Imagine a new secure P2P (Skype like) offer that also supported SIP in the client. You could use the client software on it’s own (just like Skype) or attach it to just about any VoIP service or phone system for free.
Does it make sense for consumers?
Does it make sense for business users?
Is there room in the market?
Would you use it?
Martyn Davies chimes in…
I would use it, but as a telecom industry insider, I know that I’m not the average business user or consumer. As to whether there is room in the market, I think that depends a lot on what Microsoft do with Skype now that they own it. From a business point-of-view, their efforts are focused around OCS/Lync (and software licenses), so Skype there is not adding to their central proposition. Skype has a lot of users, but produces very little revenue, since the majority just use the free services. As a Skype competitor you would have the same problems getting to the cash.
Skype was really the first company to take VoIP and make it completely trivial to install and use. To do that, they had to take some liberties and deviate from standards (like SIP), so that they could add the magic that made it work from behind firewalls, add security and self-configuration, and integrate video so seamlessly. Like Facebook, once it is clearly the biggest of its kind of services, it becomes the community that everyone must join. I can’t see that another Skype-alike has a way in, unless Microsoft significantly change the rules now.
It looks like the first victim in the Microsoft acquisition of Skype is Digium and the open source PBX – Asterisk. The following is an email sent to existing Skype for Asterisk users…
Skype for Asterisk will not be available for sale or activation after July 26, 2011.
Skype for Asterisk was developed by Digium in cooperation with Skype. It includes proprietary software from Skype that allows Asterisk to join the Skype network as a native client. Skype has decided not to renew the agreement that permits us to package this proprietary software. Therefore Skype for Asterisk sales and activations will cease on July 26, 2011.
This change should not affect any existing users of Skype for Asterisk. Representatives of Skype have assured us that they will continue to support and maintain the Skype for Asterisk software for a period of two years thereafter, as specified in the agreement with Digium. We expect that users of Skype for Asterisk will be able to continue using their Asterisk systems on the Skype network until at least July 26, 2013. Skype may extend this at their discretion.
Skype for Asterisk remains for sale and activation until July 26, 2011. Please complete any purchases and activations before that date.
Thank you for your business.
Digium Product Management
One has to wonder what will become of Skype Connect, Skype’s answer to SIP Trunking. Will Microsoft shut off the Skype Connect vendors (Cisco, Avaya, Grandstream, etc.) as well?
Original forum post here.
On February 10th, Avaya launched a new on-demand, cloud-based option of its immersive web collaboration platform Avaya web.alive. The platform is available both as a premises-based solution and a SaaS offering, the latter being the focus of the new announcement, along with some new features and capabilities.
This new solution presents a virtual reality, which, in some ways, resembles the virtual event platforms (such as those offered by ON24, InXpo and Unisfair) but uses avatars and game-like tools and experiences, more similar to Second Life. I’ve heard some define the “traditional” (only in the context of this fast-evolving space) virtual platforms as virtual events and the likes of Second Life – as virtual environments. The monikers don’t matter much, but there are some differences, which we intend to tackle in more detail in a forthcoming study.
It’s great that Avaya is offering a free web-based demo. Anyone can try the environment at http://avayalive.com/tryit. It will be beneficial for end users to experience this unique, advanced technology first-hand before considering a full-fledged deployment or even a serious pilot. As an analyst, I was privileged to have several sessions with the Avaya team, but I am hearing that there is almost always someone in there who can help random visitors find their way through the different tools and functionalities.
For me, who’s never (NEVER) played any computer games or experienced 3D, doesn’t like Sci-Fi (didn’t even fully appreciate Avatar or The Matrix),… (the list goes on, but you get the idea) … this was both a thrilling and somewhat distracting experience. I did not take the time to test the environment before the pre-launch and ventured into it with a male avatar. Of course, I heard little from the presentation in the first few minutes because I was busy changing my gender and choosing my facial features and clothes to wear.
The next challenge was finding my way around the environment and learning how to control my avatar using the mouse and keypad. Eventually, I found myself standing all by myself in front of the speaker with my head spinning in different directions trying to find the best viewpoint. Somehow, using a 3-rd person view, with my avatar still proudly standing in front of the whole crowd, I managed to get my eyesight so low that I was staring upwards into people’s … well, lower backs. Toward the end of the event, though, I was boldly strolling around the environment, magically walking through people and furniture. And shouting. Until I realized it was not a good idea, because others could hear me without me noticing they were there.
I’ll end the story here and just briefly summarize what I liked and what I would wish to see improved going forward.
The things I liked:
- Such virtual environments are fun! It makes you giddy to design your persona (without the help of cosmetic surgery) and watch yourself from a third person point of view (there must be a split-personality tendency in all of us).
- You do get the impression that you are “meeting” with people in a quasi-realistic social environment, unlike the sensation one gets using more “traditional” conferencing tools.
- I liked seeing the pictures of the people I was close by or talking to, in addition to their oversexed avatars.
- I really liked the presentation and collaboration capabilities. I was able to easily share my desktop and saw demonstrations of video feeds and slide presentations.
- I like the fact that there are private rooms and people can have meetings behind closed doors. Only authenticated users have access to these rooms, but they can authenticate others. Once you are inside the room and the door is closed, no one else can hear the conversation OR see into the room.
- Also, a group engaged in a more private conversation in the public area can use a whisper mode, which is not audible to those at a greater distance but does not degrade the quality of the conversation for the main parties.
- Regardless of my “mishaps” facetiously recounted above, the environment is fairly intuitive and does not take a whole lot of learning to be able to navigate through it.
- I have to give credit to the Avaya people, too – they offered help and were prepared to patiently address all kinds of questions.
