Open Standards, SIP and SOA: Summer of Love in the Communications Market?
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?
Watch out for Sharks in Turbulent Water
It has certainly been anticipated that the recession would force telecommunication markets (not unlike other industry sectors) into further consolidation. The enterprise telephony space, for example, has long been struggling with slowing revenue growth, limited differentiation opportunities and rising competition from non-traditional vendors such as open-source telephony providers, Microsoft, Skype, mobile carriers (somewhat indirectly, through increasing usage of mobile phones for business purposes), you name it.
Although we have no sufficient evidence on what is going to happen with Nortel, we can speculate based on recent news about M&A negotiations taking place and some general marketplace analysis.
At this stage, it just does not seem likely that Nortel is going to make it through bankruptcy protection intact. Rumors that Avaya and Siemens (probably among several others) are in acquisition talks with Nortel for its enterprise business unit should not be surprising. In tough economic times, as demand shrinks, there is no space for too many similar vendors. Also, acquisition costs are at an all-time low, so if anyone is striving for market share growth, this is the time to leapfrog ahead of the competition with an acquisition rather than waiting for slower organic growth.
Nortel’s enterprise business is attractive for several reasons. Nortel has some great telephony, messaging and UC technologies, leading contact center solutions, a large installed base and a loyal channel. Yet, the value of this business to its different competitors will not be the same.
With Siemens Enterprise now financially more stable with the Siemens AG and Gores Group joint venture, it is focused on growth and market expansion. A potential acquisition of Nortel’s enterprise unit could provide it with an immediate access to a North American channel and customer base. Further, from a UC point of view, there are opportunities for eventual synergies. For example, both vendors have partnerships with Microsoft for the delivery of unified communications solutions to business customers. A potential merger will position the new entity very competitively in the enterprise communications marketplace.
Some industry pundits claim Siemens and Nortel have similar technologies; yet, in my opinion, there will be major redundancies as well (e.g. MCS vs OpenScape, large-business telephony platforms, etc.). One of the most significant advantages is Siemens’ open standards approach which allows it to integrate with multi-vendor IM/UC and telephony environments. Finally, both vendors have been on track to become “services” companies for some time now, which could help the new entity more easily align resources under a common vision and consolidate business operations.
Avaya could also benefit from a potential acquisition of Nortel’s enterprise unit as it will emerge as the undisputed North American telephony leader, with a compelling global market share and a significant advantage in the SMB space. The two companies are believed to have a similar customer base described as fairly “risk-averse”, i.e. inclined to work with incumbent vendors with a proven track record of delivering reliable enterprise telephony solutions. Also, Avaya has committed to expanding its channel partnerships and further shifting sales towards a more indirect model, and access to Nortel’s partner base can help accelerate this trend. Finally, Avaya can thus get a hold of some of Nortel’s more advanced UC technologies such as MCS and other solutions already interoperable with Microsoft’s UC portfolio, which will position it even more competitively in the evolving UC space. Needless to say, there will be various portfolio integration challenges and redundancies as well.
Although Alcatel-Lucent is not mentioned to be in any active acquisition talks with Nortel, no doubt, it could also benefit from the opportunity to grow its North American presence leveraging Nortel’s customer base and channels. It could also use Nortel’s technologies to enhance its UC portfolio, which at present, is somewhat less complete than those of its telephony competitors.
Cisco, on the other hand, as stated in other commentaries in the press, may really consider a potential acquisition less beneficial given its proprietary technology approach and anticipated greater difficulty in integrating Nortel’s technologies into its portfolio. It should be noted, however, that Nortel’s contact center solutions could greatly enhance Cisco’s enterprise portfolio as it is somewhat behind its competitors in that market segment.
There are others that could perceive benefits in acquiring Nortel’s enterprise business: Aastra, Microsoft, NEC, etc. Yet, with no evidence of actual activity taking place, I would hate to go into pure speculation at this point.
I will postpone the discussion of other potential advantages and disadvantages of the above scenarios until an acquisition actually takes place. We should not exclude the possibility of a non-telephony vendor acquiring Nortel’s enterprise business. Let’s not forget, however, that there is no vendor or financial institution that is not experiencing some difficulties today. Therefore, a potential acquisition will have to be very carefully considered and tightly aligned with the vision and strategy of the acquiring entity.
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