Vidyo’s Acquisition Proves Tech Alone Isn’t Enough

Vidyo's acquisition comes after it failed to keep pace with other companies.

Vidyo once had the magic formula for the transition from tech startup to tech unicorn. In the middle of the current decade, the video infrastructure enterprise held a piece of tech that produced the highest quality video calls on the internet. It was the envy of the video calling world and subject to a near $1 billion purchase offer.

Less than five years later, the company is all but finished. It has a tiny market share, its once-prized tech asset has been equaled or exceeded elsewhere, and it is all but irrelevant. In May, Vidyo suffered the ignominy of being sold for less than its annual revenue projections.

How it fell, Vidyo’s acquisition, and the route it needs to follow to recover is a cautionary tale for every video conferencing startup that thinks tech wizardry is enough to guarantee long-term success.

The Road to Vidyo’s Acquisition

Vidyo had its near-unicorn moment in 2015 when it is rumored to have been approached by Cisco with a purchase offer of close to $1 billion. That offer was rejected and Cisco went on to buy rival Acano for $700 million.

That Vidyo was once offered such a sum speaks to its one-time place as a rising star of the video conferencing world. That reputation was built on its position as the first video conferencing platform to offer scalable video coding–a technology that greatly improved the quality of video calls by adapting to better suit the network connection. It essentially pioneered high-quality video conferencing over the internet. Vidyo’s chief income source became selling this tech to other companies for use in their own platforms.

Most importantly, Vidyo did not make the switch to cloud video calling quick enough to stay relevant.

Vidyo failed to advance its technology, however, and once rivals developed their own means of hosting high-quality calls online it lost much of its appeal. The company shifted focus to the financial and healthcare domains, although, in an interview with VC Daily in 2017, then-CEO Eran Westman pointed out that Vidyo was offering a commercial 4K video experience through its Vidyo.IO service…which you can still use to embed video into a mobile app.

Most importantly, Vidyo did not make the switch to cloud video calling quick enough to stay relevant. While Zoom, BlueJeans, and other newcomers turned user-friendly software solutions into tremendous commercial hits, Vidyo was left as one of the few independent infrastructure companies (the other holdout was Pexip, which merged with Videxio in late 2018).

So, a once-promising video conferencing innovator lost touch with the market. As of this year, Vidyo has a less than one percent market share and around 1000 corporate clients. In the end, Vidyo was acquired by Enghouse for $40 million, less than its estimated annual turnover of $60 million…and of course far less than Cisco once offered.

Enghouse, by contrast, gets a can’t-lose proposition.

Is Vidyo a Video Conferencing Phoenix?

Vidyo’s plight is of course not uncommon, after all, 90% of tech startups fail. However, the company isn’t technically dead yet, and the video industry has produced at least one phoenix from the ashes.

As we’ve previously detailed, video vendor LifeSize underwent a similar fall from stardom earlier this decade and has since rebounded. It too failed to account for the shift to cloud-based video conferencing and was left behind as a relic of video’s on-premises era. After being acquired by and subsequently leaving device manufacturer Logitech, LifeSize has been reborn as a cloud-based Software as a Service provider and is growing its client base once again.

Vidyo’s rebirth would have to follow some very clear video consumer trends.

It is not currently clear what Enghouse plans to do with its Vidyo acquisition, although Wainhouse research describes the buyer as “unabashedly focused on buying and rolling up distressed vendors of enterprise technology solutions.” Given the disparity between the price it paid and Vidyo’s annual revenue, it seemingly can’t lose on its investment.

So, could we see Vidyo return to video conferencing relevance? Its rebirth would have to follow some very clear video consumer trends.

It’s All About the Cloud

Assuming Vidyo does get a second chance at life and doesn’t end up being gutted for its tech rights and holdings, it could potentially still have a future.

As we said earlier, the landscape of video conferencing infrastructure specialists has been heavily consolidated of late. Pexip no longer stands alone, and even Polycom–a former buyer of enabling technologies–was recently sold to Plantronics and now goes by the name Poly.  Enghouse could retain Vidyo’s tech for use within its own portfolio and incorporate the latter’s 400 hospital networks into own interests. Or it could try to revitalize its role as an API source within consumer apps.

Customer service and the customer experience are everything in today’s digital market.

If Vidyo is to have a life as a consumer video conferencing provider, however, it has big changes to make. Consumers are no longer impressed with high tech solutions requiring IT expertise. Even medium-sized businesses prefer easy-to-install, low maintenance cloud solutions that push the responsibility for storage and upgrades onto the cloud service provider.

Vidyo also has a reputation for being “difficult”; its pricing and interoperability standards are said to reflect a prima donna rather than a faded star. Customer service and the customer experience are everything in today’s digital market. Cloud-based services that spread the cost burden over months and years must keep customers happy long after any initial sales event.

In short, Vidyo needs a minor miracle to remain relevant. Its legacy may be a cautionary tale about failing to continually evolve, failing to spot market trends, and failing to keep customers at the front of its thinking.

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