- From a business point of view, this solution has tremendous advantages as a web-based, on-demand platform. It is easy to deploy and use, even for small businesses, and is quite cost-effective at $49/month for a single account holder and up to 8 people attending at any given time.
- The platform also offers analytics tools that can help businesses assess the value they are receiving from enhanced collaboration.
What I would want to see improved:
- These visual environments can be very distracting. I heard people saying the virtual experience helped them avoid multi-tasking. In fact, I noticed I was more focused on what was taking place on the screen, but was it really the RIGHT thing on the screen I was watching/doing? I found myself checking people out (some were wearing funky outfits), rather than watching the slides. Maybe there should be a way for the speaker or person managing the event to help/force attendees to focus on the presentation screens whenever appropriate? I would not propose a dress code – that would be taking it too far J
- There need to be some additional privacy options. I discussed the private rooms in the section above, but I believe there should be a way to “encapsulate” people who wish to have a more private conversation in the public area. I imagine, visually it could be something like the Avaya Flare spotlight. In a real-life environment, such as in a typical conference facility, people always complain there aren’t enough meeting rooms and end up looking for these two-armchairs-and-a-table isolated areas in the hotel corridors to have a private chat. At a cocktail party, people use facial expressions and body language to keep unwanted parties out of their private conversation. But the virtual environment needs different tools. I am told that users can see who’s within listening area by watching the number next to an ear icon at the bottom of the screen. But people tend to get distracted or too engaged in a conversation to pay attention. So they need to be able to take precautions.
- Changing your voice, gesturing and other functions are only a right-click away. But I would want to see them in a menu bar – similar to a browser or Microsoft Office experience. It’s all about familiar, user-friendly interfaces, right?
- There needs to be an option to mute everybody (for both the organizers and the attendees), except the speaker. It is distracting when people are chatting around you. Is it like real life? Yes, but we always try to improve real life, don’t we?
- You have to hit Escape to be able to use some of the Options and to do other things on your desktop. It becomes bothersome, if you still want to do some multi-tasking.
- If you have a slow DSL or cable connection, the audio can get garbled. (I had the rare luck to have my Internet service switched to a new provider right in the middle of the launch!)
- Training, training, training!! Yes, it is intuitive; yes, younger generations will figure it out quickly and enjoy it. But for effective business use across different generations and types of users, organizations adopting this tool will need to strongly encourage employees to attend demos and brief training sessions. I have been told that Avaya does offer training. I think customers should not underestimate the value of a proper introduction to the new tool and ensure employees become familiar with key features and functionalities to avoid disappointment and misuse.
Go ahead and try it and let me know what you think. But don’t forget to mute yourself (press M on your keyboard) as you enter the environment or else someone can overhear your business conversations, kids shouting or dogs barking.
Are there other similar platforms you like better? Why?
The faster technologies evolve, the more overwhelmed we become with acronyms and technology terms we can hardly understand and pronounce, let alone remember, evaluate and properly implement. CEBP is one of those terms that has been around for a while and is frequently part of UC discussions, but is still poorly understood.
My colleagues Melanie Turek and Robert Arnold took it upon themselves to take a closer look at current vendor CEBP strategies and assess the market potential for CEBP solutions. They defined CEBP as follows:
“Communications Enabled Business Processes (CEBP) connect people, processes and information with the objective of reducing inefficiencies within business processes. CEBP solutions automate and optimize business processes by bridging the silos that exist between various business applications, and between communications and business software. These connections make information from multiple sources accessible, manageable and actionable to users within the context of workflows. By embedding communications capabilities into business applications that are part of the workflow, CEBP automates the connection of people to processes and information. The embedded communications functionality empowers users to take action and make decisions based on information provided within the context of their business processes.
Communications integrated into business applications is not synonymous with CEBP. The former usually consists of click-to-communicate or displaying user presence/ availability status within an application (i.e., word processing, email, CRM, ERP, etc). Such applications are commonly utilized in ad-hoc, unstructured ways that lack the ability to create contextual links between business processes and communications. CEBP is also not the same as BPA, BPO, BPM, self service or outbound messaging. Rather, any and all of these can be incorporated as part of overall CEBP solutions which enhance well-defined, structured workflows by providing users with contextual access to communications and information.”
However, as Rob points out in his blog post, “Our most immediate discovery was that CEBP continues to be ill-defined. In a sense the concept and terminology has become like UC, a catch-all marketing term that has been overly used and in many cases abused. It has become watered down to the extent that it now describes a very loose and broad array of solutions and capabilities.”
The key value of CEBP is in accelerating decision making, reducing human latency, increasing worker accountability, and meeting compliance regulations. Therefore, it is considered most appropriate for people-centric, heavily regulated industries such as healthcare, financial services, government and education.
However, to make CEBP most effective for their organization, businesses need to gain good visibility into their business processes and identify process bottlenecks and inefficiencies. Unfortunately, many businesses skip this very important step in assessing and deploying advanced technologies. In a recent conversation with Bill Vass, former CIO of Sun Microsystems, he shared the following:
“You need to spend a bit of time on the business architecture. I can’t tell you how many companies don’t understand it. I go to so many places, where I hear “Our IT systems don’t do what we need them to do”; and every time it turns out they have not taken the time to understand their business architecture and what their business is. So you start with the business architecture, and then you do a system architecture, and then you do a technical architecture. What most businesses try to do is jump right into the technical architecture, because that’s what they understand and they leave their business hanging around, and they claim their systems don’t do what they need them to do, and they are totally mis-communicating.”
Rob and Melanie identified some additional factors deterring CEBP adoption, such as the lack of formalized CEBP offerings and programs from the leading communications and collaboration vendors, complex marketing messaging, lack of interoperability and pre-built product integrations, and the need for extensive (and expensive) professional services.
