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ShoreTel’s High Cost of Success

by in Telecom

The first time I ran into ShoreTel was in the late 80s. I saw their ad in Hemispheres (United Airlines in-house magazine). The ad was actually for the earlier version of the company called Shoreline Communications, and it was about making phone systems easy.

I admired ShoreTel as it grew over the next few decades. It was really something else because they broke all the rules. ShoreTel didn’t take telecom seriously. The company color was bright orange, the phones were curvy, and they were having fun. But what really got me was how ridiculous their product was. As a super telecom genius, I just didn’t appreciate the ShoreTel appliance (ShoreGear). shoretellogo

I remember watching them at a trade show circa 2008. They were doing a presentation in their crowded booth. They wowed the crowd by setting up a call and then unplugging the server! The crowd was impressed because in the PBX era this demonstration was impossible. I wasn’t impressed because this wasn’t the PBX era.  Mitel, Avaya, Cisco, NEC, Nortel – could all do this too. The key difference was that ShoreTel was demonstrating it, and it was effective with non geeks. The CIOs and nerds understood that this is the way VoIP works, but the office managers (the ladies with the horn-rimmed glasses) where bedazzled. What I didn’t appreciate then was how much of the SMB market was/is intimidated by their technology vendors.

ShoreTel was connecting with prospects, and the company grew. The fact that the product was a bit weak didn’t seem to matter much because this segment wasn’t looking for advanced features anyway. Besides, the features that ShoreTel did offer were relatively advanced (even magical) to anyone coming from an AT&T Merlin. The competition (and me) was confused by ShoreTel’s success. More functional products were losing to ShoreTel’s fun and simple solution.  Avaya had IP, but was still pushing digital (did not have feature parity with IP yet). Several competitors over complicated their offers.

ShoreTel was so simple that they were able to recruit carriers into their channels. Selling IP systems in the 2000s was complicated. LANs were still 10 mbps, POE was still new, and to just generate a reasonable quote took some expertise. ShoreTel was so simple that even a T-1 salesperson could properly quote it.

ShoreTel consistently pushed simplicity (Brilliantly Simple) as well as its high customer satisfaction (Net Promoter Scores). It couldn’t compete technically, but could compete and win on simplicity and satisfaction.

The time that I am referring to was under CEO John Combs who stepped down in 2010.

The next CEO, the dark years, was Peter Blackmore. He is remembered primarily for two big things that occurred during his < than 3 year term. The first was a relatively huge acquisition on M5 to get ShoreTel into the cloud. The other was during his term 90 percent of the executive team left – including the founder of M5.

Here is where the story gets interesting.

Don Joos was named CEO in 2013. After building his team, he had a clear set of priorities to make ShoreTel great again. The Combs model wouldn’t work any more because ShoreTel needed bigger, more sophisticated customers. Since its cloud service and premises-business had nothing in common (hated each other), Joos set out to unite ShoreTel back into one company. He started by redesigning the phone. ShoreTel was using Cisco SKINNY phones in the cloud and ShoreTel MGCP phones on premises – both were obsolete. I expected him to bring MGCP to the cloud, but instead he changed both environments to work with a new SIP phone.

Bringing MGCP to the cloud would have been relatively easy – he chose to redesign both platforms and then design a new phone. I think that was the right decision, but not the easiest path. Joos thinks big.

That was the warm-up act. The big show was to redo both platforms completely. ShoreTel Sky and ShoreTel premises had one thing in common – a new phone. It took years to create ShoreTel Connect. It’s loosely based on the ShoreTel premises solution, but different enough to get marketed as completely new. It is indeed state of the art as one might expect if they were to recreate a new system. It is the same platform for cloud and premises and offers a nice hybrid model as well. It uses web-based clients and is ready for video. ShoreTel Connect can compete with the big boys regarding architecture and functionality.

Connect was such a huge undertaking that it consumed most of the company. I imagine everything got cut-back including headcount and marketing. Brilliantly Simple survived, but it’s not as prominent as it was. I now associate high Net Promoter Scores with Avaya which consistently claims it has the highest scores. The competition also simplified their offers over the years. Now carriers can even sell other brands.

Unfortunately, it appears ShoreTel is running out of time. The stock has not reflected the investments that Joos made. The company is looking for options.

ShoreTel has two lucrative assets – Connect – a new, state of the art cloud/prem/hybrid platform and its NA base and channels. The best candidate will value and leverage both. For that I think ALE and NEC might be interested.

Unify is a reasonable fit as it may value the NA business.

Mitel won’t value either as much as the others but loves a great deal. Mitel likes to be the industry consolidator, and CEO McBee is good at it. McBee offered to buy ShoreTel in 2014, but it was just prior to the launch of Connect. I suspect ShoreTel felt that its investment needed time to run – which it has had and hasn’t.

I would love to see ShoreTel remain independent. I think they have done the right things. It’s a shame Joos didn’t get there right after Combs.

The interesting lesson here is the value of product vs marketing. Certainly with SMB it seems marketing may be more valuable than product. There is much more competition with great products than great marketing.

 

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About this Post

Dave Michels By


Dave is an independent analyst focused on enterprise communications. he provides public content on TalkingPointz and other industry websites, and also works with clients directly.

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