The year 2009 ended with the completion of a significant acquisition in the enterprise communications industry - The acquisition of Nortel Enterprise Solutions by Avaya. Nortel and Avaya have a large installed base in the industry for telephony systems (for both TDM and IP). The combined entity becomes a clear market leader in the telephony market, both globally as well as in the Asia Pacific region, with the largest installed base in the market for any single vendor and revenues in the vicinity of $5.5 Billion. The acquisition brings together two sales teams, a large channel infrastructure and popular industry products. While there was some loss of market share for Nortel over the last 12 months and Avaya's UC story in the past had not been strong, one cannot rule out the potential opportunity that the new Avaya can create with this acquisition.
Avaya's announcement of its combined product roadmap within 30 days of the completion of the acquisition is highly commendable. What stands out when you look at the roadmap & announcements made last week is that (a) the roadmap is largely non-disruptive for customers (both existing Avaya & Nortel customers), (b) it offers a evolutionary roadmap to a single platform viz. Avaya Aura, and (c) It incorporates Nortel’s data portfolio to strengthen Avaya’s branch and SME solutions
This blog is based on Avaya announcements and discussions with Avaya executives at an Avaya Business Partner conference in Beijing in end of January. The insights are more relevant to the Asia Pacific region, unless stated otherwise.
Key highlights from the Avaya roadmap announcement:-
- Avaya Aura is central to the entire future roadmap of Avaya. All products from both Nortel & Avaya, and from both sectors UC and CC, would merge into the Avaya Aura's SIP based architecture. Avaya CM and the Nortel CS1k telephony platforms would evolve into the Avaya Aura platform in the future. This does not come as a surprise. Due to its SIP-based architecture, Avaya Aura can connect and integrate with Nortel CS1k and offer an evolutionary and migratory path to customers, rather than a rip & replace option.
- Large enterprise customers of Nortel do not have to make quick & hasty decisions on their existing telephony infrastructure (Nortel CS1k). Avaya will continue to invest in the CS1k platform with new versions and releases expected in 2010. While Avaya wants to eventually migrate all these customers to the Avaya Aura platform, by continuing to invest in & support the Nortel CS1k platform it has given itself the opportunity to retain the Nortel large enterprise customer base, tap onto the latent demand in the Nortel base that has not taken any upgrade/migrate decisions over the last 12 months, and resist competitive scenarios if Avaya can execute well on their channel strategy.
- Avaya has picked IP Office as the SME platform of choice for the future that will incorporate elements from the BCM solution and will interoperate with select Nortel phones. However, like the CS1k, Avaya will continue to sell the BCM solution. Avaya has committed to no end of sale announcements for the SME Nortel products for the remainder of the 2010 fiscal year. In addition, Avaya commits to a minimum of nine months notice before any effective end of sale date. Avaya has committed to an additional release of BCM later this year and plans to add features from BCM into IP Office. Also they have promised 3 years service and an additional 3 year hardware support period for end-of-life announcements which should give comfort to those customers. Taking a single server approach, the sweet spot for the IP office solution would be the less than 250 user segment.
- In the Contact Center portfolio, , the Nortel CC 7.0 solution will now be re-positioned as a mid-market solution, and the Avaya CC Elite would be the large enterprise solution. The declaration of the Nortel CC 7.0 solution as a mid-market solution was definitely a surprise, not because it cannot service that segment, but because it was meant to be a large enterprise solution when it was part of the Nortel portfolio. Avaya talks about the Next Generation Contact Center (placeholder name) which will be based on components of Nortel’s products as well as components of Avaya CC solutions. This will accelerate customers to the next generation CC platform, enabling both Nortel and Avaya customers to simply upgrade to get themselves there. The NGCC will inherently be multi-modal, multi-channel and conferencing-oriented.
- Nortel's ACE (Agile Communication Environment) will become an integral of application enablement helping in integrating different business applications (such as Sales force automation, ERP, etc.) and delivering what Avaya calls a "communications-enabled business system"
- The Data Solutions portfolio of Nortel is also now part of Avaya's product portfolio. Avaya's focus here will be to complement and create more competitive, compelling and complete UC & CC solutions with the help of the Data portfolio. This would come in handy especially in branch solutions where single box solutions with integrated data and voice functionality can be offered.
