Category Archives: UC

Bad and Good in Avaya’s Pending IPO

We don’t know when Avaya will have its IPO, but we learned a couple weeks ago that the company will trade under the symbol ‘AVYA‘ on the New York Stock Exchange.

Long before that, back in June, Avaya first indicated that it would file for an IPO, from which it hoped to raise about $1 billion. Presuming the IPO goes ahead before the end of this year, Avaya could find itself valued at $5 billion or more, which would be about 40 percent less than private-equity investors Silver Lake and TPG paid to become owners of the company back in 2007.

Proceeds for Debt Relief

Speaking of which, Silver Lake and TPG will be hoping the IPO can move ahead sooner rather than later. As parents and controlling shareholders of Avaya, their objectives for the IPO are relatively straightforward. They want to use the proceeds to pay down rather substantial debt (total indebtedness was $6.176 billion as of March 31), redeem preferred stock, and pay management termination fees to its sponsors, which happen to be Silver Lake and TPG. (For the record, the lead underwriters for the transaction, presuming it happens, are J.P. Morgan, Morgan Stanley, and Goldman Sachs & Company.)

In filing for the IPO, Avaya has come clean not only about its debts, but also about its losses. For the six-month period that end on March 31, Avaya recorded a net loss of $612 million on revenue of $2.76 billion. It added a further net loss of $152 million losses the three-month period ended on June 30, according to a recent 10-Q filing with the SEC, which means it accrued a net loss of approximately $764 million in its first three quarters of fiscal 2011.

Big Losses Disclosed

Prior to that, Avaya posted a net loss of $871 million in its fiscal 2010, which closed on September 30 of 2010, and also incurred previous losses of $835 million in fiscal 2009 and a whopping $1.3 billion in fiscal 2008.

Revenue is a brighter story for the company. For the one months ended June 30, Avaya had revenue of more than $2.2 billion, up from $1.89 billion in the first nine months of fiscal 2010. For the third quarter, Avaya’s revenue was $729 million, up from $700 million in the corresponding quarter a year earlier.

What’s more, Avaya, which bills itself as a “leading global provider of business collaboration and communications solutions,” still sits near the front of the pack qualitatively and quantitatively in  the PBX market and in the unified-communications space, though its standing in the latter is subject to constant encroachment from both conventional and unconventional threats.

Tops Cisco in PBX Market

In the PBX market, Avaya remained ahead of Cisco Systems in the second quarter of this year for the third consecutive quarter, according to Infonetics Research, which pegged Avaya at about 25 percent revenue share of the space. Another research house, TeleGeography, also found that Avaya had topped Cisco as the market leader in IP telephony during the second quarter of this year. In the overall enterprise telephony equipment  market — comprising sales of PBX/KTS systems revenues, voice gateways and IP telephony — Cisco retains its market lead, at 30 percent, with Avaya gaining three points to take 22 percent of the market by revenue.

While Infonetics found that overall PBX spending was up 3.9 percent in the second quarter of this year as compared to last year, it reported that spending on IP PBXes grew 10.9 percent.

Tough Sledding in UC Space

Meanwhile, Gartner lists Avaya among the market leaders in its Magic Quadrant for unified communications, but the threats there are many and increasingly formidable. Microsoft and Cisco top the field, with Avaya competing hard to stay in the race along with Siemens Enterprise Networks and Alcatel-Lucent. ShoreTel is gaining some ground, and Mitel keeps working to gain a stronger channel presence in the SMB segment. In the UC space, as in so many others, Huawei looms as potential threat, gaining initial traction in China and in developing markets before making a stronger push in developed markets such as Europe and North America.

There’s an irony in Microsoft’s Lync Server 2010 emerging as a market-leading threat to Avaya’s UC aspirations. As those with long memories will recall, Microsoft struck a valuable UC-centric strategic alliance — for Microsoft, anyway — with Nortel Networks back in 2006. Microsoft got VoIP credibility, cross-licensed intellectual property, IP PBX expertise and knowledge — all of which provided a foundation and a wellspring for what Microsoft eventually wrought with  Lync Server 2010.

