakthrough hangs on this one conference call. Nervous as a
schoolkid before his first spelling bee, you bark out your best pitch.
Silence. In these awkward seconds of quiet, you're left only to imagine
what's happening on the other end: Furrowed brows? Turned-up noses? Or heads
nodding at your trenchant wisdom?


This is when you wish you had sprung for that $2,500 ticket on the red-eye.
Because even the most effective conference call can't convey everything you
need to say or hear or feel in a do-or-die business meeting.


Take it from the scientists. Thirty-seven years ago, the late anthropologist
and professor of communications Ray L. Birdwhistell demonstrated that less
than 35% of the message in a conversation is conveyed by spoken words—the
other 65% is communicated with facial expressions and body language. Says
Matthew Lombard, a professor at Temple University and president of the
International Society for Presence Research: "Without the visual, you miss
most of the nonverbal cues."

So it was no wonder that hopes soared last year when several tech outfits
rolled out new videoconferencing equipment that promised to fill in those
blanks. The systems from the likes of Hewlett-Packard (HPQ ), Cisco Systems
(CSCO ), and Polycom (PLCM ) seem like nothing less than a conference-room
equivalent of Star Trek's Holodeck. Taking advantage of breakthroughs in
video, audio, and broadband technologies, they purport to create experiences
so lifelike that participants who are thousands of miles apart look (and
more important, feel) like they're in the same room. "This is the next big
thing," says Craig Malloy, CEO of LifeSize Communications Inc., which
produced one of the first high-definition video systems. "It fills the gap
between absolutely-gotta-be-there-and-drink-a-beer meetings and a regular
old phone call."

BACK TO THE FUTURE
The effect is to create an illusion of seamlessness between the viewer and
the viewed. Hewlett-Packard's Halo system and Cisco's TelePresence 3000 use
massive 50- to 65-in. high-definition screens to show people sitting behind
a conference table that's identical in color and shape to the one used by
the viewers. Polycom, a longtime leader in conventional conferencing
equipment, started selling in January its own advanced lifelike system, only
bigger and more elaborate, with 8-ft.-wide screens. That sense is reinforced
by advanced audio that lets everyone talk at once without canceling out any
voices. Get up and walk across the room, and for those on the other end your
voice travels with you.

But wait. Haven't we heard before that videoconferencing was going to make
business travel obsolete? Many times, in fact. Few fields have proved so
susceptible to hype. The example that first comes to mind is the
Picturephone that AT&T (T ) showed at the 1964 World's Fair, only to quash
it a few years later in the face of weak demand. There are plenty of others.

So is there any reason to believe this new gear, broadly referred to as
"telepresence" systems by the industry, will come closer to changing the
business meeting as we know it—or even replacing a few business-class
tickets? To find out, BusinessWeek traveled, virtually and literally, to
some of the outfits that have plunged into this videoconferencing revolution
and took their systems for a spin.

The first thing to know about the early adopters is that these are no
outposts in an office park—they have serious green to spend. While basic
systems cost $8,000 per room, the price tag for more elaborate displays can
soar to $392,000 for a room, with network management fees that can range
from $6,000 to $18,000 a month.

'THIS IS INTENSE'
A typical user is private equity star Blackstone Group. Several times a
week, CEO Stephen A. Schwarzman gathers senior managing partners around a
polished conference table in the firm's New York headquarters on Park Avenue
for a five-way video call to talk about the sale of some real estate in the
Northwest, say, or a bid for Tribune Co. (TRB ) On three wide, glistening,
high-definition color screens appear executives from Blackstone's offices in
such far-flung places as London, Hong Kong, Mumbai, or Paris. Blackstone has
40 video rooms stationed around the world. One executive is so enthralled
with the system that he keeps the conference connection running in his
office all day long. "We're big proponents of videoconferencing because of
the way it enhances the quality of meetings," says Harry D. Moseley,
Blackstone's chief information officer.