Yet, they recommend that businesses leverage CEBP to gain a competitive edge. There is a significant opportunity for a first-mover advantage with CEBP, since few companies are doing it. Further, businesses need to think strategically when developing communications and IT investment plans and seek to improve internal communications and collaboration, employee productivity and efficiency, and customer relationships through investments in advanced communications and collaboration technologies.
Vendors are engaged in a more fierce competition than ever before. Customers can exploit this opportunity to require exceptional value for their money. They need to explore various packages and bundles that can provide them with a broad set of features and capabilities at a very reasonable cost. A free trial, a small-scale pilot, etc. could be helpful in making a final decision.
Businesses should look to their current providers first when investigating CEBP. Through the existing relationship the incumbent is likely to have greater insight into the customers business culture, cycles, processes, budgets, staffing resources as well as longer term plans with respect to communications and IT tools. Such a foundation can allow solutions to be planned, implemented and expanded/modified over time at a measured pace. Additionally, customers should request references of other businesses that have implemented CEBP solutions to address similar pain points. Certifications and qualifications for providers should also be checked out.
For further insight into CEBP strategies and solutions offered by Avaya, BT Global Services, IBM, Interactive Intelligence, and NEC Corporation of America, please check out our recent study titled: “CEBP Takes Shape to Address an Emerging Opportunity.”
On September 15th, Avaya announced several new products that nicely round up its Unified Communications (UC) applications and endpoints portfolio. The product launch focused mostly on video conferencing and video collaboration. Unlike its arch rival Cisco, Avaya has been lacking strong video capabilities, though it has been working closely with partners such as Polycom to provide end-to-end UC solutions to its business customers.
With its new Avaya Desktop Video Device and enhanced video support through Avaya Aura 6.0, Avaya is now able to deliver more comprehensive video conferencing capabilities on its own. The new Android-based device features a small form factor, touch-screen technology, HD video and audio, bandwidth efficiency, mobility (using WiFi, Bluetooth or 3G/4G via a USB plug-in) and a competitive price in the range of $3,000 to $4,000.
One of the most fascinating aspects of the new video device is the Avaya Flare experience. Avaya Flare is a user-centric UC interface with a spotlight in the middle that highlights ongoing communications sessions (IM, audio or video calling, and so on); on the right hand side – a list of contacts arranged by source – corporate directory, Facebook, etc. – and searchable by name; and on the left-hand side – a list of applications (such as calendar, for example). The Flare interface allows users to conveniently drag contacts into the spotlight and choose a communication mode based on presence status and/or the user’s preference and purpose. With an easy click of a phone icon, for instance, all contacts in the spotlight are immediately joined into a conference call. Other possibilities include video, IM, email, social (networking) and slideshare. Web conferencing is built into Flare as well.
In essence, the Avaya Desktop Video Device is a high-end, SIP-based, multimedia endpoint that enables users to conveniently use a variety of communication modes to communicate and collaborate more effectively. While the price point is certainly high for the average phone user, for users looking for cost-effective video, the Avaya Desktop Video device offers a compelling alternative. Typical users of such videoconferencing endpoints can be found in the legal or healthcare sectors, for example. Dr. Alan Baratz demonstrated a scenario in a healthcare environment where a specialist doctor was contacted via video to properly diagnose a patient. For a busy, multi-tasking and typically mobile executive, this device can prove a highly effective communications and collaboration tool, competing with a Cisco CIUS or an iPad as well as emerging smart deskphones.
The good news for those looking for a smart interface, yet not crazy about video or unable to afford the premium price, is that Avaya plans to introduce the Flare experience on other devices as well. In the near term, Flare will be available on select Avaya 9600 series phones and eventually – on smartphones. Integration with Microsoft Outlook for contact management and ability to control voice, conferencing, IM and presence can turn the SIP deskphone into a smart device providing a single point of access to communication tools currently available on disparate endpoints (e.g. IM and presence on PCs and laptops, voice on phones, and so on).
Furthermore, Avaya one-X Communicator 6.0 will provide ad-hoc video conferencing capabilities to Aura customers looking to use their PC or laptop as their primary interface to multiple, integrated communication and collaboration tools. Presence and IM federation, tight integration with Outlook, Communicator, Microsoft Office, IBM Sametime and Lotus Notes, video interoperability across Avaya’s portfolio and third-party endpoints, and centralized management through Aura, make Avaya’s one-X Communicator UC solution an appealing option for desk-bound knowledge workers and other heavy communications users.
Avaya also announced its Avaya Aura Collaboration Server – a virtualized platform delivering all Avaya Aura 6.0 core capabilities, including the Session Manager, Presence Services, Communication Manager and System Manager, on a single server. This is a cost-effective (list priced at $27K) solution for up to 50 users that allows businesses to leverage Avaya Flare and Avaya videoconferencing while avoiding a large CAPEX commitment.
Avaya also highlighted its professional and managed video services capabilities, which will be key in complex environments and with businesses lacking sufficient in-house expertise to deploy and manage advanced video applications on their own.
Finally, Avaya launched the Avaya web.alive Experience – a cloud/SaaS-based collaboration solution featuring a 3D environment with avatars. Avaya web.alive enables users to collaborate using audio or video conferencing and sharing presentations and other content. Businesses can license a “space” within that environment and then customize it based on their needs. It is also available for on-premises implementations when security and control are key concerns (for instance, in government deployments). While the avatars create the illusion of an immersive experience, their movement on the screen may be distracting to some users. They may wish to use a 2D version and still leverage the full range of collaboration capabilities available on the platform. The web.alive Experience is being touted as particularly effective in marketing and sales scenarios (when presenting to customers and demonstrating the capabilities of specific products or solutions) and in e-learning environments. The platform provides interesting analytics tools that can be used to assess the effectiveness of collaboration and each participant’s contribution to the collaborative process.