The Nortel Connection

What did Nortel get from the alliance? Well, it got some evanescent press coverage, a slippery lifeline in its faltering battle for survival, and a little more time than it might have had otherwise. Nortel was doomed, sliding into irrelevance, and it grabbed at the straws Microsoft offered.

Now, let’s fast forward a few years. In September 2009, Avaya successfully bid for Nortel’s enterprise solutions business at a bankruptcy auction for a final price of $933 million.  Avaya’s private-equity sponsors saw the Nortel acquisition as the finishing touch that would position the company for a lucrative IPO. The thinking was that the Nortel going-out-of-business sale would give Avaya an increased channel presence and some incremental technology that would help it expand distribution and sales.

My feeling, though, is that Avaya overpaid for the Nortel business. There’s a lot of Nortel-related goodwill still on Avaya’s books that could be rendered impaired relatively soon or further into the future.  In addition to Nortel’s significant debt and its continuing losses, watch out for further impairment relating to its 2009 purchase of Nortel’s assets.

As Microsoft seeks to take UC business away from Avaya with expertise and knowhow it at least partly obtained through a partnership with a faltering Nortel, Avaya may also damage itself through acquisition and ownership of assets that it procured from a bankrupt Nortel.

On Further Review, the Cius Still Looks Doomed

I’m returning to the topic of the Cisco Cius, but I promise I won’t make it an obsession.

My view of the commercial prospects for the Cius has shifted significantly during the past year, from when Cisco first announced the pseudo-tablet to now, as it prepares to ship the device, presumably in something approximating volumes. Back in the summer of 2010, I thought the Cisco Cius might have a fighting chance of currying favor within the company’s installed base, playing to IT decision makers with a practical and broad-based extension of its video-collaboration strategy.

Changing Landscape

Some things have changed since then. The Apple iPad franchise, as we all know, has gone from strength to strength. iPads now proliferate in small businesses and enterprises as well as in homes. They’ve crossed the computing rubicon from the consumer realm to the business world. They, like iPhones and other smartphones, also have helped to engender the much-discussed “consumerization of IT,” whereby consumers have insisted on bringing their favorite devices to the office, where they have been gradually and grudgingly accepted by enterprise IT departments under imperatives from CFOs to bring down IT-related capital and operating expenses.

That has cut into Cisco’s appeal. Cisco, as a big old-school enterprise player, didn’t count on consumerist employees having any appreciable say in the navigation of the enterprise IT ship. Cisco, as the Flip debacle, made obvious, is not exactly a popular consumer brand, notwithstanding the barrage of television commercials it has unleashed on couch potatoes during the last several years.

One could also argue that the commoditization of a broad swathe of enterprise-networking equipment, led by Cisco competitors, also is slashing into the giant’s dominance as well as its margins. Moreover, it remains to be seen how the inexorable march of virtualization and cloud computing will redefine the networking universe and Cisco’s role as the brightest star in that firmament.

 Penny-Pinching as New Normal

Then there are macroeconomic factors. Everywhere in the developed world, IT buyers at SMBs and large enterprises alike are trying to save hard-earned money. Cisco can wave cost-of-ownership studies all it wants, but most network and technology buyers do not perceive Cisco products as money savers. Consequently, there’s a big push from buyers, as perhaps never before, for open, standards-based, interoperable solutions that are — you guessed it — cheaper to buy than the proprietary solutions of yore.

So, it all amounts to a perfect storm driving right through the heart of John Chambers’ once-peaceful neighborhood. This is true for Cisco’s entire product portfolio, not just the Cius, but I’m writing about the Cius today — not that I’m obsessed with it, you understand — so let me pull things back into tighter focus now.

 Trying to Stop the Phones from Bleeding 

With the Cius, Cisco still seems to the think that the old rules, the old market dynamics, and its old customer control still apply. I thought more about this yesterday when I received an email message from a regular reader (imagine that!) who pointed out to me that Cisco is right about one thing: The Cius isn’t a tablet.

I’ll quote directly from his message:

The Cius isn’t a tablet  — it only looks like one.  It’s a desktop and video phone.  Cisco is in this business because PCs and wireless handsets are subsuming the function of the enterprise desktop phone (thanks to Microsoft Lync, Apple iPhone, Android, etc.).  Their phone business is a multi-billion dollar per year business.  I agree — the Cius is a distraction, but they have to do *something* to protect that desktop phone revenue stream.  Tough spot.

