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Across the Great Divide: The Selling of MPEG Network Appliances

Mark Fritz

January, 2001 | A number of veteran vendors of MPEG hardware/software solutions (companies like Optivision, Optibase, and Minerva) have recently all but abandoned the DVD and CD-ROM publishing markets and have even backed away from the professional and broadcast video markets. Instead, they are building and selling video network appliances. They're banking on these brick-like boxes to secure the foundations of new business models, turning streaming video into a new revenue stream that flows directly into their bank accounts.

It's an interesting market phenomenon that raises some interesting questions. How strong is the current market for MPEG network appliances and what is its future potential? Is it a niche market or something with wide and enduring appeal? Do rank-and-file workstation jockeys–not to mention overtaxed IT pros–really want huge video files clogging up their networks? Will video become a valuable corporate commodity (data type) or remain forever relegated to entertainment applications?

These network appliances for streaming MPEG video are essentially black boxes containing an MPEG encoder, a decoder, or both. They've got video inputs for plugging in a camera (or other video source), video outputs for plugging into a TV, and network ports for attaching to a network (IP, ATM, etc.). They're not cheap, ranging from $5000 to $20,000 per box. If all you want to do is convert analog video into MPEG files to share on your network, you could do the same thing with video capture cards and software encoders that start as low as $299. The key difference here is that these network appliances capture and encode in real time. But is that an advantage or a limitation? Time is as precious a corporate commodity as any data type, and real-time encoding can prove a real drag when other ongoing network work has to share bandwidth with it. It raises the marketing question: to whom is live, real-time video mission-critical?

From an outsider's perspective, this market looks very niche-oriented and, well, small. But the black-box vendors see it differently. In fact, they are downright bullish. They say that their appliances will make digital video so easy and inexpensive to capture, distribute, and manage that everyone will want to use video on their networks. The question won't be "Why use video?" they insist–it will be "Why not?" These appliances, the vendors say, are poised to break the shackles of their niches and burst forth onto the boundless playing field known as "corporate communications".

And it isn't just the vendors who are saying such things; so are some of the users out in the field. "This is still relatively new technology," says Kevin Ross, director of networks for Fulton-Montgomery Community College of Johnstown, New York, and a user of MPEG network appliances from VBrick Systems in distance-learning applications. "Once people find out about this technology," he says, "they will flock to it."

Some market analysts are also quite positive: "Where video quality is important and bandwidth plentiful, these things are a slam dunk," says Andrew Davis, senior analyst and managing partner for Wainhouse Research of Brookline, Massachusetts.

Infrastructure Already There

Of course, key to the grandiose profit-making dreams of the vendors is bandwidth availability. These appliances do virtually nothing to solve the perennial bandwidth problem; rather, their ability to deliver video to connected workstations depends on the throughput capacity of the existing network and whatever constraints everyday traffic may place on it at a given time. And that's to say nothing of extranet connectivity technology, which still lags several bandwidth breakthroughs behind the video delivery capability of Local Area Networks (LANs). Consider the use of network appliances for video conferencing, for example. Adding an MPEG streaming appliance to your company's LAN will empower you to capture video from a camera and use it at whatever bandwidth your LAN can comfortably provide, but if you want to connect your LAN to someone else's LAN, you're in trouble. Say your company has a remote office in Istanbul, for example, and you want to conduct a video conference with the staff there. You'll still need to connect your local LAN to that remote LAN, and you're still stuck with the bandwidth limitations of that LAN-to-LAN connection.

Indeed, when it comes to streaming video, bandwidth is key to everything. "As bandwidth goes up, this market will explode," says Rich Mavrogeanes, president and CEO of Wallingford, Connecticut-based VBrick Systems, Inc. But while he's looking forward to the future, he also isn't complaining about the present. The only people who think bandwidth in America is a problem are people who Web-surf from their home using copper phone lines to America Online and the like, says Mavrogeanes. In corporate America, however, the bandwidth picture looks very different, he insists. Universal access to massive amounts of bandwidth is just around the corner, not years away but months, he says.

Wainhouse Research analyst Andrew Davis concurs. Most big companies now have at least a 100-MB Ethernet network and such networks are more than capable of supporting MPEG streaming, he says.