Some customers inquired about the possibility of Avaya delivering certain advanced features such as video call park, hold, transfer, and so on in the future. Avaya confirmed that it can eventually enhance the video capabilities using Aura. Avaya was also asked to substantiate its claims of significant hardware cost reduction compared to competitors. It responded that it had benchmarked itself against Polycom and Cisco/Tandberg and came up at a 20% to 30% cost advantage vis-à-vis Polycom and up to 70% cost advantage vis-à-vis Cisco.
During Q&A, Avaya also provided some clarifications around the deployment options for the new video solutions. All new capabilities are available with Aura 6.0; however, previous Aura versions, as well as IP Office, can be front-ended with the Collaboration Server in order to leverage existing infrastructure and take advantage of the new capabilities. Additionally, through Aura, other vendors’ telephony platforms can also be integrated with Avaya’s video solutions. Furthermore, Aura provides bridges between Avaya’s new SIP-based solutions and existing H.323 video systems.
With the new announcements Avaya once again demonstrated its commitment to innovation and continuously enhancing the value of its products and solutions. It’s made some strong claims about the cost efficiencies and productivity benefits of its solutions and it remains to be seen how those become realized in individual customer scenarios. Also, Avaya has traditionally benefited from its more partner-centric approach (vis-à-vis Cisco’s one-stop shop approach), including in the area of video collaboration, and it will be important for Avaya to continue to function effectively in a broader eco-system. While the Aura architecture enables Avaya’s customers to leverage multi-vendor technologies for best results, it is possible some of its former partners may feel threatened by the new move. However, with the growing recognition of the value of videoconferencing in replacing costly travel and helping geographically dispersed teams collaborate more effectively, Avaya has rightfully sought to enhance its video capabilities. The new video solutions are likely to help it broaden its customer reach and add new sources of revenue.
Nortel’s bankruptcy and Avaya’s acquisition of its enterprise assets has caused uncertainty and fear among Avaya and Nortel customers and partners. Avaya recently presented its vision for the evolution of the combined product portfolio. I would like to hear from businesses, VARs, SIs, etc. about their specific concerns. Did Avaya’s roadmap alleviate some of these concerns or did it raise new ones? Which choices did you think were good? Which ones were wrong? Do you trust Avaya’s commitment to both installed bases and both channels? What would you wish to hear from Avaya? What strategy direction would best serve your needs?
As a Frost & Sullivan analyst I do not endorse any particular vendor. If you email me your opinions, I will protect your privacy and will only use your insight to develop an aggregate perspective on customer and partners sentiments.
Avaya-Nortel: SIP Architecture Becomes Foundation for New Product Roadmap
As I listened to Avaya’s new roadmap announcement on January 19th and wondered if they made all the right decisions, I couldn’t help thinking about the complexity of an M&A process and its implications for everyone involved. This article is not about the specific product choices Avaya made, although I thought they did a good job taking multiple factors into consideration including product features and capabilities, customer and partner investment protection concerns, and vision for the evolution of the total portfolio and architecture. Extending the life of most Nortel products for another 18 to 30 months and continued support for Nortel’s more advanced and unique products such as Nortel’s AS5300 were good calls. I was surprised to see so many end users inquire about the fate of the Call Pilot and I am glad Avaya had some good news for these customers. I also thought Avaya’s decision to keep and evolve ACE was the right one as I believe ACE and application enablement will be key for its competitive positioning going forward.
It is only natural that Avaya intends to eventually merge and integrate all products and solutions into the Aura architecture. Aura is a technological framework (and not just packaging or a marketing term) based on SIP and SOA, and it makes sense for Avaya to look to integrate its now extended product line into the same vision or framework. It will be critical for Avaya to continue evolving this framework with an eye on new technological developments and customer and partner needs.
Application Enablement and Openness Drive New Competitive Dynamics
I think we should, however, look at the Avaya-Nortel acquisition from another angle as well. It provides an example of portfolio integration challenges and possibilities in the context of current technology trends towards greater openness and interoperability.
The shift to open standards, SIP and SOA is now making such acquisitions less painful than they used to be in the past – for the merging vendors, the channel partners, and their business customers. It will take Avaya less time and effort to integrate the best-of-breed applications of both vendors into its Aura framework because of the greater openness and interoperability of both vendors’ advanced communications solutions. Customers can more cost-efficiently mix and match platforms and aplications, not only from these two vendors, but from other vendors as well, since communications are becoming more software-centric and standards-based. Overall, today, customer investments are better protected and less vulnerable in case of abrupt changes in competitive dynamics.
In Avaya’s case, SIP, Aura and ACE will play key roles in delivering a more flexible and cost-effective migration path to its customers. Other vendors have their own next-generation architectures and application enablement environments that allow them to integrate with competitors’ platforms and applications. The capabilities of each vendor’s application enablement technologies vary from a more limited set designed to integrate communications with messaging and presence platforms (e.g. Avaya’s AES) to a broad range of capabilities including integrations with messaging, presence, business process, Web 2.0, mobile, and contact center applications, TV and video broadcasting, etc (e.g. Nortel’s ACE).