These are perceptive comments, and they’re borne out by recent articles and analysis on Cisco’s Cius push. All of which makes me feel, even more than when I wrote my Cius post of earlier this week, that the product is doomed to, as Mike Tyson said in one of his best malapropisms, “fade into Bolivian.” 

Gambit Won’t Work

Cisco has made a lot of money selling desktop IP phones, but that gravy train, like so many others, is drawing fewer passengers at each station. The trends I mentioned above — stronger consumer-oriented offerings from competitors in smartphone and tablets, the consumerization of IT, the enterprise focus on cutting IT costs wherever possible, and a concomitant pull away from premium proprietary technologies — are threatening to eviscerate Cisco’s IP phone franchise.

Hence, the Cius. But, even as a defensive bulwark, it doesn’t work. At the end of the day, CIsco might see an IP phone replacement when it looks at the Cius through its rose-colored glasses, but customers will see it for what it is — a relatively high-priced, seven-inch tablet running a smarphone-version of Android, and tied to proprietary video, voice, and collaboration solutions. Both the Cius and the AppHQ go strongly against the tide of IT consumerization and mobile-platform heterogeneity. That’s not a tide Cisco can reverse.

With sublime brevity, my reader-correspondent said it best: Tough spot.

Limited Horizons for Cisco Cius

Cisco’s Cius Android-based tablet will be available for purchase later this month, but it’s difficult to envision how or why it would be bought by anybody other than hardcore Cisco shops that have made substantial investments in Cisco’s enterprise collaboration and telepresence technologies.

With the Cius, and much else lately, Cisco seems to be predicating its strategy and tactics on an antiquated playbook (pardon the pun). While the world moves toward cost-effective, multivendor technologies and embraces consumerization of IT, Cisco still stubbornly pushes to be a one-stop shop for network infrastructure and much else besides. What’s more, the company is completely disregarding the consumerization wave, failing to recognize that corporate IT bosses and their departments are compelled to find ways to embrace the trend to cut enterprise costs and boost productivity.

It’s Not a Tablet

To make matters worse, Cisco’s Cius runs Android 2.2, not the tablet-optimized Android 2.3. It’s as if Cisco, perhaps under the assumption that its installed base of enterprise collaboration and telepresence customers will follow its lead obediently, couldn’t even be roused to deliver a competitive product. The price, at $750 per unit, also suggests that Cisco thinks its loyal customers will pay a sticker-shock premium for anything that ships with the company logo stamped on the box.

Cisco, for its part, has persuaded some analysts to believe that, appearances to the contrary, it’s not really a tablet vendor, even though it’s about to start shipping what is unquestionably a tablet at the end of July. The Cius, you see, is just, an entry point into Cisco’s collaboration ecosystem.

Counting on the Fans

I suppose that’s as good a way as any for Cisco to attempt to avoid direct comparisons between the price and performance of the seven-inch Cius and those of competing devices, including a new crop of ten-inch Android-based tablets that are about to hit the market as well as the ubiquitous Apple iPads that C-level executives have brought into their enterprises.

Cisco is hoping to use an enterprise app store, AppHQ, and security as hooks that will keep current customers in the fold and bring new ones into its tent. However, in an era of heterogeneous mobile-device management (MDM) suites and equally heterogeneous mobile-security suites — which seem to offer cost and flexibility advantages over the proprietary Cisco alternative in the vast majority of deployment scenarios — Cisco’s Cius market adoption will be limited to the vendor’s most zealous enterprise fan base.

Avaya’s Kennedy Sends Cautious Signals on Post-Nortel Business

Reading between the lines of Avaya CEO Kevin Kennedy’s recent interview with Network World, I have the strong suspicion that revenues from Nortel’s installed base of VoIP and unified communications (UC) customers are not ramping as robustly as Avaya had hoped they would.

I get that impression as much from what Kennedy doesn’t say as from what he says. He’s bold and brash when talking about combined R&D efforts and product roadmaps, but he’s reserved when discussing revenue targets and near-term sales. He doesn’t say the Avaya-Nortel combination has been a commercial disappointment, but he’s not boasting of its conquests, either.

