Avaya Engages, New Strategy or ?

15 Dec 2014

On Wednesday of last week, Avaya held an all-day Silicon Valley coming out party for the strategy and direction of the company going forward. Billed as "Avaya Engages Silicon Valley", the session included customers, partners, consultants and analysts. While the event was relatively short on new product or technology announcements, it was intended to focus on what Avaya sees its transformational path forward and how the company intends to succeed in the evolving communications, collaboration and customer interaction marketplace. It is clear that Avaya is in need of the transformation they are seeking. Since the high revenue mark in 2011 immediately after the Nortel acquisition, Avaya revenues have fallen by 21% from $5.5B to $4.3B. This is an annual average revenue loss for those three years of 7.5%, with a slightly lower rate of decline in 2014 than in the first two years. Obviously Avaya needs to change the current arc of the business for long term success. As an industry, a growing or at least stable Avaya is desirable as it contributes to both the pace of innovation and the variety of solution options available in the market.

At the session, the Avaya team focused on four major pillars of change: a new "Engaged/Engagement" branding and organizational strategy, the transformation of the management team and sales "motion," a focused movement to new business models, and partnerships designed to help grow the business. The Power of We

While the session was not focused on new product announcements, there were a couple, including a Google Chromebook integration for contact center agents, as well as a continued expansion of the IP Office capability into larger size organizations, with a new ceiling of 2,500 users and 150 locations. However, the primary focus was on Avaya's positioning around "engagement." In fact, Avaya is no longer just about "The Power of We", but about "Engage The Power of We." A visit to the Avaya website shows that the positioning has been firmly adopted throughout.

Throughout the event, the focus was on the new positioning of Avaya as the Engaged or Engagement Company. This was reflected in the messaging that both customers and employees are happier and more productive when engaged and that Avaya can deliver products and services that provide that engagement. The company is organizing both the products and product organizations into a Customer Engagement and a Team Engagement focus, along with the underlying Fabric Connect Networking business. These three areas will define the Avaya products and services going forward. Expect to see the terms "engaged" and "engagement" as a core part of all Avaya positioning. However, while there were clear examples of general UC and Contact Center examples of how engagement works, they were not dramatically different than what other vendors have shown in 2014. It seemed the value of communication and collaboration engagement was clearer than the differentiated value Avaya brings at this point.

A second area of focus is the transformation and restructuring of both the management team and the sales organization and "sales motion." From a management team perspective, many of the speakers talked about being in the company for less than a year, often only 6 months. Core leaders like Kevin Kennedy and Gary Barnett have longer tenure, but many of the next tier of management have joined the company in the last year. It is clear that there has been another major transition in the management team, intended to get the right talent to move the company forward.

On the sales side, there was significant focus on differentiating between named accounts with Aura sales and territory sales, primarily focused to the mid-market and IP Office. While there was not enough time to get a clear understanding of all of the nuances of this, it is clear that Avaya is distinctly positioning IP Office for the SMB through large mid-market (up to 2,500 users), with channel-led sales focus. The management team indicated success in both the mid-market and hosted/cloud, although the actual numbers were not presented in detail. Combined with moving IP Office into ever-larger deployments, it is clear that Avaya is focused to growing outside of the traditional large enterprise space. Another major focus is in verticals and services as a key part of the sales "motion". Avaya is focusing their sales organization on being services led and vertical oriented.

A third focus was on business models, with hosted/OPEX/cloud leading the way. In this space, Avaya is positioning deployments of their cloud solutions in three ways:

  • "Avaya Private Cloud Services," provide Large/Global Enterprises customizable Avaya Unified Communications (Team Engagement) and Contact Center (Customer Engagement) private cloud services that includes managed services.

  • "Avaya Powered Cloud Services," Avaya's global and regional CSP-SI partners worldwide who install and host Avaya Unified Communications (Team Engagement) and Contact Center (Customer Engagement) solutions using their brand, and may include managed services provided by HP Enterprise Services group per the Avaya-HP partnership.

  • "Avaya Branded Cloud Services," solutions that include utility rate-card pricing and carry the Avaya brand (e.g., new AvayaLive video) and are hosted/deployed by Avaya in its data center(s) and provided either direct or through partners.

Clearly, this combination is focused to addressing the trends of virtualization, channels delivering their own cloud services, and the end customer demands for services to be both managed as well as priced in an OPEX model. A key comment was that the volume of new maintenance contracts was being exceeded by the volume of new OPEX/cloud purchases. While the OPEX/Cloud trend has become clear in the industry, it was good to see that Avaya is structuring its business models to accommodate the range of customer needs.