As unified communications become further integrated with digital content, business process applications and other, non-communication technologies enabling “contextually-rich communications” and “communications-enabled business processes (CEBP)”, vendors will need to open their solutions and create tools for customers, partners or their professional services arms to develop custom solutions addressing specific customer needs. Such tools and application enablement environments can be made available to large communities in the cloud so that multiple parties can contribute to the process of creating new applications and mashups. Some of these new mashed-up applications that can be deployed out of the box can eventually become productized to provide a more cost-efficient alternative to SMBs and a new revenue stream for vendors.
Application enablement capabilities will be key for all communications vendors going forward, but they will be even more critical for vendors providing best-of-breed solutions designed to operate in multi-vendor environments.
Of course, vendors have a long way to go before standards become truly open and customers can seamlessly, quickly and easily integrate multi-vendor applications. SIP, though touted as the communications standard of the future, in its pure form offers only a limited set of features. Entirely or partially proprietary solutions still offer better features and capabilities than most open-standard ones. Therefore, although most vendors claim SIP support, the different versions of SIP used along with the proprietary enhancements are not entirely interoperable.
Most likely, the cloud and cloud-based communications will help push further the frontiers of openness and interoperability. Instead of connecting multi-vendor applications and platforms individually at each customer’s premises, vendors can integrate more economically and on a larger scale in the cloud, delivering choice and flexibility to their customers unmatched in the premises-based world. In the beginning, many of these cloud-based services will be simple and will only offer some lowest common-denominator capabilities, but will enable some integrations out of the box, sparing customers the hassle and the cost of complex integration processes taking place in premises-based installations.
Partnerships, Alliances and M&A in a More Open Communications World
Customer demand for application integration will drive vendor efforts towards greater interoperability and co-opetition. Improving standardization and openness in communications technologies, in turn, will enable vendors to more easily engage in partnerships and alliances in order to deliver greater value to their customers.
There are multiple reasons why companies wish to merge. Most often, they are looking for new revenues streams, but also – for opportunities to more tightly integrate their technologies and deliver a one-stop shop value proposition to customers. Will more open architectures reduce the appeal of complex M&A processes in favor of partnerships and alliances? Should we expect further market concentration or the proliferation of more innovative and nimble market participants providing business customers with a wide array of options?
Power in the top tier has become concentrated, but the SMB market remains quite fragmented. While it will become less appealing to go through an M&A for the purposes of ensuring technology integration, it will also become less challenging to integrate portfolios in case of an M&A. M&A will likely take place for the purposes of acquiring installed bases, skill sets and business models (e.g. professional/managed services), simply eliminating a competitor, or for geographic expansion. I believe both trends (consolidation and fragmentation) will persist, but the drivers behind vendors’ business model decisions will change. What do you think?
Enterprisemedia gateways have evolved over the past 10 years. From relatively simple devices with straightforward transcoding and protocol translation functionality they have now become critical network elements and are increasingly incorporating other functionality. While single-purpose, plug-and-play gateways will continue to appeal to certain customers, multi-purpose appliances are likely to become more common as gateway functionality is embedded into other network elements and gateways are enhanced with new features and capabilities.
Over the past four to five years, the gateway market experienced significant growth as businesses IP-enabled their Time Division Multiplexing (TDM) telephony infrastructure in order to realize cost savings on long-distance communications, a practice known as toll bypass, and as they increasingly adopted IP telephony platforms that needed to be interconnected with the public switched telephone network (PSTN). In 2008, toll bypass and IP telephony still accounted for over 80 percent of the total ports shipped, but their share is likely to decline going forward as SIP trunking and application integration drive new demand for gateway functionality.
Voice over Internet protocol (VoIP) access and Session Initiation Protocol (SIP) trunking services are rapidly gaining traction and are providing TDM and IP customers with significant cost savings by enabling them to converge access lines and reduce long-distance charges. They also provide some additional benefits such as network-based fixed-mobile convergence (FMC), voicemail and auto attendant and voice virtual private networks (VPNs) with abbreviated dialing across multiple sites. Since the majority of the installed telephony equipment is still TDM and interoperability with IP telephony platforms is limited, growing penetration of VoIP trunking services will be highly correlated with demand for gateway functionality.
Internet protocol (IP)-based applications such as contact center, conferencing and unified messaging (UM) have created some new opportunities for gateway vendors over the past couple of years as these applications needed to be integrated both with premise-based telephony infrastructure and carrier TDM networks. Application integration is likely to account for a growing percentage – from 10 percent to about 15 percent – of total ports shipped over the next five to six years.
The gateway market experienced growth deceleration in 2008 due to a number of factors including the beginning of the recession and the maturation of the traditional gateway markets – IP telephony and toll bypass – and the slow take-off of nascent markets such as SIP trunking and UC. In 2009, the market is likely to experience a decline mostly due to the tough economic conditions. Pent-up demand is expected to drive growth in 2010 and onwards.
In 2011 and beyond, the market is likely to continue to grow driven by mass adoption of IP telephony, branch office integration, and solid growth rates in the SIP trunking and UC markets. Due to market maturity and rapidly improving SIP interoperability among vendors and service providers, annual growth rates are not likely to ever reach the heights of previous years and are likely to peak in 2011 and 2012 and start decelerating towards the end of the forecast period.
Enterprise media gateway vendors will face a number of challenges over the forecast period as follows:
•The need to ensure interoperability with multiple CPE vendors and VoIP service providers
•Cisco’s dominant market share and router-based approach, practically limiting all other vendor’s ability to grow
•The need to differentiate in order to remain competitive
Market growth will be driven by the following factors:
•Growing IP telephony penetration will continue to drive demand for enterprise gateways required to connect IP CPE to the PSTN.
•Toll bypass opportunities continue to thrive in some markets where PSTN costs are still high.
•Increasing availability of VoIP access and SIP trunking services will drive demand for gateways required to connect to both TDM and IP telephony CPE.