Financial and consulting firms have been particularly avid purchasers.
Deloitte & Touche USA is installing a dozen $250,000 video suites made by
Polycom so that various business units can collaborate on outsourcing ideas
or interview job candidates from India. AIC Ventures, a real estate
investment company, has three video rooms: one in its home base of Austin,
Tex., another in Dallas, and one in Chicago. They are used for everything
from reviewing new Web page designs to celebrating the close of a big deal
with a (now crystal-clear) ring of a tabletop gong.

Industrywide, video manufacturers shipped 164,000 whole-room systems in
2006, up 21% from 135,000 in 2005, according to Andrew Davis of researcher
Wainhouse. But that doesn't include the new telepresence systems, which in
their infancy shipped an estimated 250 units last year, according to IDC
(IDC ). The research firm estimates shipments will grow to 1,660 units in
2008.

The new systems have a see-it-to-believe-it quality that sharply separates
them from older products. It's like the first time you see a football game
in HDTV on a 50-incher in the local consumer electronics store. "Wow!"
exclaims Shuichi Ikeda, an NTT Communications (NTT )executive, upon first
seeing Cisco's three-screen setup. "This is intense." Ikeda had popped into
Cisco's New York office with some colleagues to talk about NTT becoming a
telecom partner overseas.

For the massive data capacity that makes such quality possible, you can
thank the telecom giants. Over the years they laid more efficient
communications lines, bumping up the capacity to handle video as well as
voice traffic while driving down the cost. And advances in high-def video
displays have improved screen resolution to 10 times sharper than standard
color TV.

The tech advances coincide with a sense among many high-powered business
people that their travel schedules are reaching the breaking point. As
companies grow ever more global, relationships become increasingly
dispersed. Today, 91% of all employees don't work at their headquarters,
according to Nemertes Research. Life on the road was already no picnic, but
September 11 added to the stress.

It was such weariness that drove Jeffrey Katzenberg to think big about
videoconferencing. The CEO of DreamWorks Animation skg (DWA ) used to fly
from Los Angeles to the company's offices in Bristol, England, once every
three weeks. He would leave at 2 in the afternoon to arrive at 7:30 the next
morning; work until 7:30 the following night; then take a 10-hour flight
back home. Plus he was on a plane almost once a week to the company's
Northern California unit. "The wear and tear on me, as well as the handful
of people flying with me, was very, very hard," Katzenberg recalls.

CRYSTALLIZATION
In the fall of 2002, Katzenberg challenged his tech team to come up with a
way to bring his creative people together virtually. Katzenberg, an
experienced producer whose life is all about bringing characters to life on
screen, pushed his team to create something that made the technology
transparent and the experience nearly real. For help, CIO Ed Leonard went to
HP, a longtime DreamWorks technology partner. HP completed the system in
late 2005 and rolled it out as Halo last year.

The system that DreamWorks refers to as its B2B room mimics a typical
boardroom, with a large conference table. Meeting participants sit on one
side of the table, and their remote colleagues sit opposite them, behind a
similar wood table reflected, mirror-like, on three giant flat-screen
monitors. A fourth screen, situated above the other monitors, allows all
participants to view the same drawings and storyboards as they talk through
animated movie scenes.

A modified version of the system is on display one February day as
Katzenberg and a creative crew work out some scenes with comic Jerry
Seinfeld for an upcoming animated film, Bee Movie. Seinfeld has two large,
black flat screens arranged in a "V" in his midtown Manhattan office. He
sits in a black desk chair, a tan sofa behind him. Katzenberg sits on a
couch in his Glendale (Calif.) office, facing a single screen. In a surreal
way, it feels as if Seinfeld is in the same room.

In the movie, a bee (with Seinfeld's voice) leaves the hive and discovers,
to his horror, that humans have been stealing his honey. In this session,
Seinfeld freely suggests tweaks to the script, as if he's pushing paper
across the table to Katzenberg and crew. "Can we do that thing with the
truck?" he asks. "Just go back to that moment and let me see lines with the
pictures," Seinfeld says. His right screen quickly morphs as someone in L.A.
types the new language onto the screen. Almost instantly, the applicable
storyboard is up on the monitor. Both sides scroll back and forth without
much fuss or confusion. "It's been phenomenal," Seinfeld says later. "I
wasn't going to move to L.A., so I don't think Jeffrey and I would have made
the deal if this wasn't possible."

