Seven Reasons Why ShoreTel is Booming

by Dave Michels
ShoreTel (Nasdaq: SHOR) recently reported fourth quarter revenues of $56.5 million. That is an increase of 34 percent from a year ago and beat its own guidance. The results enabled ShoreTel to close the year with revenue of $200.1 million, an increase of 35 percent over 2010’s $148.5 million. GAAP net revenue showed a loss for the year of $11.5 million, or 25 cents a share, which is better than last year’s 29 cents per share. 

Bottom line: sales are booming and so are expenses.
The telecom CPE sector as a whole is not experiencing this type of growth, so it begs the question – How is ShoreTel doing it? Here is my list of seven reasons why:
1) The ShoreTel solution is clear- it isn’t for everyone, but ShoreTel knows that. There is no confusion on who they are or what they do. ShoreTel knows the demographics of their customers, they know the features they can deliver, and they “simply” march to a single drum – and march well.
2) ShoreTel benefits from, as ShoreTel puts it, distracted competitors. The vast majority of its competitors are focused on numerous distractions including their shareholder value and UC product portfolio changes. ShoreTel is focused on sales. One could argue that ShoreTel’s product portfolio is woefully behind and I’m sure they cry about this all way to the bank.
3) It is hard to believe, but demos still sell. Think of telecom as a good steak. A good steak can be defined in many ways  – the breed, the cut, the feed, the ranch location, how it is aged, etc. Left brain issues. Meanwhile the right brain succumbs to the ShoreTel sizzle. ShoreTel heavily relies on its presales demo to convey its architecture and user interface. In one sizzling part of the demo, they enter a new user in appliance one and show it propagated to appliance two (see item 2 above).
4) PBX vs. UC: The majority of the enterprise vendors have worked hard to embrace UC and consider the “PBX” label an insult. ShoreTel is happy with the PBX label and so are its customers. UC is clearly the future, and even ShoreTel agrees, but the VoIP PBX business isn’t dead yet. This is where ShoreTel’s strategy around simplicity hits the nail – sometimes you just want to make a call. ShoreTel can do more, but while competitors explain the benefits of UC – ShoreTel demos and quotes a solution that does what the customer initially requested.
5) ShoreTel loves to advertise. It is no secret that advertising sells and most vendors would increase advertising if they could afford it. ShoreTel can’t afford it either, but evidently decided that market share is more critical than near term profitability. This strategy has known risks and is indeed (eventually) self curtailing.
6) The factors above conspired to create an effective channel for ShoreTel, particularly large service providers. The channel will always gravitate toward companies with simple demos, strong advertising fueled demand, and simple products to learn, sell, and support.

7) ShoreTel is small. Admittedly, this argument gets weaker every year. ShoreTel grew Q4-11 34% that’s impressive by any measure. In terms of dollars, it represents a growth of $14.1 million. That is not as impressive considering that much cash can be found in the sofas at some of ShoreTel’s competitors. 

30+% growth is difficult for any company to maintain in any sector. Though it is clearly possible and likely to continue for ShoreTel if things don’t change. It really boils down to how quickly the market shifts and/or how competitors react. ShoreTel’s is not protected by some patent or other barrier of emulation. Competitors either opt not to copy it, or tried and failed. But clearly ShoreTel’s growth is noticed. Several competitors are now pushing simplicity harder in their messaging – Cisco’s new UC 3000 product is clearly aimed at mid market users with a message of simplicity. Other competitors are coming at ShoreTel from a portfolio perspective that attacks ShoreTel. ShoreTel is yet to announce a cloud play, is one of the few major vendors still tied to hardware appliances, and has limited support for SIP and video.

What happens is, of course, speculative. For now, ShoreTel should be quite pleased (smug?) with a job well done.