Market growth will be restrained by the following factors:
•Some concerns over the reliability of IP telephony platforms and the quality of IP voice will slow down IP telephony adoption.
•VoIP access and SIP trunking services have gained little traction so far and are likely to be slow to penetrate the market due to interoperability challenges as well as limited service provider focus and marketing efforts.
•Slow adoption of UC and other IP-based communication applications is slowing down demand for gateways associated with such implementations.
Competitive power is quite unevenly distributed in the enterprise media gateway market with Cisco holding over 60 percent share of ports shipped and close to 70 percent share of revenues in 2008. Cisco has benefited tremendously from its leading position in data networking in tapping into the enterprise IP telephony market. Cisco is likely to lose some share over the next five to six years as independent vendors aggressively pursue new market opportunities.
With IP telephony implementations accounting for over 60 percent of total ports shipped, the rest of the IP telephony vendors (besides Cisco) using their own gateway appliances or cards in IP telephony deployments accounted for over 25 percent of gateway ports shipped in 2008. Each telephony vendor’s share of the enterprise media gateway market is largely determined by its share of IP telephony lines shipped in the same year.
A number of standalone gateway vendors are competing for a share of the enterprise media gateway market. Those include Aculab, ADTRAN, AudioCodes, Dialogic, Edgewater Networks, Grandstream, Multi-Tech, NET, VegaStream, Veraz and others. Each vendor is trying to position itself somewhat differently from the others differentiating either through features and functionality or business model and partnerships.
Given the high concentration of market power and the mature stage of the market, it is not likely that many new entrants will seek to tap into this opportunity throughout the forecast period. It is possible, however, that some vendors in adjacent markets such as Aculab (entered in 2008) and Veraz (entered in 2009) may seek to leverage existing technology expertise or channel partnerships to diversify their portfolio and revenue streams. Going forward, it is likely that existing market participants will look to re-position themselves for continued success in an evolving marketplace.
Today, September 14, 2009, Nortel Networks Corporation (Nortel) announced that “it, its principal operating subsidiary Nortel Networks Limited, and certain of its other subsidiaries, including Nortel Networks Inc. and Nortel Networks UK Limited, have concluded a successful auction of substantially all of the assets of Nortel’s global Enterprise Solutions business as well as the shares of Nortel Government Solutions Incorporated and DiamondWare, Ltd. Avaya Inc. (Avaya) has emerged as the winning bidder agreeing to pay US$900 million in cash to Nortel, with an additional pool of US$15 million reserved for an employee retention program.
The sale is subject to court approvals in the U.S., Canada, France and Israel as well as regulatory approvals, other customary closing conditions and certain post-closing purchase price adjustments.”
Both the press release and the comments provided by Joel Hackney, President of Nortel Enterprise Solutions, on the analyst call this morning described the event as “a very exciting day in the history of Nortel”, “a historic moment” and “a big day for us [Nortel]”. These claims seem to be based on the anticipation that the deal will provide existing and potential [Nortel] customers with investment protection. The deal is expected to close by the end of the year. The finalization of the bidding process, which started last Friday, took, in fact, three days and was described as “a very productive process” demonstrated by the almost doubled price compared to the original stalking-horse bid placed by Avaya earlier this year. The names of the other two bidders were not disclosed, but the Nortel spokespeople noted that Avaya’s advantage as the stalking-horse bidder was primarily in the ability to gain a head start on integration planning.
Much has been said about the potential advantages and disadvantages of this transaction. As I go over my previous post on this subject matter (please see further below on http://www.sipthat.com), I feel that most of my earlier thoughts on the then potential merger are still valid.
The one important aspect that has changed, however, is the price. As mentioned, it has almost doubled since the original stalking-horse bid for US$475 million. I believe that the other two bidders must have played a key role in pushing up the sales price. However, Nortel’s spokespeople reiterated something they had stated earlier when the stalking-horse bid was announced – namely, that the interests of customers, channel partners and employees represented primary concerns in the negotiations. Therefore, other aspects of the transaction (in addition to the acquisition price) must have given Avaya a superior position in the negotiations vis-à-vis the other bidders. For example, Avaya’s commitment to preserve at least 75% of Nortel Enterprise Solutions’ workforce at the time the deal closes certainly demonstrates good citizenship on both Avaya and Nortel’s parts.
Nortel is most likely to continue gradually restructuring its business until the deal closes and to also invest in conveying a consistent and compelling message to all stakeholders about the benefits of the merger in order to ensure the most successful final outcome. Joel Hackney mentioned that the next 60 days will be critical for them to prepare the market for the upcoming transition. While Avaya and Nortel will continue operating as separate entities, each will work towards this goal to the best of their abilities.
For everyone’s sake, I hope that the higher transaction price indicates an even greater commitment on Avaya’s part to make the merger as successful as possible. I hope it takes this opportunity to invest in focused transformation and portfolio evolution and creates a strong entity that can compete more effectively against Cisco and Microsoft (as well as the rest of the communication vendors, of course). There have been speculations that Avaya is likely to just leverage Nortel’s installed base to convert it to Avaya solutions with a minimal investment in preserving and further developing Nortel’s technologies or partnerships. That would indicate complacency that Avaya cannot afford in this period of rapid technology evolution and drastic paradigm shift. I believe Avaya’s leadership has identified the need for change (judging by other initiatives taking place at the company) and is not likely to squander its good fortune granted by the acquisition.
As the merger provides Avaya with an uncontested leadership position both in terms of installed base and shipment and revenue market share, Avaya should use the “break” from the breath-taking competition with Cisco over the past few years to aggressively transform its product line, overall approach and marketing message. With the new threat posed by Microsoft, incremental changes are no longer sufficient to ensure a telephony vendor’s longevity. Some tough decisions may need to be made, but they need to be made rapidly, yet prudently, and with a vision for Avaya’s role in the communications marketplace not two or five but ten years from now.