"Most big corporations have run fiber- optic lines and now have more than enough bandwidth for digital video," says Michael Liccardo, president and CEO of Palo Alto, California-based Optivision. [Optivision recently announced a merger agreement, and that it will change the company name to Amnis Systems, Inc., but at press time the merger had not been finalized–Ed.] Over the past few years, telcos, cable companies, and other telecommunications providers like Sprint and Qwest have been busy installing fiber optic cables, notes Andrew Davis. "Over the last couple years," he says, "the big boys have been laying fiber optic lines in the kazillions." Mike Savic, director of product management for VBrick, has seen this trend too. All of yesterday's investments in "infrastructure" are finally beginning to pay off today, he says. "It won't be long," says Savic, "before America is one big IP network."

And not only are lots of these backbones already in place, new switching and routing technologies are making them more efficient. "The great thing about a fiber-optic line is that its bandwidth is virtually unlimited," says Ken Regnier, director of product development for InnovaCom, Inc. of Clara, California. "People keep coming up with ingenious ways to take get more bandwidth out of these existing fiber lines, and there seems to be no limit to the engineers' ingenuity," says Regnier. A prime example is a new technology known as Wavelength Division Multiplexing (WDM), which divides a light beam into many wavelengths, thus multiplying the amount of data that can be carried over a single optical fiber by that light beam. Thanks to technologies like WDM, telcos and other providers now have bandwidth to spare, says Regnier. Prices for leased lines and other services are coming down. And as more technological advances continue to arise, things will get even better, Regnier predicts.

But what about mid-size and smaller corporations? Are network appliances a viable solution for small companies with old, anemic small-piped networks? "I can't emphasize enough that to take advantage of these network appliances, you must have a robust network infrastructure already in place," says Kevin Ross. There at Fulton-Montgomery College where he works, Ross has access to an "ATM backbone with a 600MB pipe capable of 2 million packets per second." Not exactly your average mom-and-pop network. "Wherever bandwidth is available, this technology will thrive," says InnovaCom's Regnier. "However, there will always be legacy systems that can't take full advantage of new technologies like this."

While they are waiting for this technology to gain mass acceptance in corporate America, vendors have targeted several key niches in which video could be considered mission-critical or near-critical: video conferencing, surveillance, telemedicine, and distance learning.

Tough Rooms: Video Conferencing

Streaming video network appliances are a natural for use in video conferencing, but as markets go, this one will be the vendors' hardest nut to crack. That's because the market is already overcrowded with well-established videoconferencing products that are getting cheaper and better every day.

Because they deliver MPEG-1 (and sometimes MPEG-2) streams at adjustable bit-rates, network appliances are capable of delivering video of extraordinary visual quality. It fact, it is this quality the vendors usually point to as the products' major strength. "When people see that they can get what looks like normal TV over a network, they will want this technology," says VBrick's Mavrogeanes.

The appliances' primary competition is this area is the existing surfeit of traditional ISDN-based conferencing systems. This technology has rarely come cheap, ugly as its reputation may be in some circles. VBrick's Mavrogeanes insists that at $5000, his VBrick boxes are "20-to-1 cheaper" than ISDN systems. But he's comparing them to very high-end systems like the $110,000 Grass Valley system that Kevin Ross is replacing with a VBrick-enabled network at Fulton-Montgomery College. That might not be a fair comparison. There are, after all, a whole slew of other lower- priced video conferencing systems on the market–which look better and better as network technology catches up with digital video technology–to which network appliances might be more fairly compared.

"A few years ago, $50,000 for a videoconferencing system was not out of the ordinary," says Wainhouse analyst Davis. "But today, a very nice conference room system can be purchased for under $5000 or even under $4000." He adds that all the big videoconferencing manufacturers (PictureTel, Tandberg, Polycom, and Sony) make systems in the $19,000 range that provide video that is "suitable for general business communications."

Pricewise, VBricks, with their starting price of $5000, stack up well against such systems, but some of VBrick's competitors are selling network appliances in the $15,000-20,000 range. Remember too that in order to do point-to-point conferencing, you need two appliances, so a VBrick conferencing setup would cost at least $10,000, not merely $5000.

Mavrogeanes insists that the "herky-jerky video" of ISDN systems is unacceptable. "We've all learned about video at home, watching television. If it is not that easy to use and at that level of quality, it is not good enough."

