Update on Aastra's Strategic Roadmap
Last week, I had the opportunity to meet with Tony Shen, Aastra’s co-CEO, President and COO. Since I won’t be able to make it to Aastra’s analyst event in Stockholm this fall, this meeting was intended to provide me with an update on Aastra’s performance and a perspective on Aastra’s strategy for the communications marketplace.
This was my first meeting with Tony Shen and I was really impressed by his practical, down-to-Earth approach to business matters. His answers and comments were straight to the point and appeared unembellished and sincere.
Some of the issues I raised included Aastra’s continued portfolio consolidation and adjustment since the multiple acquisitions including the most recent one of Ericsson’s enterprise business, Aastra’s vision for its position in the unified communications technology paradigm, and its strategy for an increasingly consolidating marketplace. Here follow some of the takeaways from the discussion with Aastra’s co-CEO (please note this is myinterpretation of the messages conveyed by Tony Shen):
- Portfolio consolidation: Tony Shen believes that, even as they stand today, the merged portfolios are more complementary than redundant. While, overall, the perception that Ericsson’s enterprise portfolio acquisition helped enhance Aastra’s large-business portfolio is fairly accurate, the major advantage from the acquisition was Aastra’s ability to rapidly (though inorganically) expand in several new markets including the Nordics and the U.S.A.Also, the different products in Aastra’s portfolio have different strengths and positioning in the different countries. For example, Aastra seems to have a strong #2 position in France(according to Shen), including the large business market, whereas Ericsson has been more successful among French SMBs. Ericsson is, however, strong among U.S. very large businesses including university campuses (note: Aastra is in this space with the Intecom acquisition as well). The former Ericsson large systems are also dominant in Sweden, Australia, New Zealand and Spain. Nevertheless, Aastra intends to further consolidate its portfolio to ensure maximum efficiency and will most likely share its vision and the details of a 3-year portfolio evolution plan at the analyst event later this year.
- Localization: In Tony Shen’s opinion, a key element of Aastra’s strategy and a major differentiator is its focus on localization, rather than globalization. He firmly believes that in Europe(where Aastra has the strongest presence), each country has different requirements with regard to communications infrastructure and one size does not fit all. He also pointed out some peculiarities of European business practices vis-à-vis American practices such as the general preference to avoid leaving messages in favor of communicating directly or through receptionists and secretaries. Going forward, Tony Shen believes the company will continue to develop local strategies and individual approaches for the more than 20 countries in which it operates.
- Unified Communications positioning: It seems that Aastra does not aspire to become a one-stop-shop vendor for the various UC applications. It is developing partnerships with others (e.g. Microsoft) in order to be able to provide certain components of the UC stack (telephony platforms, endpoints, etc.) where it has a competitive advantage.
- Growth strategy: Aastra’s focus seems to be on rejuvenating its existing installed base. Tony Shen sees a large opportunity in upgrading and modernizing the multiple legacy (Ericsson, DAMOVO, etc.) systems deployed around the world. It also intends to focus on maintaining and growing its market share in the countries where it has presence today. Aastra is looking at some emerging markets such as Brazil, Asia Pacific and Russia for new growth opportunities.
- Financial prudence: A key element of Tony Shen’s leadership approach seems to be his focus on financial prudence. He stressed the fact that Aastra has weathered the economic recession better than most other market participants due to its more conservative business practices. Aastra’s recent financial results seem to indicate that its leadership has a strategy in place that makes it more resilient in a tough economy. It reported record revenue for the year ended in December 2008, and Q2 2009 marked its 45th consecutive profitable quarter.
- Innovative business models through partnerships: Tony Shen pointed out that Aastra’s performance in Spain, one of the most hardly hit economies, actually improved over the past year due to the success of Telefonica’s “rental” go-to-market model, which helped drive sales in an unfavorable economic climate.
According to our most recent World Enterprise Telephony Platform Market study, Aastra held close to 9% market share in EMEA and ranked 6th in terms of revenues generated in the region in 2008. It ranked 7th in terms of global enterprise telephony revenues with close to 5% market share in the same year.