As I stated earlier and as I can see my fellow analysts have commented, the merger definitely represents a positive development for Avaya. This was probably one of few and, most likely, the best opportunity for it to rapidly gain market share. Without more visibility on who the other bidders were and what they had to offer, it is difficult to judge if this was the best alternative for Nortel, but the increased transaction value and the highly positive comments by Nortel’s spokespeople, give us reasons to believe that Nortel secured the best deal possible given the circumstances.
From a channel perspective, partners may have some mixed feelings. In my opinion, channel partners should not fear that they would be abandoned empty-handed. Avaya has officially committed to a more channel-centric approach and, who else can best install and support Nortel solutions, but its partners? For some time to come, Nortel’s existing customers and those that continue to trust and invest in its technologies will represent a cash cow for Avaya and it will need trained individuals to help milk that cow. Eventually, nothing can prevent partners from also adding Cisco, Microsoft or any other vendor to their portfolio and thus diversifying their portfolio and reducing risk. As vendors struggle for market share, they are more likely than not to seek to attract and nurture new partners.
From a customer point of view, the most positive development is the end of the uncertainty – in its present magnitude, at least, as some uncertainty will linger on for some time to come until Avaya sends a clear message about its portfolio evolution plans and demonstrates some commitment to this plan through consistent execution. With the rapid pace of technology advancements, customers looking for cutting-edge communication solutions should be prepared for shorter technology refresh cycles, anyway. Declining technology prices are making such more frequent infrastructure replacements more affordable. On the other hand, as architectures become more open, most vendors are developing products and strategies for more seamlessly and cost-effectively migrating their competitors’ customers to their own solutions, thus expanding the array of options for end users and offering them much greater flexibility.
In conclusion, I would reiterate that, in my opinion, this is a positive development for the industry. Our eyes are on Avaya to share a vision for the future of the merged entity when the deal closes toward the end of the year.
After months of turmoil and speculations, Nortel has picked Avaya as the preferred bidder (stalking horse) for its enterprise business unit. On July 20th, Avaya and Nortel announcement an agreement, based on which Avaya will acquire Nortel’s enterprise unit for $475 million, also assuming $28 million of debt with the acquisition. An auction is still pending, but chances are Avaya will be the one to offer Nortel’s enterprise technologies a new home. It is worth taking a look at the implications of this potential merger regardless of the final outcome of the auction. Should another bidder offer a better deal and this merger fails to take place, we will, at least, know what could have been the consequences, if it did.
So much has been said about Nortel’s troubles and how it got to this point that I feel it is completely unnecessary to dwell on that any further. It is now clear that it is not going to emerge from bankruptcy intact and the only question is who will acquire the pieces and for how much. On an analyst call, Joel Hackney presented the pending Avaya acquisition as the most beneficial outcome for Nortel as far as all stakeholders are concerned – shareholders, customers, partners and employees. He noted that other potential bidders will be evaluated not only based on price but also other, unspecified criteria. We can only guess that such criteria will include some specific commitments to the above stakeholders.
One of the most important questions is – what makes Avaya such a suitable partner after years of intense rivalry? Challenged by Microsoft and Cisco at the top and SMB vendors such as Mitel, ShoreTel, open-source vendors, etc., at the low end, Avaya and Nortel don’t have much of a choice but to hold hands and form a unified front against the newcomers. Many of their customers can be described as “risk-averse” or the kind that would prefer an established vendor with a long history of delivering reliable, enterprise-grade communication solutions. In our experience, some of these customers wish to preserve their TDM equipment a bit longer and Microsoft, Cisco, etc. would not be their vendors of choice. But vendor viability is critical and especially Nortel, but even Avaya, will not be able to withstand the aggressive push from the new-age competitors on their own. By combining their installed bases and diversified portfolios they can now offer their customers – from the most conservative ones to those pursuing migration to IP telephony and unified communications – better longevity and a wider array of options.
Speaking of portfolios, redundancies will be inevitable in this kind of merger. Some products will have to be eliminated or else the new entity will experience major inefficiencies and will confuse partners and customers. For example, Nortel’s Joel Hackney identified the two vendors’ most advanced and truly innovative solutions – ACE and Aura – as synergistic, but they will have to be integrated into a commercial offering and positioned with a marketing message that clearly identify their role and benefits to enterprise customers. Integration may be less challenging at the low end of the telephony spectrum as Nortel’s SMB products can prove to be a most valuable addition to Avaya’s portfolio. Further, both vendors have strong contact center portfolios, which, if successfully integrated, can position them very competitively against Cisco and the other communication vendors. Finally, Nortel’s government business must have been perceived as offering a major value proposition to Avaya’s stakeholders as well.
But what will Avaya do with Nortel’s data portfolio? Will it be able to integrate it with its other product lines and leverage it for growth and a more competitive positioning in the communications market? Most vendors are looking to become more focused rather than diversified today. For example, enterprise and carrier solutions don’t seem to mesh so well together any more. Similarly, as the data networking market becomes increasingly mature and commoditized, it doesn’t seem like a viable growth opportunity for a telephony vendor.
I would like to take a step back here to comment briefly on the lost opportunity for a Siemens-Nortel partnership. These two vendors’ portfolios would have generated better synergies with Siemens being particularly strong in the large enterprise space and Nortel offering an appealing SMB portfolio. Further, their geographic distribution of power would have been more complementary. Finally, both vendors have crafted major partnerships with Microsoft perceiving those as critical for their future success in the unified communications space. There must have been, however, factors that tipped the scales in favor of Avaya (and money can’t have been one of them given the fire-sale value attached to Nortel’s enterprise business).