"ISDN-based video uses H.263 video compression, which is designed to work at lower bandwidths," Mavrogeanes explains. "It sacrifices smooth motion for image quality. Therefore, if you have no motion, you will get great video. However, if there is motion, the frame rate drops from [NTSC standard] 30fps to as little as one frame per second in order to get full pictures through the network. MPEG, on the other hand, is always 30fps full motion, providing much better video–similar to what you see on TV."

But it logically follows then that if all you're doing is transmitting talking heads during a simple video conference or a distance-learning session (usually just a teacher lecturing), lower-priced ISDN videoconferencing systems would probably fit the bill. It's only when video with a lot of motion is used that the difference would be starkly noticeable and distracting. If a science teacher wants to run footage of birds in flight during a distance-learning session, for example, the higher-motion quality of an MPEG streaming appliance might be called for. Davis says that the trick to getting better video quality out of a videoconferencing system is to use a more expensive T1 line (offering 1.5 Mbps) in place of an ISDN line. He says systems from companies like PictureTel and Tandberg in the $19,000 range "use compression other than MPEG, and the quality is not quite as good as MPEG, but it's not bad."

Davis adds that there are niches beyond business conferencing in which motion video quality will be deemed more important. Distance learning is a good example. "Fourth-graders aren't going to sit still for non-lip-synched video. It will be too distracting for them. They're used to television." Adults in corporations will be more forgiving, he believes.

Mavrogeanes also says that another advantage of appliances like his VBricks is that they are easier to use and set up. Again, he compares them to a Grass Valley system: "The Grass Valley system has a proprietary, difficult-to-use Creston control system that only a handful of people understand and can use." Network appliances, by contrast, simply plug into existing networks via existing interfaces and protocols, and video streamed via networked appliances is as easily accessed as any other media assets delivered over the network to which it is attached. Appliance-user Daniel Matthews agrees with Mavrogeanes about these appliances' ease of use. Project director for the Cascade Consortium of Chelan, Washington, Matthews has spearheaded the installation of a distance-learning system that links five remote schools in rural Washington. Matthews reports that setup and maintenance of the Consortium's Optivision network appliances is so easy that he's assigned several of his high school students to do the job.

But ease-of-use is not exclusive to these appliances. Davis reports that once-finicky ISDN conferencing systems have also gotten easier to use lately. "New conference room systems are no more difficult to operate than a VCR or TV," he says.

In some areas, nonetheless, network appliance-based setups remain unmatched, Mavrogeanes maintains. "The other advantage of network appliances is mobility and size," says Mavrogeanes. "They are small and portable. You can put them anywhere you have a video source or TV. Systems like the Grass Valley are large and not movable. How do you get a Grass Valley system into a classroom? The answer is you can't. You need to bring the students to the Grass Valley–extremely inefficient." Here again, it's worth noting that Mavrogeanes isn't so much comparing apples to oranges as new apples to old ones. He's drawing distinctions between new-fangled network appliances and a dinosaur-like system (Grass Valley) that has been superseded by a whole bunch of small, lightweight "roll-about" videoconferencing systems. These newer systems can be put on carts and wheeled around from room to room and used the same way carts filled with network appliance/camera/monitor combs are being used.

As noted earlier, network appliances provide little advantage when you're doing point-to-point teleconferencing. But where the network appliances really start to show their value is when people want to go beyond point-to-point, when they want to send information from one site to many sites (broadcasting or multicasting), from many sites to one site, and from many sites to many sites. In order to duplicate the kind of many-site-to-many-site connectivity you can get with a network, a traditional videoconferencing system would require multiple ISDN or T1 lines. And that would be difficult to accomplish and expensive.

Clearly, MPEG network appliances face stiff competition in this market. Too many people are too willing to sacrifice video quality to save a few bucks. And appliance prices are too close to those of established videoconferencing systems. "This market will not be as easy for the vendors as will other application areas," says Davis. Yet because it is such a huge, wide market with so much pent-up demand, in spite of the entrenched competition, it will remain one with allure for the vendors.

Safest Bet: Surveillance

Currently the strongest market for streaming network video is in security/surveillance systems. Here video network appliances have an obvious advantage. Traditionally, surveillance systems have been analog systems, essentially closed-circuit TV networks. They've been expensive and inflexible. Video was often recorded onto tapes–which resulted in unmanageable tape libraries and storage space nightmares–or onto expensive, massive magnetic storage devices attached to expensive video servers. Analog video surveillance systems often required users to build dedicated cable networks. They were networks unto themselves. In contrast, users of network appliances need merely hook a camera to their existing data network, and voila!–instant surveillance network, without the agony of having to build one from scratch. You just piggyback on your existing data network and kill two birds with one stone. All you need to buy are the network appliances and the cameras.