A few market analysts are noticing that Avaya’s acquisition of the Nortel enterprise business hasn’t resulted in market-share hegemony for the merged company. These market watchers seem surprised that Avaya didn’t take the Nortel customer base by storm and leave Cisco in its rearview mirror, choking on dust and fumes.

But that failure to reconcile with reality is at least as much the analysts’ fault as it is Avaya’s. Earlier in this saga, I noted that a Nortel-fortified Avaya would be fortunate to maintain any market-share edge over Cisco. It seemed an obvious conclusion to reach.

Unfortunately, though, when unwary market analysts examine a post-acquisition scenario, they will add the market share of the two companies involved, then assume the merged entity will maintain or extend its combined market share. For many reasons, however, that rarely — if ever — happens.

In the case of Avaya’s acquisition of Norte’s enterprise business, several complicating factors suggested that the merger, from a market-share perspective, would result in less than the sum of its parts.

First, there was the product overlap, which was not insignificant. Second,  there were channel-management issues, which also were considerable. (Some Nortel partners were concerned about having to deal with Avaya.) Third, Nortel’s enterprise business had been in distress for some time, and it was suffering market-share erosion before and after Avaya took control. Fourth, even among Nortel customers still in the fold, some eventually will choose options other than those presented by Avaya.

I think Avaya anticipated most (if not all) of these challenges. Just after the acquisition closed, for example, Kennedy sought to temper post-merger expectations. He cited external factors, such as the weak economy, as well as the usual post-merger integration challenges. His tone was one of cautious optimism rather than of unchecked exuberance. He knew it wouldn’t be easy, with or without Nortel’s enterprise business.

He’s staying on message, probably for good reason.

HP Keeps UCC Options Open

When it comes to unified communications and collaboration (UCC), HP isn’t ready to bet the house on a single partner. It has struck UC-related partnerships with Microsoft, Avaya, and Alcatel-Lucent, and it also has the capability, through products obtained as a result of its 3Com acquisition, to develop a home-grown alternative.

It isn’t surprising that HP’s channel partners and customers, as well as neutral observers, are confused by HP’s seemingly promiscuous approach to UCC solutions. I’ll try to shed a bit of light on the situation, but I suspect nothing is carved in stone and that HP’s strategy will be subject to change.

HP’s latest UCC-related move involves Avaya.  The two companies announced a three-year alliance in which HP will sell and service Avaya UC and contact-center products as part of HP’s UCC enterprise-level services portfolio. The deal was inked in the aftermath of a similar 10-year accord that HP struck with Alcatel-Lucent.

Avaya and Alcatel-Lucent struck their deals with HP’s services business, which will act as a system integrator in bundling and delivering solutions to customers. It’s worth noting that HP also has a video-collaboration and UC partnership with Polycom.

The partnership with Microsoft is a bit different. That relationship primarily involves HP’s product and marketing groups, and it entails ongoing product integration and joint-marketing programs that stemmed from  the companies’ Frontline Partnership. Another difference is that Microsoft is taking a desktop-oriented approach to delivering unified communications whereas HP’s other partners, Avaya and Alcatel-Lucent, are addressing it from the IP PBX.

HP has decided to play the field for a couple reasons. First, the UCC space remains an underdeveloped market whose best days remain ahead of it. Despite years of hype, unified communicaitons has yet to fulfill its potential. To be fair, the reasons for that underachievement have more to do with industry politics and macroeconomic circumstances than with technological factors. Nonetheless, the market is one that has seemed perpetually on the cusp of better times.

Another reason that HP has cast a wide net with its UCC partnering efforts is that the predilections of the market, both with regard to vendors and architectural approaches, have yet to be revealed. Neither the PBX approach from Avaya and Alcatel-Lucent nor the desktop gambit from Microsoft has been declared a definitive winner. Moreover, the possibility exists that hosted UCC solutions might prove attractive to a significant number of enterprise customers. HP is getting into the game, but it’s spreading its bets across a number of leading contenders until the odds shift and one vendor establishes a clear market advantage.