Given Aastra’s recent financial performance and Tony Shen’s focus on financial prudence, I have no doubt the company is likely to remain a viable competitor in the near term. However, with the massive technology evolution, market consolidation and considerable vendor repositioning in the enterprise communications marketplace, I have some concerns about its growth strategy for the long term. If Avaya’s acquisition of Nortel’s Enterprise Solutions business is successfully completed by the end of this year, market concentration will increase with the top four vendors (Avaya+Nortel, Cisco, Siemens, ALU) holding over 60% market share of world enterprise telephony revenues.
While customers are still likely to appreciate having more choices and to continue to purchase products from multiple vendors, growing market concentration is likely to effectively create a barrier to growth and entry to smaller players unless they have some very distinct competitive advantages. Those advantages may revolve around technology or specific geographic markets or both. Aastra’s country-by-country approach may, therefore, give it a certain advantage in the countries where it has presence. However, I do believe that it will be necessary for it to also seek to expand in new ones in order to be successful in the long term.
During my conversation with Tony Shen, I got the sense that Aastra does not have a strong plan in place for organic growth in North America(other than in terminals). While I agree with Tony Shen that this is a mature, fairly concentrated market with several very powerful participants and, therefore, a difficult place for Aastra to grow organically, I believe it needs to find a competitive spot in this market that offers some growth opportunities even if that involves yet another acquisition. In fact, the SMB vendor market in the U.S.may be due for some further consolidation with the large vendors (Avaya, Cisco, etc.) making a concerted push in this market segment, Mitel facing some credit issues, NEC and Toshiba having limited presence, open-source telephony vendors gaining traction, ShoreTel growing, yet being very small to be able to successfully compete against the established vendors, etc. If the SMB market remains so fragmented, it will be increasingly more vulnerable as the technology paradigm shifts and the market consolidates at the top.
Aastra may need to grow its indirect sales in order to expand its reach both geographically and across customer segments. Its localization strategy seems to warrant a more indirect approach to help gain efficiencies and economies of scale. Further, channel partnerships are becoming critical as the complexity of communications infrastructures increases, on one hand, and vendors compete for market share in a maturing marketplace, on the other.
Aastra will also need to send a more compelling message to the market about its vision for UC. The trend in the SMB market seems to be around the introduction of single-box solutions comprising all or most of the UC applications and offering an economical option for budget-constrained customers. IBM’s Lotus Foundations Reach with an integrated ShoreTel PBX functionality represents a recent example of how vendors are approaching the SMB space. While I believe that customers will continue to deploy best-of-breed technologies (versus all-in-one solutions) on many occasions, Aastra may need to develop some go-to-market partnerships for more effective marketing and implementation of complex, integrated UC environments.
There is a good chance my concerns will be addressed at the analyst event later this year. I look forward to updates from Aastra.
Avaya Wins the Auction for Nortel’s Enterprise Solutions Business
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.
Siemens Strikes a Partnership with Netlink
On September 2, 2009, Siemens Enterprise Communications Group (SEN Group) announced a partnership with Netlink, one of the fastest growing U.S.-based providers of IT solutions. As part of the arrangement, Netlink will acquire SEN Group’s product and service portfolio in 27 countries around the world. The agreement is valued at €204 million ($308 million) and includes Netlink’s acquisition of SEN Group’s local assets in the following countries: Estonia, Latvia, Lithuania, Finland, Sweden, Ukraine, Greece, Switzerland, Turkey, Ireland, Hungary, Bosnia, Bulgaria, Croatia, Slovakia, Slovenia, Serbia, Romania, Singapore, Malaysia, Thailand, Ecuador, Peru, Portugal, Venezuela, Chile and Canada.
According to the press release “customers will enjoy full continuity of service while benefiting from the broader portfolio of capabilities that the relationship delivers”. The understanding is that SEN products will still be offered under the SEN brand, but Netlink will acquire any local SEN legal entities as well as all inventory, staff and other assets, and will take over the delivery of services for SEN’s products under its own (Netlink) brand.