Another advantage of network appliances in the surveillance field is that they do a better, easier, and more economical job of managing and controlling video streams. In old analog video security systems, this was done with expensive video-switching equipment. Now network appliances do the same thing using a simple point-and-click Windows software interface or via a browser window. Many systems also provide the ability to control cameras remotely (using the appliance's RS-232 port). Also, network appliances give you the flexibility to view video on either a PC monitor or an ordinary TV (that's what the MPEG decoder is for).

A popular subset of surveillance systems is remote monitoring systems. You often find such systems in industrial sites, such as in factories where they monitor assembly-line robotic equipment and in power plants where they monitor critical instrumentation controls. Remote monitoring has also become popular with government agencies responsible for today's new complex computerized traffic control sys- tems, commonly known as Intelligent Transportation Systems (ITS).

Doc-in-the-Box: Telemedicine

Telemedicine has been hailed as one of the solutions to America's health care crisis. When doctors can diagnose, consult, collaborate, and teach remotely over vast distances, travel time will decrease and efficiency will increase. Doctors will no longer have to spend time driving from clinic to clinic or hospital to hospital. In fact, they may not even need to take the time to step from office to office or room to room. Telemedicine will be particularly valuable for doctors and hospitals in rural areas that serve wide geographical areas.

Doctors with telemedicine systems will be able to make telepresence visits, the 21st Century's equivalent to a house call–though true virtual house calls will have to wait until more people have cable modems and DSL lines in their homes.

A virtual house call would use a dedicated point-to-point link. A nurse or nurse-practitioner could, for example, take a portable AV cart with a camera and a network appliance to a patient's location and plug it into a TV. The doctor could tell the nurse to move instruments, probes, and cameras to examine the patient. The nurse and the patient could see the doctor during the examination, while the doctor could see the patient and the instrumentation readouts.

A telemedicine system could also be used for multipoint sessions where several doctors could get together to diagnose a patient collaboratively or to consult on a live ongoing surgical procedure. Such systems could also replace medical schools' traditional "surgical theater" teaching sessions in which students gather in balcony-like seats above an operating room to observe surgery in progress. In this case, the camera's ability to get close-up shots clearly outstrips the advantages of being there live. Telemedicine will remain a key market for MPEG network appliances, because this is an application where video quality is clearly mission-critical. Visual quality may not be crucial in video conferencing or distance-learning where the video is primarily talking heads, but in telemedicine, poor video might lead to a poor diagnosis, which might cost a life.

In the medical field as elsewhere, bandwidth isn't a problem, the vendors insist. Most hospitals either already have robust in-building networks or are busy installing them. Also, as many smaller hospitals have been merging to form health care system conglomerates, they have also been investing in broadband interconnects. The infrastructure is already there, the vendors say. Classrooms in the Computer: Distance Learning

MPEG appliance providers are particularly enthusiastic about the distance-learning market, mostly because they see so much government funding available for technology initiatives in public schools. Also, thanks to government mandates, schools can get high-bandwidth connections at special educational discounts called "E-rates," notes InnovaCom's Regnier. He also believes that like most hospitals, most schools already have the infrastructure for video streaming, having invested in broadband in-building and school-to-school networks. Indeed, according to Wainhouse Research's Davis, "Thirty-eight of the 50 states have already funded initiatives to connect schools with broadband networks."

Like videoconferencing and telemedicine systems, distance-learning systems are often used to connect two or more geographically remote sites. Just as this helps doctors cut travel time and be more efficient, it will help teachers and administrators be more efficient. Many rural schools throughout the U.S. are in a position similar to the five in rural Washington state that make up the Cascade Consortium. For years, one of these small schools has wanted to offer a calculus course but didn't have a student body large enough to justify hiring a calculus teacher, reports Daniel Matthews, the consortium's distance-learning project head. By videoconferencing with four other school and pooling resources, they can gather together enough students to justify the cost.

