Mitel and Polycom Unite
The last time I went to Asia Mitel acquired Aastra. While traveling in Hangzhou China, I heard that Mitel now intends to acquire Polycom. Although I didn’t have time to post while traveling, I did manage to connect with both firms. My reaction is complex. I have a lot of thoughts that spiral and interconnect.
I shared my initial thoughts in October when activist investor Elliott publicly floated the idea. As rumors increased recently, I shared revised thoughts with Zeus Kerravala in this video/Blab.
I have a number of conflicting reactions to the news. It’s simply too much to cover in just one post.
In a nutshell the deal makes sense for Mitel. Basically they get to acquire Polycom and magically end up stronger on paper. This is possible because, unlike Mitel, Polycom is profitable and has lots of cash. It was a similar situation with Aastra.
It’s called acquisition math which rarely makes sense to us mortals. It often works but has been known to backfire. Acquisitions create opportunities to rearrange the books – sometimes it works well, sometimes it doesn’t (MCI/WorldComm). Sometimes it works temporarily like a Ponzi scheme requiring subsequent acquisitions.
This acquisition appears to be straightforward. The companies issued a joint press release that sums it all up. Everyone wins.
While I more or less agree it’s a good move for both companies, I don’t buy most of the synergies that they are spinning. These two companies have nothing in common and their combination isn’t nearly as complementary as Mitel/Aastra. I don’t think Mitel does or will value much of the Polycom portfolio, channel, or R&D.
Everytime I try to explain my thoughts, I end up spinning a web of back story. For this post, I will try to limit my thoughts into three components, but they overlap too: Past, present, and future.
Past
Polycom was an amazing company. It practically invented enterprise video conferencing. The company created some revolutionary products and Mitel gets in the deal all these patents. Polycom was for years an industry leader in both sound and video. Don’t fall into the trap that video is dead – Cisco, Zoom, Pexip are all providing evidence that video is doing just fine.
The story of how a tech powerhouse just got sold for scrap (and that’s generous) should be studied. Like any disaster there’s a lot of ‘what went wrong here’ to fill books. It includes the usual stuff about disruption (Polycom missed both the cloud and mobile), and there are plenty of other smoking guns including bad timing, bad partnerships, and of course many questionable decisions – AKA bad management. Even today, some are wondering why Polycom isn’t buying Mitel (hint: getting cash to shareholders).
Present
The near term ramifications are tremendous and confusing. For example, Mitel UC actually has better video technology today (from Vidyo) than Polycom offers. Those may be fighting words, but inquire about things like VP9, SVC, cloud interop, and APIs. When Mitel needed a video partner it could have chosen Polycom (many UC vendors have), but it freely chose Vidyo and deeply integrated Vidyo’s technology into Mitel’s products and services. Now what? Then there’s this recently announced Microsoft/Polycom Azure cloud interop service slated for Q4. It’s reasonable to say that’s even more unlikely now, but Microsoft still needs to address a gaping hole there.
Mitel intends to realize $160 million in operational synergies next year- I suspect that’s just the pre-show. Mitel is going to be like a happy tick on a fat dog as it pillages Polycom. This will include the usual redundancies plus (liley candidates are R&D, portfolio, and suppliers) – supply side trickle-down economics. Polycom cited Rich McBee’s track record at acquisitions which is reasonable and deserved, but they should have inquired how many Aastra executives report to McBee.
Future
This is not just another market consolidation acquisition – it changes the market because Poly worked with so many partners as a non-competitive partner. Microsoft and BroadSoft in particular are likely unhappy about Mitel being thrust upon them. I’m sure Mitel will attempt to build a Chinese wall between partner and competitor but that’s hard to do while promising synergies. Polycom’s endpoint business may finally crater like experts have predicted for years. Or, perhaps Mitel standardizes on the VVX phones for its own platforms.
On the video side, Pexip reported its sales boomed after Acano sold to Cisco – I suspect the leaders at Pexip, Blue Jeans, Zoom, and Vidyo are celebrating this week as the mighty has fallen. Mitel-Poly becomes the third member of the UC-Video all-in-one club. The last member to join was Avaya in 2012 when it acquired Radvision. Is the full stack (UC+Video under one roof) idea a valid strategy or have we shifted to dis-unified communications?
Final Thoughts
There’s a lot of stories to tell on this topic. While I get it logically, I find that my reaction is very mixed. I am not so convinced that this is a great move for either company, but I can’t figure out why. I suspect I fear it will distract Mitel because there are bigger fish to fry like Workstream Communications (Mitel just released MiTeam) and CPaaS. I am also sad for Polycom as I like what Polycom stood for and fear that will die. Though I am unsure if a better option would have presented itself.
I will continue to cover this in a variety of posts. Later this week, Zeus and I will host another Blab on the topic. Very likely it will also be this week’s podcast topic at UCStrategies.