Avaya Investor Day
The new Avaya hosted its first investor analyst conference. If you are not familiar with investor conferences, they are curious things. Investor analysts look at companies from behind green visors. Actually, customers, consultants, industry analysts, and investor analysts all value very different things.
The majority of financial analysts I speak to have a very light grasp of what a UC or CC company actually does. What they see is a function machine that generates cash. They scrutinize the financials and poke around the edges of the machine such as the channels, the market size forecasts, customer retention, employee retention, and sum of their conclusions with a simple buy or sell rating. Industry analyst poke more inside the machine.
Almost all of the Q&A at the end was directed to the CFO – and they speak in non tech acronyms like LIBOR and CAGR. I think they take their notes in spreadsheet form.
A lot of the content presented was Avaya 101. This was necessary since most of the intended audience has likely never heard of Avaya before. There was clearly a lot of prep. Each presenter delivered compelling and reinforcing points. They presented Avaya as healthy, nimble, focused, and innovative. There was no hint of the apologetic Avaya – this Avaya had swagger.
Here are some of the key themes presented:
- Giant: Avaya is a big company that serves big customers. I can’t even recall how many different ways this point was made: Household customer names, Fortune 100, vertical leaders (such as top airlines and banks), customers with 100k seats, and contact centers with 50k agents. Not just in the US, but around the globe with a go-to-market team of 2k employees and 4700 channel partners. Did I mention the largest customer base in the industry?
- Innovative: Refreshed portfolio, new features, new endpoints, new products, new partnerships, and engineers and architects that are customizing implementations. Lots of R&D investment. AI in every form.
- UC + CC: Avaya played up the power of a combined solution that spans across UC and CC. They call this convergence (everything old becomes new again). While I agree this is an important differentiator, I disagree with the claim that no one else has it. However, they are somewhat unique is their managed services capability. Avaya made that claim that 57% of their revenue is now recurring – that’s significant and I will come back to this.
- Growth: The vast majority of the leadership team (and presenters) were new or returning to Avaya. A recurring theme was why these seasoned execs came (or returned) to Avaya — because they see a growth opportunity. Simply stated, the technology is changing, and its installed base will need to upgrade. Did I mention the largest installed base of huge customers?
The sticky issue for Avaya is Cloud. Yes, cloud is sticky, but first you need to have one. Within the UC industry, Avaya has been relatively slow to adapt to cloud-delivered services — and that seems to be all that Wall St. cares about. The transition from a product to a service is very hard for a public company, and largely why Mitel went private. So there’s been a lot of concern about how Avaya could do this transition. I’d say they handled this pretty well.
Avaya’s 57% recurring revenue is a big number. Previously, Avaya boasted about being mostly “software and services” which played down reliance on hardware. That’s less important than it used to be. The stigma today is perpetual licenses. “Software” gets sold as a perpetual license or a service, and service is in. So boasting about software isn’t enough to be sexy.
Microsoft and Adobe are successful examples of companies that have pivoted from perpetual licenses to software subscriptions. Cisco is now working to do the same with BroadSoft.
Avaya presented an realistic plan to become a cloud company. First, in terms of large customers, they aren’t late. This was actually the theme of my post on NoJitter that went up during their event (and I was unaware of what they were going to present). Simply stated (by me and Chirico), the cloud isn’t ready for the big enterprise accounts yet. They then explained that large enterprises will adopt the cloud in a highly customized way, and this plays into Avaya’s strength in professional services, partnerships, and its investments.
Avaya believes it can afford to do the transition to cloud as a public company because it is already at 57% recurring revenue. This was an eye opener. If customers are already leasing the software in their own data center, moving them to a cloud solution is not a big (painful) leap. Avaya is claiming that they can transition customers to cloud while simultaneously growing the top line. This will be quite a feat, but presented realistically.
Avaya made two announcements this week -a cloud-storefront and device as a service offer — these are both key enablers to building their cloud business.
- I interviewed Jim Chirico last October and asked him how the Chirico Era will be different than the Kennedy Era. He played it down and suggested that there wasn’t going to be any big changes. Wrong, though he may have believed that at the time. The new/current Avaya is indeed very different. This was echoed in numerous presentations by largely new senior executives. I think Laurent was the only speaker that was there during the Kennedy Era.
- Operational focus. Chirico has an operational (and financial) background and it shows.
- The cloud discussion (pervasive) focused on the revenue (as it should have). There are still some big questions about the engine to deliver cloud (especially CCaaS). That will likely be better addressed at Engage next month. Gaurav, the guy in charge of this story, did pretty well for someone that’s only been there for a few weeks. He even defended the Spoken acquisition.
- Small business didn’t get a lot of attention. Avaya has a decent SMB story, but not one that will resonate with this audience. Complex mid-market and large enterprises were top of mind. Not a lot of attention was given to its new UCaaS offers in the US and Germany that appear aimed at small business.
- Avaya recently did a brand refresh — Experiences that Matter — and the messaging at this event were highly aligned with that brand messaging. I can’t recall any set of Avaya presentations that were more aligned. They also used their new deck template. One of the first set of Avaya presentations where I wasn’t seeing red.
- Avaya shared lots of financial information, but it’s hard to compare them to anything. There’s very little that can be compared with Microsoft. Cisco has both UC, CC, and cloud migration, but doesn’t provide comparable granular details. Unify is now part of Atos, Mitel and ALE are private, Genesys is only doing CC, and the pure-cloud players don’t have the hardware, PS, or channels. Avaya did compare to their own history and highlighted several financial records.
- There were several hints at go-to-market changes. A potential partnership with IBM? Slack and Twitter Integrations? Service Provider alliances? Lots of moving parts.
- For years, Avaya revenue has been coming mostly from existing customers. The premises-based market is contracting, not growing. So, new cloud technologies and offers will be key to how Avaya grows revenue from both existing and new customers.
- Avaya presented a bullish strategy that was completely based on organic growth and cloud migration. It seems more likely that Avaya will spend some of its cash on acquisition(s) to speed-up its emergence as a cloud contender. Chirico says his team regularly evaluates build, buy, or partner, so eventually the die will land again on buy. Though next time, I don’t expect Chirico to announce it until the ink on the deal is dry (the announcement to acquire Spoken was a bit early).
Avaya stabilized in 2018 and intends to reclaim its place as an industry leader in 2019. It will do so with innovation in cloud and related services. for large enterprises. While there were no big announcements or surprises at their first Investor Day, I am impressed how well its story is coming together.