Cisco: The Umi Is Simply Too Expensive To Drive Much Demand

I said it yesterday, and now the Street is saying it: Cisco (CSCO) has got to be kidding if they think people are going to line up to buy their Umi home video conferencing system with a price tag of $599 – plus $24.99 for monthly service. It is simply crazy expensive at a time when you can buy a cheap Webcam and video chat over the Internet via Skype, Google Talk or other service for almost zero additional equipment cost and no additional service fee.

Here are a few comments from the Street on the new offering.

• Ehud Gelblum, Morgan Stanley: “We believe Cisco�s new Umi home telepresence� solution, announced last night, is a solution in search of a problem and believe the odds are small it becomes a success,” he writes. “History suggests that consumer video conferencing is NOT a killer app � AT&T marketed its Picturephone and VideoPhone devices for several years off and on beginning at the 1964 World�s Fair with little success. While Cisco has done a good job of bringing consumer technologies into the enterprise � such as blogging, video chats, instant messenger, etc – we�re not convinced it works the other way around, to take enterprise products like [telepresence]� to the consumer.” He adds that the system is “much too expensive.”
• Shaw Wu, Kaufman Bros.: “While the quality of the experience is much more immersive and life-like compared to free services like Skype with a webcam, we believe many consumers may hesitate at its premium price point of $599 for the hardware and monthly service fee of $24.95 which includes unlimited umi calls, video messaging, and video storage,” he writes. “We believe there is a market for premium video conferencing, but it will likely be a high-end niche. With lower price points and the elimination or at least lowering of its monthly service fee, we see great potential to reach the broader mainstream market where many would consider using this over a voice-only phone call.”
• Mark Sue, RBC Capital: “Cisco has a history of mispricing consumer products. For what it does $599 might not be too high, yet a recurring monthly fee of $24.99 for the dedicated video broadband might take some getting used to considering many video conferencing solutions (though lower quality) is free.”
• Rod Hall, J.P. Morgan: “While the concept is interesting, we don�t understand what we believe to be the hefty pricing of the Umi offering in these tough economic times,” he writes. “We note that 1080p video cameras are now readily available for around $100, and a brand new Xbox 360 that has some degree of video conferencing capability and 250GB of local storage sells for $299. Moreover, we�re struggling with the rationale for an additional service fee beyond the cost of internet connectivity. $24.99/month seems intuitively high in our opinion for cloud based storage and messaging features though we don�t doubt that high quality video storage would be expensive to provide. While we like the concept of the product, we believe the pricing will have to change significantly to spur broad adoption in a world where Skype video conferencing is free.”

CSCO is up 4 cents, to $22.34.