MS a UC SP?

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Every premises-based vendor eventually needs to make a decision on its cloud strategy. Enable others to become UCaaS providers, become a UCaaS provider, or both.

1) Enable Providers: This is the popular and easiest option. Cisco, Avaya, ALU, and Unify all pursue this strategy. It requires modifying existing products to be more appropriate for SPs. Despite all the cloud transformation talk, all that really changes is the customer becomes providers instead of end users. The vendors remain product oriented (see Cloud-First Manifesto), yet benefit from the growth of cloud demand.

2) Become a Provider: This is the model ShoreTel took when it bought M5. Over the past few years, ShoreTel has been rebuilding/enhancing the service (now called ShoreTel Sky) to A) work as a scalable, sophisticated UCaaS solution, and B) tightly integrate with its premises gear for hybrid solutions. It does involve a transition in business model, and invariably causes some channel conflict.

3) Both – Enable Providers and Become a Provider: This is what Mitel and NEC are doing – they both have their own data centers providing UCaaS to end users AND they both position their platforms for SPs. Mitel is also offering its solutions (and the Aastra Clearspan solution) as a wholesale UCaaS model to partners so they can sell cloud under their own brand. This has even more potential channel conflict than option 2.

One major vendor missing above is Microsoft and its cloud strategy for Lync (or what may soon be known as Skype Business). They’ve been busy being the life of the large-enterprise premises-based party, so they are late to the cloud. There is an ecosystem of Lync-based providers emerging, but it’s primarily private cloud and a very limited (broken?) offering via Office 365. Some providers are making a go at it with the Lync Hosting Pack – or at least trying to.

I expect Microsoft to pursue option 2 later this year or in early 2015.

Becoming a provider has big financial risk implications with questionable (near term) profits – the cloud poster kid – Salesforce.com – is barely profitable. Plus, there’s some big variables that have yet to play out – namely Google and maybe even Amazon (both of which recently improved their enterprise collaboration play).

Microsoft will go with option 2 and will become a major direct UCaaS provider. It will continue to sell its platform to service providers, but primarily for private cloud implementations. Providers won’t be interested in competing with Microsoft on public cloud.

Exhibit A: Microsoft recently killed its Lync hosting pack. This was the only platform aimed at SPs for multi-tenant hosting. It was a neglected, buggy, and crappy stepchild of Lync. I doubt however that this multi-tenant platform is dead – my guess is it will get a new life internally at Office365.  Cloud and mobile are too critical for Microsoft to delegate. After 30 years of being a software business Microsoft is suddenly a cloud company with Azure and Office 365. It’s a transition of significance that parallels with the UCaaS industry’s growth.

Microsoft  is placing huge emphasis on cloud services. Amazon just reported it is feeling heat from Redmond and Office365 is Microsoft’s cure to Google Apps encroachment. After CEO Satya Nadella signaled a strategic priority shift to cloud services. TIME wrote:

Nadella is doing what Ballmer never could: letting go of Windows as the center of Microsoft’s universe. Instead, Microsoft will be satisfied if people are using services like Office 365, Skype, OneDrive and Bing, whether they’re on an iPhone, Android device or Windows PC.

Does Lync fit into this cloud vision? Skype certainly does, and Lync is under Skype.

Exhibit B: Last February Microsoft committed to bringing PSTN capability to Lync Online in 2015. There were few details provided probably because they were still unsure how much functionality to offer. The tide has since shifted more toward cloud, and Lync Online with rich UC will power Microsoft’s path to UC hosted dominance in SMB.

Exhibit C: Google. The battles between MS and Google continue to rage. Microsoft needs more than a price match to slow the flow to Google. An area where Google is lagging is PSTN/Telephony. Tying Lync and UC into Office365 creates a sticky competitive differentiator that could stymie the search engine.

Microsoft no doubt intends to bring Lync to SMB, but the product’s current economics and complexity (onsite and hosted) keeps penetration low. We know this will improve over time, but to build the base now requires cash, data centers, and patience – all things Microsoft has.

Microsoft launching a direct UCaaS offer will have significant ramifications to providers, channels, and competitors. It will be highly disruptive as there are many stakeholders comfortable with the status quo. This type of disruption takes careful planning which brings me to Exhibit D, Microsoft is the only major UC vendor yet to reveal a cloud strategy.

If Microsoft truly aggressively goes direct – it will upset many partners, especially carriers. Would Microsoft do this to its partners? Ask HP and Acer what they thought of the Surface product line. Cisco, Mitel, and BroadSoft will pounce on upset partners quickly.

 

The role of partners, including channels, is very much changing with the cloud. See related – Will Dealers Exist in a Cloudy World.

Dave Michels