The last focus was on key partnerships in the technology industry. To this end, Avaya invited four large Silicon Valley companies on a panel to discuss working with Avaya: HP, Salesforce, VMware, and Google. With the exception of HP, the partnerships seemed to be based on the standard partnering model for the companies. For example, the Salesforce spokesperson quipped that all of the companies on the panel were Salesforce partners. And both Google and VMware have multiple partnerships with other UC vendors similar to those they discussed with Avaya. While the other partnerships seemed to be more generic, the key partnership that stood out is HP. When it was announced in August the initial partnering with HP was based on HP taking over service delivery of a significant portion of "Avaya Private Cloud Services". The Avaya Private Cloud Service is an extended contractual service with dedicated equipment versus a month to month SaaS and as such is more suited to the large enterprise it is focused to. The companies plan to sell a combined portfolio of Unified Communications as a Service, or UCaaS (branded "Unified Communications as a Service OnAvaya"), as well as Contact Center as a Service, or CCaaS (branded "Customer Engagement as a Service OnAvaya"), along with infrastructure modernization services. Together, Avaya and HP Enterprise Services will deliver UCaaS and CCaaS offerings via the HP cloud to help customers rapidly deploy team and customer engagement solutions as they transition to what the two companies are calling a "New Style of IT." Additionally, as a quid pro quo, HP will undergo an internal transformation the delivery and operation of upgrading its contact centers to new Avaya equipment and services that will provide a new Customer Engagement as a Service (CEaaS) experience for HP agents and its end customers. . While it remains unclear how HP will resolve its large Lync focus in UC versus an Avaya partnership, it is clear that in the Customer Engagement space, HP may focus more on Avaya as a preferred platform going forward. I cannot help but wonder if an integration between Avaya Contact Center and Microsoft Lync (Skype for Business) might come out of that relationship. While there was no clear roadmap given, both HP and Avaya indicated that they have activities underway to enhance the value and have HP move to a larger partner role in winning Avaya business. As the second largest vendor type integrator (behind IBM), a sales partnership with HP that generates net new customers could create real value for Avaya. The next key is to understand how HP sales staff is compensated for Avaya business.

In the end, I came away with a few personal conclusions from the event. Avaya is trying very hard to become a Silicon Valley software and cloud company. Not once did anyone talk about a new telephone set or about the revenues in devices or hardware. The only devices shown were BYOD tablets, smart phones, generic PCs and the HP Chromebooks. Avaya seems to be focusing more on the Customer Engagement (nee Contact Center) space going forward than on the traditional UC space. While there was talk about UC and employee engagement, most of the main stage demos were aligned to the customer service and interaction market. Finally, the face of Avaya is changing, the large sales staffing activities and re-orientation of the sales and management team ensures that you will see new faces representing Avaya in many cases. Someone commented that in some areas, over 50% of the sales force had been changed in the last 6-9 months. This is clearly a dramatic transition and could portend well for the future if the skills sets of the go-to-market team are dramatically improved.

In the end, the proof of transformation will be demonstrated in the fiscal year 2015 revenue growth or decline. If Avaya revenues continue to decline at a similar rate to the last 3 years, all of these new activities will have not changed the arc of the business. It is clear that many of the steps that Avaya is taking are both logical and reasonable, and have potential to positively impact Avaya's future revenue. However, in the last three years, Avaya has experienced shrinkage of its installed base with more of its customers transitioning to other vendors than Avaya is winning back in transitions from those other vendors. In the last couple of years, customers deciding on Lync as their UC platform (but keeping the Avaya system for basic telephony) has impacted investment in the Avaya system as those customers often plan a Lync migration at some point in the future. For Avaya to succeed and change the arc to a re-energized stability or growth, Avaya needs to win a significantly greater number of "net new" customers in both the VoIP/UC and Contact Center space, as well as limiting the number of customers that move to Lync as their UC solution. Ultimately the Avaya 2015 fiscal Q2/calendar Q1 (Jan-Mar 2015) revenues will be an indicator of initial transformation success. For the last three years, the year to year revenue change in this quarter has been the early indicator of the rest of the year performance. For Avaya to succeed, the strategy, positioning and programs that were announced last week in Silicon Valley and are already underway inside the company must begin to have an impact, and, if not replacing revenue declines with growth, at least significantly reducing the year to year revenue decline. While it is clear the Avaya team believes they are on the right journey, the results of that journey need come sooner rather than later.


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