Such face-to-face encounters allow participants to discover meaning—the
understanding of an idea, the crystallization of a concept—in ways that
might not have been achievable otherwise. Consider a recent meeting at
McKesson Corp. (MCK ), a major supplier of medical equipment and services.
Two tech staffers in the San Francisco headquarters are faced off with three
others in the Atlanta area offices over a Cisco setup, discussing how to
conduct a virtual trade show with vendors. About midway through, the CIO,
Randall N. Spratt, walks in and takes a seat in San Francisco.

If the meeting were done over the phone, those on the other side would have
had no idea their boss was in the room. But via video, the Atlantans sit up
and lean forward upon seeing Spratt. He fires a string of questions at
colleague Eric Sugar: "Aren't we telling vendors we don't need your
salespeople?" he asks. "Have you talked to vendors about this?" Sugar turns
away from the CIO, looks directly at the monitor to address someone in
Atlanta, and asks a question without having to mention whom he's talking
to—it's clear to everyone in the room. The colleague in Atlanta responds and
everyone nods in affirmation. "Great idea," Sugar says.

Imagine how this exchange would go with herky-jerky video and audio. "There
would be pauses that stifle creativity," Sugar says. McKesson, which has
tested Cisco's system for several months, plans to add 7 to 12 rooms to its
existing 2 this year. The company estimates it would spend $1,100 to fly in
the same people, so just 2.5 trips per week pay for use of the video room
for that week. Says Spratt: "To a person, we would rather use this than
travel."

Still, is there any evidence that videoconferencing—no matter how
realistic—will put a real dent in business trips? Not yet. At their current
prices, telepresence systems are being used mainly by very large
corporations and big-time executives, who, as Lee Doyle, IDC's
vice-president for networking, puts it, get "sick of being on a plane." But
overall demand for corporate travel remains robust, according to American
Express (AXP ) Co.'s Business Travel Div. In fact, a survey taken at the end
of 2006 by the National Business Travel Assn. found that 68% of corporate
travel managers expect their companies to take more trips this year than
last.

That could change. With fuel and other expenses rising, the cost of the
average business trip—including airfare, car rental, and hotel—is expected
to climb nearly 5% in 2007. Analysts say the price of new video systems
should drop by 10% to 15% a year.

As technology costs come down, organizations also may find ways to adapt it
to their distinct cultures. Not everyone wants or needs a full-blown
conference room setup. Consider HOUSE Productions & Casting, a New York
outfit that organizes and conducts auditions for movies, TV shows, and
commercials. A boardroom setting would make these artists' skin crawl. So in
their loft-like offices on the lower West Side of Manhattan, they've
installed a system by LifeSize Communications with a single high-def, 50-in.
screen used to view participants auditioning from West Hollywood, Calif.
Says Adam Joseph, house's creative and casting director: "We're the chill,
relaxed videoconferencing place."

At Cisco, CEO John T. Chambers imagines a day when high-quality video
technology is so affordable that households will connect to each other via
videoconferences simply to "hang out," one living room connected to another.
It's back to the '64 World's Fair, but with broadband and high-def TV. But
why stop there? In a move that invokes Marshall McLuhan's global village,
Cisco announced in January that it is donating complete systems to the
governments of five nations: Egypt, Jordan, Lebanon, Turkey, and the United
Arab Emirates. The idea is to improve communications and collaboration among
those countries by harnessing the capabilities of high-quality video.

In a world fraught with political and cultural tensions, video presents an
opportunity to at least begin discussions, says Temple University's Lombard.
"Here's an opportunity for [people] to meet on an equal basis and do it more
regularly," he says. "It's not going to make people get along, but it allows
them not to be isolated."

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