As for why HP is getting into the game, well, the answer is partly that the company detects improving fortunes for UCC and partly that it feels compelled to respond to Cisco. One thing that HP and all its UCC partners have in common is competition against Cisco. HP needs an enterprise alternative to what Cisco is offering, and these partnerships provide it with various options.

Even though HP focused on the SME space with its latest Microsoft UCC announcement, I can’t see clear horizontal- or vertical-market delineation in HP’s partnering strategy.

Consequently, HP’s technology partners can’t feel overly secure. Any of these deals could fall apart, in real (revenue-generating) terms, without much warning. HP will follow its customers’ money. At the same time, it might be tempted to build or buy its own alternative. Further chapters in this story are sure to written.

Apple Isn’t in the Cisco Cius Picture

I don’t want to spend a lot of time on it, but I’ll offer a relatively brief assessment of Cisco’s Cius enterprise-tablet announcement yesterday.

Look, folks, the Cius is not competing with the iPad for the affections and disposable income of tablet-buying consumers. That’s not Cisco’s game, is not part of Cisco’s plans, and is just not happening. So, as difficult as it might be to do, forget about Apple and the iPad for now. Put it out of your minds. Apple gets more than its share of attention already, and I’m sure we’ll have many other reasons to pay homage to the iPad, the iPhone, and the other iWonders best0wed upon us by the wizards of Cupertino.

Now that we’ve determined what the Cius (as in “see us,” get it?) is not, what exactly is it? For starters, it’s clearly an extension of Cisco’s enterprise videoconferencing and video-collaboration portfolio. Cisco has been working from the high end to the low end, starting with luxury, room-based telepresence, buying its way into a wider range of corporate telepresence and videoconferencing through its Tandberg acquisition, and now developing its own low-end tablet, the Cius, to make enterprise video mobile and to deliver it to desktop docking stations.

So, one way of understanding the Cius is as a means for Cisco to  extend telepresence, videoconferencing, and video collaboration to areas of the enterprise it has yet to penetrate. It’s Cisco’s way of making sure video proliferates throughout its customer base, giving Cisco opportunities to derive sales not only from video-based products, but also from the enterprise-network upgrades that inevitably result from widespread utilization of high-bandwidth video on a corporate campus. For Cisco, there’s a revenue multiplier effect that is concomitant with the spread of enterprise video.

Not coincidentally, this move also precludes potential competitive encroachments by competing vendors of low-end videoconferencing and video-collaboration products. Cisco had a hole at the low end of its video product portfolio, and it has closed it with this announcement.

With the Cius, Cisco also integrates its enterprise-wide video-collaboration tributaries with its preexisting IP phone, unified communications (UC), and data-collaboration (as in WebEx) product streams. The docking station that comes with the Cius isn’t just an ornamental device holder; it is intended to act as the physical point of integration between personal video-collaboration and Cisco IP phones.  Competitors cut off at the pass here include Microsoft, HP, Avaya, and scores of others.

Finally — and Cisco’s reach might exceed its grasp on this one — the networking giant would like enterprises to view the Cius as an office-computer replacement. In defense of that argument, Cisco cites the Cius’ notebook-caliber Atom chip, its capacity to accommodate a monitor and keyboard, and its support for virtualization. I think Cisco has to put more meat on these skeletal bones, but I can see where they’d like to go and why. Again, Microsoft is a big target. It will be interesting to see how closely Cisco and Google, whose Android OS runs the Cius, can work together to disrupt their common foe.

All in all, the Cius was a logical move for Cisco, a practical and broad-based extension of its video-collaboration strategy. Apple, though, isn’t in this particular picture.

Magor Offers “Telecollaboration” to SMEs

Some have accused telepresence of being the preserve of the rich.

To be sure, room-based telepresence has an exclusive aura, conferred by its prohibitive price and imperious requirement. It is a proficient, if costly, means of bringing meeting participants together around a virtual boardroom table, but it is relatively inflexible and stiffly formal when asked to share the stage with data-based collaboration.

For verisimilitude, though, telepresence sits at the pinnacle of the video-meeting throne. It is followed in the hierarchy by videoconferencing, which covers a broad swatch of ground and extends from specialized systems to software-based services that provide a best-effort experience on nearly any device with a broadband Internet connection. With regard to the latter, think Skype.