According to Ross Sedgewick, Director of Global Marketing for Siemens Enterprise Communications, the partnership is part of SEN’s global strategy of improving SEN’s market reach via channel partnerships and driving revenue growth while ensuring customers are served effectively.
Most likely, SEN’s penetration in some of these markets has been less than satisfactory. Netlink’s market positioning and global structure are expected to enable it to more successfully market and support SEN’s products in these countries. Netlink’s existing product and service skills will be complemented by those of local SEN staff, thus ensuring a certain degree of business continuity. By partnering with a single entity, rather than multiple resellers, SEN expects to more cost-efficiently transfer the assets and also ensure that the selected partner will be more engaged and can fully develop the operations without worrying about competition.
Ever since the Gores Group acquired 51% stake in SEN, the new entity has been committed to growth. Many analysts, including myself, believe that for Siemens to be able to get on a faster growth path, it needs to make some changes to its services strategy and grow its indirect channels. From that point of view, this partnership seems like a move in the right direction. As is seen from the list of countries included in this partnership, these are mostly emerging markets, many of them small countries. For a global vendor such markets typically present a challenge. Building local presence takes time and investment; yet, the return is limited and it’s difficult to gain economies of scale.
For a vendor such as SEN seeking to grow in a down economy and in a consolidating market, it seems prudent to find a partner that can take over parts of the business that are not run as efficiently as desired. In the event that Netlink is indeed successful in growing the business in these 27 countries, SEN can expect to realize some benefits as follows:
- Grow its brand awareness and installed base in a number of currently under-penetrated countries
- Grow product revenues
- Retain some control over product and service delivery through a master partnership with a single, more engaged entity
- Focus on primary target markets such as Germany (mature, yet key for SEN), USA (maybe its top growth objective), Brazil, China and some countries in Central Europe and APAC
The biggest disadvantage to SEN is the foregone opportunity to develop these operations on its own and generate greater revenues and margins, while retaining full control over its brand. Obviously, the worst outcome would involve Netlink failing completely in all these markets, which is somewhat unlikely since Netlink will have a vested interest to generate return on its investment. Further, Netlink is a fast-growing company with a structure and processes in place that make it a suitable master partner for a communications vendor such as SEN.
What should customers expect? There may be some bumps during the transition, but SEN products and related services will continue to be offered in these countries and, most likely, they will be marketed with renewed vigor and maybe even more consistency than before. There is always a chance that, in some countries, Netlink may be less successful than in others and maybe even less effective than SEN used to be. But I believe that Netlink is more likely to commit efforts and resources to develop the business.
What could make Netlink more successful? Thorough knowledge of SEN’s product portfolio and a deep understanding of its overall market positioning in view of evolving market trends will be critical for its success. Marketing SEN’s solutions will have to take into account the communication vendor’ shifting focus towards delivering applications and services for comprehensive, end-to-end unified communications (UC) environments. Proper training of all local resources will be key in ensuring that they are prepared to address customer concerns both throughout the transition and going forward. Given its product portfolio (IT, business applications, etc.) and specific expertise, could Netlink be well positioned to develop CEBP solutions for business customers leveraging SEN communications technology? That could make a compelling value proposition if the technologies are in place and a strong marketing message is sent to the market.
JaJah + Yahoo!, GrandCentral / Google
In this announcement JaJah is said to power the Yahoo! Voice offering. I see, so.. what happened to the Dialpad assets? Once coud surmise that running the terminaiton business was not making a great deal of money. At one cent per minute that might likely be the case.
While on the topic of Dialpad, Andy mentions that Grandcentral's main guy Craig Walker has recently updated the GC blog with a soft promise of something new.
The more things change the more they stay the same.
It's so weird, 15 years ago I found myself mulling over the use of softphones and how they might change the way people communicate, that never really happened. Yes, Skype and even Xten/Counterpath had an impact but in the end, humans like their handsets… and more importantly, Quality of Service.
Jajah leverages callback and so does Grandcentral to a certian degree which certainly helps, Lypp is no diferent.
I am just not sure that North American businesses are ready for a VoIP at the edge pure-play yet. Could it be that much of this is just.. noise?!