Sticks and Phones


It may be common for field staff to attack their competitors, but it’s rare for senior executives to publicly engage in competitor-bashing. As Captain Hook says, it’s “bad form.”

That’s why this post from Genesys CEO Paul Segre deserves attention.

Segre seems bothered that Avaya is about to emerge from Chapter 11. If I were Segre, I probably would be upset, too. Avaya is healthier now than earlier this year when it filed for Chapter 11.

Avaya has reduced its debt from about $6 billion to about $2.9 billion. The reductions in both debt service and pension obligations will free up $233 million/yr in cash. Prior to Chapter 11, Avaya was servicing its debt while still reporting a profit and positive cash flow, so a boost of $233 million is significant. Chapter 11 was necessary because of its upcoming debt maturities, which have now been reduced and pushed-out.

While Avaya struggled with reorganization this year, Genesys had a great 2017. It benefited from the self-inflicted FUD at Avaya, and rapidly expanded into cloud services after acquiring ININ. So it’s no wonder Segre wants more of what 2017 had to offer. 

According to Synergy Research, for the first three quarters of 2017 (ie, YTD 2017), Avaya remains the undisputed leader in contact center. Most recently, in Q3, Cisco passed Genesys for the number two position.

In his post, titled “Is the New Avaya Built to Last?,” Segre concludes that the answer is “no,” with two key assertions: Avaya’s revenue and R&D are declining. His points are technically accurate, but misleading.


Avaya’s revenue is declining. That’s partially why the company went into Chapter 11. Declining revenue is usually bad. The issue here was that the past decade has not been kind to the makers of hardware. IBM, HP, Fujitsu, Dell, Lenovo, Cisco, and many more have experienced declines in revenue as they faced shrinking profits and margins associated with what was their core business.

How companies respond to this existential crisis varies, and some fail. Many go private, and some attempt to pull off successful transitions. Although blurred by the Chapter 11 process, Avaya did accomplish a revenue transition over the past few years. Previously, its business was mostly hardware. Now, it’s about 80 percent associated with software and services.

Avaya’s revenue is declining in part because software and services cost less than software, hardware, and services. Accounting rules make the full picture more complex, but that’s the gist. Software-based companies, such as Genesys, didn’t have to go through this decline in hardware sales.

Is Avaya’s declining revenue a problem? Maybe, and certainly yes if it continues. With this revenue transition and Chapter 11 behind it, the company is poised for growth with less debt, longer loans, and more cash. Avaya could even be the most profitable company in the industry.

It is hard to predict anything at Avaya because of the number of variables in motion. The wildcards include new leadership, ongoing technical transitions, competitive pressures, and non-traditional, emerging alternatives. The future is always hard to predict, but in Avaya’s case, it seems negligent to assume past results are indicative of future performance.


Segre also states, with Avaya data, that Avaya’s R&D investment (both in total and as a percentage of revenue) is declining. He is correct that Avaya’s R&D spend has declined. There’s a reasonable explanation, but that’s potentially irrelevant to customers and prospects. However, Avaya has spent more than $2 billion on R&D in the past five years and owns more than 5,000 patents.

Segre wants his readers to assume that 1) there is a strong correlation between R&D and innovation, and 2) that Genesys is going to outspend Avaya on R&D.

R&D spend is more complex than it sounds. Vision and execution are more important than raw spend, and total R&D is supplemented in other ways. Vendors often turn to partners to fill portfolio gaps (think contact center on SfB), and acquisitions can change everything. At Genesys, the most significant improvement to its portfolio is PureCloud which came out of its acquisition of Interactive Intelligence.

Jim Chirico, Avaya’s new CEO, has already signaled an intent to make acquisitions. Avaya has also announced some interesting new enhancements through partners that touch on various new technologies such as blockchain.

Comparing R&D between companies is tricky because needs and likelihood of success vary. Consider variables such as the age of the portfolio, the aggressiveness of the roadmap, and the number of products it supports.

The bigger mistake Segre makes was using Avaya’s reorganization plan to predict future R&D spend. Most companies don’t forecast R&D spend. Avaya did so when it submitted a plan as part of its reorganization process. It was, by Avaya’s own admission, a conservative plan.

On Oct. 31, two weeks before Segre’s post, Avaya offered preliminary fourth-quarter results that clearly showed the company exceeding its plan in revenue and EBITDA. It’s reasonable to assume Avaya will be revising, though not necessarily publishing, its R&D plans. I expect it will increase and include acquisitions.

Segre also muddies the water by comparing R&D spend as a percentage of revenue. Different companies have different revenue mixes. Avaya has a significant amount of revenue from services (and those don’t require much R&D).

Even if you accept Segre’s innuendo at face value, he shows Avaya’s 2017 R&D spend at an all-time low of $227 million and then boasts, “Genesys continues to invest in technology at a rate of more than $200 million annually.” That’s less than Avaya spent while it was in Chapter 11.

FUD Slices Both Ways

Segre might want to be careful about throwing stones at glass houses. Genesys has a few looming challenges itself.

Earlier this month, Genesys revealed plans to extend subscription pricing to premises-based solutions. This approach has the potential to wreak havoc on its revenue. It’s a bitter pill called deferred revenue, which tends to hide on financial statements. We won’t actually see its impact, as Genesys does not publish financials. Avaya has already begun this transition by offering some of its software under OpEx licensing and managed services programs.

Another challenge: The benefit of being a software-only company is shifting to a liability. The iPod, iPhone, and iPad were not possible from a software-only company. Microsoft, Google, Amazon, and more are scrambling to master hardware. Avaya is off the hardware teat, but it can sell complete turnkey solutions. At a recent conference, Avaya was demonstrating numerous solutions that leveraged the Avaya Vantage phone in unexpected ways.

Perhaps the best kettle-black line in Segre’s post is faulting Avaya for a “highly complex, cumbersome architecture in order to embrace omnichannel.” Hello?

Reports of Avaya’s Death Have Been Greatly Exaggerated 

It’s not my place to defend Avaya. My goal is objective enterprise comms analysis, and sometimes that entails calling foul.

It is odd for a CEO to directly attack a competitor, but even odder he didn’t poke at them in ways that matter. Segre could have accused Avaya for cloud-washing its portfolio or lacking a microservices-powered cloud. But oddly, he picked categories where Avaya is already stronger than his company, and likely to improve.

Segre touts the fact that Genesys won over 250 Avaya customers in 2017. That’s impressive, and partially fueled by its mid-market (ININ) expansion. However, last month Avaya stated that during its Chapter 11 ordeal, it won 3,900 major deals, and last quarter alone it added 2,000 new customers. Seems foolish to suggest Avaya is not a viable competitor.

Maybe Segre would dismiss his post as “locker room talk,” but the post is beneath what I expect from a CEO. Leadership is about new solutions in an ever-evolving industry, not misleading FUD attacks.

Dave Michels