Using MPEG appliances from Optivision and a high-bandwidth ATM network, the Cascade Consortium now conducts distance-learning classes for Calculus, Advanced Spanish, Sociology, Psychology, and Advanced Technology/ Robotics. The system uses not just a camera pointed at the teacher but also a document camera, a smart board, and a VCR for playing prerecorded tapes as part of a distance-learning session/virtual class.

Fulton-Montgomery Community College in Johnstown, New York is currently conducting nine virtual classes using VBricks on its ATM network. These highly portable VBrick/camera/monitor combos can be wheeled on carts to any of the school's 89 classrooms. Live, virtual classes are often recorded so absent students can view them later, and they can do it in the comfort of their dorm room, using a Web browser on their PCs.

Fulton-Montgomery's Kevin Ross raves about the advantages of the college's VBrick-enabled network and claims the college has saved at least 50 to 75% of the yearly networking budget by switching from the old Grass Valley system. He says that with VBricks, he can get the same video quality from a T1 line that he formerly needed a DS3 line to get. When you compare the $45,000 per-year cost of that DS3 line to the $9000 annual expense of a T1 line, you can see his point.

"If people can get distance learning this easily," says Ross, "everybody will want to do it."

If I Had a VBrick...

Perhaps the best thing about network appliances is that they are truly appliances. "A VBrick is an appliance, a tool," says Mavrogeanes. "It's a tool the way a hammer is a tool. And like a hammer, these tools can be used for many different jobs."

Although Fulton-Montgomery Community College started out using network appliances primarily for distance learning, the college has quickly moved into videoconferencing, security, broadcasting, and information dissemination–and all done over a single network. "We're finding new uses for VBricks every day, and buying more and more, and hanging them off the network as the need for them arises," says Kevin Ross.

Fulton-Montgomery has camera/VBrick/monitor combos set up all over the campus. In dorms and classroom buildings, the TV monitors display text-based information during the day, things like class schedules, sports schedules, and announcements for upcoming cultural events. Then during the night, these same two-way camera/monitors become the nodes of a surveillance system. The college has plans to connect its campus television studio into its ATM network so that it can broadcast studio productions throughout the campus, and it has plans to attach a PictureTel interface to the network in order to share video with popular PictureTel video-conferencing systems. Fulton-Montgomery's Ross says he's also planning on using VBricks in recruitment kiosks that will be placed in McDonald's restaurants. These kiosks will use a Web browser, and not only will students be able to view HTML pages describing the college and its programs, they'll also be able to connect videophone-style with a recruitment advisor. "They'll be able to speak to a real person, live, right there while they're eating a burger," says Ross.

Corporate Communications: The Final Fiscal Frontier

Appliance vendors are banking that, like schools and colleges, corporations will also be impressed by the Swiss army knife-style flexibility of these products. Companies too will find more and more uses for them every day, as they discover that video doesn't have to remain the clumsy, static tool it has proven to date in corporate communications. Like a brick through the window of big business, today's handy, box-based network appliances may indeed break digital video in the coveted corporate communications mainstream.

Companies Mentioned in This Article

InnovaCom, Inc.
3400 Garrett Drive, Santa Clara, CA 95054; 888/464-6734, 408/727-2447; Fax 408/727-6625; info@transpeg.com; http://www.transpeg.com, http://www.dvdimpact.com

Minerva Networks
2111 Tasman Drive, Santa Clara, CA 95054; 408/567-9400; Fax 408/567-0747; info@minervanetworks.com; http://www.minervanetworks.com

3031 Tisch Way, Plaza West, Suite 1, San Jose, CA 95128; 408/260-6760; Fax 408/244-0545; http://www.optibase.com

3450 Hillview Avenue, Palo Alto, CA 94304; 800/239-0600, 650/855-0200; Fax 650/855-0222; info@optivision.com; http://www.optivision.com

VBrick Systems, Inc.
12 Beaumont Road, Wallingford, CT 06492; 203/265-0044; Fax 203/265-6750; info@vbrick.com; http://www.vbrick.com

Wainhouse Research, LLC
112 Sumner Road, Brookline, MA 02445; 617/975-0297; Fax 617/975-0298; http://www.wainhouse.com

Mark Fritz (makfritz@aol.com), an EMedia contributing editor, is a consultant and freelance writer based in Bloomsburg, Pennsylvania.

Comments? Email us at letters@onlineinc.com.

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