My intense focus on Avaya began unexpectedly during the RingCentral analyst event last week. RingCentral choreographed it perfectly. We spent the morning in product road map presentations, broke for lunch, and returned to hear from its CEO Vlad Shmunis.
There was some speculation that RingCentral might acquire parts of Avaya, but I didn’t buy into this. Though, to be safe, early that morning I did a quick search for any RingCentral and Avaya in news that morning. The event was in California, so markets open early. Both RNG and AVYA are public companies, so I didn’t expect any news during the day. I dismissed it since there was no news and the markets were open.
Of course, markets close early too. In fact, after lunch. CEO Shmunis happened to be on the agenda right after lunch. It didn’t take long into his presentation to announce a partnership with Avaya and welcome Avaya CEO Jim Chirico on stage with him.
I was surprised by the partnership. Like many in attendance, I had a number of concerns and the deal seemed one sided. I’ve since revised my conclusion. I think it’s a great partnership for both companies. I’ve spent a lot of time researching it. I’ve spent the last several days with the Avaya team in Dubai at Gitex. I had the opportunity to talk with all of the global sales leaders and Jim Chirico. Between this news and what I saw at Gitex (more coming separately), I’m feeling pretty good about Avaya.
My views became progressively positive as I learned more about the partnership. I strive to be the first or among the first to publish research notes on a given topic. I was aiming for Monday and reluctantly pushed it to Wednesday after my meeting with Chirico. My attitudes are still changing, so here’s a full post to go with the research note.
Although I predicted everything wrong, I got a lot half right. I figured if there was news it would be in the morning, not the afternoon. I correctly predicted that Avaya would not be acquired, but incorrectly assumed it would continue to develop its own UCaaS offers. I was concerned, as I always am, when competitors make partnerships, but I didn’t fully appreciate how the partnership reduced their competitive overlaps.
A few very important things to understand:
- This really isn’t a partnership among competitors. Myself (and many others) have criticized Avaya for attempting to be too many things to too many organizations. There’s reasons that came to be, but it’s a different time now. Avaya was attempting to build an entire suite of business communications and collaboration software, hardware, and services for every size customer in every country.
Now, instead of attempting to build a world-class UCaaS offer, RingCentral will provide it. Realistically, it’s a bit late to attempt to catch up to a company like RingCentral. There are some transition issues, there are always are, but 2020 will be the first year Avaya has a compelling, industry-leading UCaaS offer in its portfolio.
- The partnership will allow Avaya to focus more on what it does best. Namely, large UC and CC deployments that meet extremely complex customer requirements.
- It makes sense for Avaya not to build its own UCaaS offer. As Zeus Kerravala likes to point out, UCaaS is deflationary. Worse, it’s increasingly viewed as a commodity that is differentiated by related services. Avaya is bypassing all the costs associated with building a world-class UCaaS, but not the associated revenue or bundle opportunity. The differentiated bundle brings me to. . .
- Avaya Cloud Office is not the same as RingCentral Office. Actually, I don’t know this to be true and it may not be true on day one. I am convinced these suites will evolve in different ways. It makes sense that they will because they are serving different users (end users, organizations, and channels). This differentiation will become very important to both companies. Avaya will want to use ACO to complement other services, and RingCentral needs it to meet the requirements of an entirely different demographic.
- It makes sense for Avaya to stick with UC. The UC market may be flat-to-negative, but it’s still a lucrative business — and there’s a lot less vendors than there used to be. It’s easy to get excited about UCaaS, but premises-based, private cloud, and hybrid will continue to serve a large number of customers with complex requirements. The market is huge, barriers are high, and as a mature sector it offers predictable R&D costs.
Avaya and RingCentral got creative. They came up with an old school, go-to-market partnership that benefits both companies. The partnership uniquely addressed several challenges for both companies.
Will it be a success? Only time will tell. Implementation is a separate matter, but it certainly has potential. It’s not like there’s a user manual on how to do things for the first time. Success will require ongoing co-determination between the the two companies, and a clear articulated vision for ACO. Avaya just might need to hire a CTO and a CMO.
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