While Avaya’s contact centre and unified communications announcements last week signal the company wants a dominant position in those areas, it faces internal challenges and formidable competitors including Microsoft and Cisco.
The company is in the midst of digesting and integrating Nortel’s enterprise division, which it bought last year for $900 million and from which it expects to reap big returns by next spring. At the same time, it is dealing with the same generally soft economy that other vendors are — though Cisco is registering surprisingly strong revenue gains.
Avaya’s CEO says the next six to nine months are critical as it tries to integrate the former Nortel Enterprise division — including network infrastructure and business telephony — into its fold. The purchase was finalized last December, so the company has just completed its second full quarter since the acquisition. “On most operational details we have the normal first quarter challenges from shipments and logistics. Second quarter things are feeling pretty good, and the litmus test is ahead of us,” CEO Kevin Kennedy told Network World in an interview at Avaya’s offices.
That test is whether the company can nail down significant long-term commitments from Nortel telephony and contact center customers and lock them into a migration toward Avaya UC. At the heart of that challenge is convincing Nortel customers to buy Avaya Aura, the company’s flagship communications server. With Aura customers can step into IP telephony, glue together disparate VoIP systems and — most significantly for Avaya — lay the foundation for adopting UC.
Kennedy says Aura can support Session Initiation Protocol trunking immediately to bring cost savings to corporations and over time bring increased productivity that will save money long-term but might have a longer return on investment.
He acknowledges that getting Nortel communications customers interested in sticking with Avaya as they make plans for transitions to UC is key. The company is trying to draw them in with a flurry of announcements about new products, product enhancements and integrations with Nortel products. “This period right now is about bringing a lot of innovation to market. Now the question will be, are our customers as excited about it as we are?” he asks.
The stakes are high since just 17 per cent of Avaya accounts overlap with Nortel’s, and competitors are gunning for the rest with attractive deals. “These customers are a pretty loyal base,” says Zeus Kerravala, an analyst with Yankee Group. “But they’re loyal to Nortel, not Avaya.” Historically, until Cisco entered the VoIP market, very few telephony customers shifted from one vendor to another, Kerravala says, and the recent turmoil of Nortel’s bankruptcy and Avaya’s purchase of its telephony business puts Nortel customers in play.
Surprisingly, the purchase of Nortel by Avaya didn’t result in Avaya catapulting to the top of the IP telephony market as some analysts expected. With Nortel and Avaya ranking solidly among the top five for years with very nearly equal shares of the market led people to think combining the two would result in a formidable lead for Avaya, says Matthius Machowinski, an analyst with Infonetics. “We expected them to be ahead of everyone else,” he says.
But after the purchase Nortel’s business continued to suffer and purchases in general dropped because of the recession, he says. Vendors attempts to lure more sales by dropping prices further eroded revenues, he says. Overall, IP telephony sales dropped 20 per cent to 30 per cent, but Nortel’s dropped 50 per cent he says. Meanwhile, Cisco proved a tough competitor coming in with a strong first quarter this year and hanging close, Machowinski says.
“These Nortel customers are up for grabs right now,” Kerravala says. “If Avaya is able to upgrade them right now, likely they will own them for a very long time.”
Kennedy says that his company represents stability to Nortel customers who were traumatized by the Nortel bankruptcy, waiting for months to find out whether the products they had installed would be supported, let alone upgraded as technology moves forward. Avaya’s purchase of the assets gave them a financially stable company to deal with that promised product support and a migration path to new features and products that doesn’t require ripping out old gear and starting over, he says.