I believe that one major aspect of the acquisition negotiations and a leading selection criterion was the acquiring party’s channel strategy. Nortel has historically been heavily dependent upon its channels for market reach and customer support. The channel partners represent major stakeholders in the process of Nortel disintegration and sell-out. Avaya, on the other hand, has recently admitted that its channel strategy had been lacking . For one thing, its direct sales force competed with the channel and created conflicts of interest. It has, however, stated that it intends to re-vamp its channel strategy and shift most of its sales to the channel. As part of this process, it is working towards improving its channel programs and growing its partnerships. Needless to say, the addition of Nortel’s partners will enhance its overall customer reach. Avaya’s new approach, on the other hand, guarantees Nortel’s partners some continuity in terms of product support and service delivery.
One can’t help but wonder if Siemens’ bid did not fail (at least for now) because of its historical preference for direct sales. It seemed like a great opportunity for Siemens to grow both its channel reach and its North American presence through the acquisition of Nortel’s assets. But could Nortel and its stakeholders trust Siemens that it would indeed preserve such an extensive channel?
The Making of a Super Power or Delayed Transformation?
Should Avaya end up acquiring Nortel’s assets, the new entity is likely to go through two or three main phases over the next five to six years. Phase One is going to be marked by gradual and most likely painful integration of two portfolios and two business cultures. With the economy likely to curtail growth for some time to come, the new entity will struggle to first come up with a cohesive and comprehensive strategy and then communicate it to partners and customers. Organic growth is likely to be limited for at least 12 if not 18 more months.
Assuming that Avaya’s management succeeds in integrating the two businesses and sends a VERY STRONG message to the market about its growth objectives and means of accomplishing these objectives, the new entity can become a very powerful communications vendor with an unrivaled installed base and one of the most diversified unified communications portfolios. This is where Phase Two starts for the new entity looking to secure a competitive position in the evolving communications market.
Cisco has been breathing down Avaya’s neck for two or three years now and has contested its leadership in telephony line shipments and revenues. Cisco’s determined advancement in the unified communications space is not going to be slowed down by a potential Avaya-Nortel merger. Cisco targets businesses that are determined to adopt a truly IP-centric architecture and many of those associate Avaya and Nortel with their legacy portfolios. Further, it has put together a comprehensive unified communications portfolio including instant messaging, audio, web and video conferencing, telepresence, collaboration, etc. that makes it a one-stop shop for more than just telephony and voice/unified messaging. Finally, with its increasing focus on cloud-based, SaaS-type offerings, Cisco is preparing for a completely different play in the communications marketplace.
The bottom line is, Cisco’s march towards market leadership will continue and it will gradually shorten the distance with the new entity as well. The potential Avaya-Nortel merger can delay Cisco’s market share gain but will not deter its ability to grow. I strongly believe that the market (customers, partners, etc.) need competition and options. Therefore, a stronger communications vendor with a different, yet similarly diversified portfolio, and a quite different approach and reputation is highly needed to compete against Cisco in order for innovation to continue and end users to enjoy the benefits of more compelling, yet less expensive solutions. I expect Phase Two to be market by healthy competition with two dominant players, but also some very strong Tier-2 and Tier-3 competitors.
There is another factor in this marketplace, however, that will determine the outcome of Phase Two and the transition into Phase Three. The enterprise communications landscape has changed dramatically since Microsoft’s entry two years ago (arguable it started much earlier). Microsoft has forced the incumbent vendors to reform themselves and adopt more open, software-based approaches. It has emerged both as a potentially powerful competitor and a highly sought after partner. There are many industry pundits who believe that the future of all the incumbent vendors – Avaya, Alcatel-Lucent, Mitel, Nortel, Siemens, and even Cisco is challenged not so much by competitive dynamics among them but by Micosoft’s rally for a market share of enterprise telephony.
How Phase Two ends for a combined Avaya-Nortel entity will depend on how it positions itself vis-à-vis Microsoft. It can choose to aggressively pursue an alliance and ensure that, in the short term, it is the preferred vendor for the telephony component of OCS-based unified communication implementations. It can instead choose to align itself more closely with IBM and thus slow down Microsoft’s penetration into the enterprise UC space. Eventually, however, Microsoft will be able to grab a significant market share of the telephony market and, alliance or no alliance, the incumbent vendors (not just Avaya-Nortel) will need to find new growth opportunities. They can choose to transform themselves into primarily services companies and provide integration and professional services in deployments where Cisco provides the “plumbing” and Microsoft – the applications, or they can continue to fight a very hard battle continuously looking to out-perform Microsoft by developing new competitive advantages in various application areas – conferencing, mobility, customer care, Web 2.0 integration, etc.
Phase Three can be a period of dramatic transformation for Avaya-Nortel as well as all incumbent vendors as they choose different evolution paths – either becoming services-oriented businesses, getting acquired by larger and more diversified vendors, or focusing on specific market niches such as vertical industries, etc.
In essence, transformation is inevitable. It will permeate all phases of market evolution throughout the next five to six years. It is really a matter of when it takes place for each individual vendor and how it is executed. It is critical for both Avaya and Nortel to understand that and do not delay the process because of a somewhat illusionary sense of greater power and security based on the size of a merged entity.
We can dwell further on Avaya-Nortel’s fortune once the acquisition is final. If it does not go through, Avaya will have to face a number of challenges on its own and Nortel’s fate will be determined by where it ends up. For now, I have a positive feeling about the potential merger and hope it goes through.