It has become readily apparent, in fact, that the market for video communications is richly segmented rather than monolithic. Cisco would like to get more than its “fair share” of the market action, but its current portfolio (even with Tandberg) remains vulnerable to competitive incursions in the SME space, where price sensitivity is more acute than in the rarefied environs of the world’s largest transnational corporations. To be fair, though, even the world’s corporate kingpins are holding their wallets a little tighter as we move into a “new normal” of permanent cost controls and reduced growth scenarios.

Macroeconomic misgivings aside, there is also that unsettled question about how elegantly collaboration can be brought, figuratively and literally, into the videoconferencing picture.

One company taking its best shot at addressing the challenge is Magor Communications Corporation. The company calls what it does “telecollaboration,” which it defines as an “emerging category of communications solutions (that) . . . . combines high-definition (HD) videoconferencing and advanced collaboration capabilities to enable life-like interactions and experiences no matter where people are located.”

Put simply, Magor is trying to fuse adaptable high-quality (1080p, where possible) videoconferencing with data-based collaboration.

The company, which is now raising a round of financing, recently gave me an opportunity to experience its technology firsthand.  I came away impressed by the price-performance proposition, the quality and naturalness of the videoconferencing experience, and the smooth interplay of collaboration and videoconferencing. The user interface also seemed uncluttered and surprisingly simple. Like the best telepresence and videoconferencing systems, Magor’s facilitated a natural eye-to-eye conversation without getting in the way.

The Magor technology doesn’t give you all the visual brilliance of, let’s say, Cisco’s telepresence, but it also won’t give mid-sized enterprises sticker shock. That factor, and some others I’ll mention at the end of this piece, could be pivotal to the company’s success.

If you ask Magor what sets it apart from the pack, it cites four main differentiators.

At the top of its list is a patented video-compression technology that allows Magor to stream HD video at 2 Mbps, peaking at 4 Mbps. In contrast, it says, its competitors transmit at 5 Mbps, peaking at 30 Mbps, to accommodate one 1080p stream. When the network is heavily congested, Magor says, its system can dynamically and gracefully adjust the video quality to accommodate constrained resources. If network conditions improve, Magor readjusts video quality accordingly. To effect these quality adjustments, Magor’s software samples the video stream multiple times per second.

A second point of differentiation, according to Magor, is that its functionality is delivered entirely in software that runs on industry-standard, off-the-shelf hardware. Magor says it is looking to port its software to a range of platforms, including increasingly powerful notebook PCs, tablets (such as the iPad), and smartphones.

Magor says another distinguishing characteristic is its support for original-format data collaboration rather than for a bandwidth-sapping H.323 “collaboration image” pushed through a side channel.

Finally, Magor points to how easy its systems are to use. To add users or data collaboration to a conference, participants need only push a button on a SIP phone or click on a mouse.

With regard to pricing, a single-display system goes for approximately $15,000, with a dual-display system selling for about $30,000, and a three-display configuration going for $45,000. The two- and three-display configurations are offered with the option to purchase additional HDTV cameras, which increases the price of the packages by about $2,000.

Launched in 2006 under the aegis of Wesley Clover — an investment firm chaired by Terry Matthews, founder of Mitel and Newbridge Networks — Magor sports an accomplished executive team. Mike Pascoe, the company’s CEO, served in the same role at Meriton Networks and PairGain Technologies. Dan Rusheleau, Magor’s executive VP of product development, co-founded Newbridge. Not surprisingly, considering its progenitor, the entire executive team comprises alumni of Terry Matthews’ corporate constellation.

I suspect there’s a potentially sizable market for what Magor is selling, but it will face competition from above — Cisco, HP, Polycom — and from below, where Logitech’s LifeSize and the cheap-and-cheerful Skype are among the players.

The big challenge for Magor will be to establish strong business partnerships that give it the industry profile, channel reach, and business scalability to gain separation from the pack. It is busily building OEM strategies, vertical-market plans, and reseller networks. It already has Mitel in its camp, and it is working on a series of other agreements.