- Based on Avaya’s roadmap announcements and product roadmap, there is a recognition of the growing importance of video as part of the Unified Communications & Collaboration play. In a bid to capitalize on this growing trend, Avaya is expected to make announcements around its video capabilities and offerings that tie back to Unified Communications and deliver improved user productivity.
- Avaya also acknowledged the need for a software client that can deliver the complete Unified Communications experience to drive user acceptance and meet user communication needs through a single client.
With the acquisition of NES, there are a few things that are working in favor of Avaya:-
- There is a limited overlap between Avaya & Nortel top customers, hence adding marquee customers to its installed base
- There is limited overlap between Avaya & Nortel channels, hence adding much more coverage in the market. This is especially pronounced in the Asia Pacific region.
- Expertise in verticals that were strengths of Nortel especially Government, and Manufacturing sectors
Based on our discussions with the Avaya executives, it was clear that with their roadmap in place, the focus is going to be on execution. Avaya's growth will be driven through upgrades & migration of its large installed base, increased focus on SMB, Government & other specific verticals.
Challenges that still will continue to bother Avaya:-
1) The Collaboration story remains weak and disjointed. Avaya Aura will become the platform for collaboration centric, multi-modal, multi-channel communications and feature set from the MCS5100 will also get incorporated in the future. However, the current portfolio still lacks a solid collaboration play. Hence, future announcements from Avaya on the Collaboration front will be critical in tying together a solid Collaboration story, and create more buzz in the UC market.
2) While Avaya Aura is the next telephony platform for both existing Avaya & Nortel customers, it is critical for Avaya to tread this path carefully. Competitors such as Cisco, Siemens, Alcatel-Lucent, Mitel, Shoretel, Microsoft will be aggressive on their Nortel base acquisition strategy. The roadmap does offer an evolutionary path for customers, but Avaya and its channels need to position that correctly, without trying to disrupt the pace or scale of migration. For example, the ability to reuse the telephony end-points for customers migrating from a Nortel Meridian solution might be key, and if the focus is on positioning Avaya Aura that might jeopardize the ability to reuse existing end-points that might open the doors for competition. While the roadmap discusses plans for Avaya Aura to interoperate with Nortel end-points, adding phone shipments adds sizeable top-line revenue for the channels/system integrators that are selling to the customer.
3) Managing the new larger Channel base is the cornerstone of Avaya's execution strategy. Avaya's go-to-market strategy of "High Touch Channel Centric" is principally correct. One has to note that Nortel had a challenging year in 2009, and hence the Nortel partners also suffered. The ability of Avaya to retain, support and train the Nortel channels on the Avaya solutions and the new roadmap will determine their success. Avaya has launched their new channel program called "Avaya Connect" in February with focus on making it simpler & easier to do business with Avaya, determine pricing, and increase channel competency.
4) Communication with their installed base with the new roadmap and story is also important for Avaya to remove any FUD (Fear, Uncertainty and Doubt) in the market about its roadmap, product support and future. This is something that Avaya would need to do on a war-footing to retain its newly acquired & existing installed base. Avaya has done a good job of reaching out to its partners in a short time frame after the acquisition with a new roadmap, and it needs to continue that momentum as the message is brought to the customers.
In summary, Avaya has delivered a good roadmap, given the time, the economic environment and its position in the market. It still lacks some steam on the Collaboration front, for which steps seem to be taken and announcements are to be expected in the coming months. Avaya seems focused on their channel-driven execution strategy, with the launch of their new channel program and investments in a partner relationship management (PRM) solution. The presence of more than 400 channel partners at the recent Asia Pacific Business Partner conference in Beijing in the last week of January indicates that Avaya is beginning to build good momentum. The next step is taking this strategy and momentum to their customers.
Like A.G. Lafley (ex-Chairman & CEO of Proctor & Gamble) said - "Execution is the only strategy that the customer sees"
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