TalkingPointz Research: NEC and Intermedia

This week, NEC announced a strategic partnership with cloud-provider Intermedia.

NEC has a long, glorious history in communications. The company was founded in 1899 and originally worked closely with Western Electric to create the Japanese telecommunications infrastructure. The company is well established as a recognized leader in business communications, not just in the US and Japan, but globally. Over the past century, NEC grew into a diversified technology powerhouse. It produces everything from undersea communications cables to technologies used in satellites -- and everything in between. Keep in mind, that only a small fraction of NEC's portfolio is available in the US. Throughout the company's journey, it produced communications and collaboration solutions. NEC recently celebrated that its "UNIVERGE SV9000 Series" of communications platforms reached 500,000 global shipments.

This new partnership with Intermedia marks a pivotal moment in its enterprise communications timeline. On the positive side, it's a win-win, creative arrangement. NEC is fully leveraging its brand and channels to create a path (for itself and its customers) to UCaaS and adjacent services. On a darker note, it's another text-book example of how product leadership and category dominance ends. Somewhere, in a parallel universe, NEC makes the successful transition from premises-based to cloud-delivered services with its own, internally developed technologies (for the next 100 years).

In 2020, I don't think anyone is surprised that NEC is turning to a partner -- many of us expected it sooner. This research note takes a deep dive into the announcement. The report is 5.5 pages printed in classic TalkingPointz format (pointz, not paragraphs). Enterprise subscribers can download this report.

TOKYO & SUNNYVALE, Calif.--NEC Corporation (NEC; TSE: 6701), a leading provider and integrator of advanced IT, communications, and networking solutions, today announced a global strategic partnership with Intermedia, a leading provider of cloud-based Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS) solutions. Together, NEC and Intermedia are launching NEC UNIVERGE BLUE® CONNECT, a fully integrated and born-in-the-cloud UCaaS solution, and NEC UNIVERGE BLUE® ENGAGE, a CCaaS solution for businesses of all sizes.

NEC and Intermedia
By Dave Michels, April 24, 2020

1. Announcement Overview

1. On April 21, NEC and Intermedia announced a strategic global partnership to deliver cloud communications, collaboration, and integrated contact center solutions. 
2. Together, NEC and Intermedia are launching four new services: 
   1. NEC UNIVERGE BLUE CONNECT: UCaaS with team collaboration and file sharing. 
   2. NEC UNIVERGE BLUE ENGAGE: Omnichannel CCaaS standalone or integrated with UCaaS. 
   3. NEC UNIVERGE BLUE MEET: Video conferencing with integrated scheduling and recording. 
   4. NEC UNIVERGE BLUE SHARE: Cloud-based file save, sync, and share. 
3. NEC has been delivering business communications for 120 years.
4. Intermedia has 1,000 employees (including about 350 engineers, mostly in Russia), 125K business customers, and 6,600 active channel partners. Its cloud-delivered services are primarily sold under private label through its network of reseller partners. 
5. Intermedia owns and controls most of its technologies. Key acquisitions include Telax for CCaaS (2019), AnyMeeting for conferencing (2017), and Telanetix and AccessLine for IP call control (2013).
6. Intermedia was acquired by Madison Dearborn Partners (MDP), a Chicago-based private equity firm, in 2017. Intermedia operates as a standalone company associated with MDP’s seventh fund. Other MDP telecom investments have included Cbeyond, Intelsat, MetroPCS, and NextG Networks. 

2. Announcement Details

1. Intermedia is NEC’s exclusive UCaaS and CCaaS provider worldwide.
2. The new cloud services will launch in the US in Q2-20. The Canadian launch will follow 2-3 weeks later. EMEA launch is expected in Q3-20, and Australia is expected to launch in Q4-20. 
3. NEC will introduce these NEC-branded services to its “distributors” (resellers) with three go-to-market options: 
   1. UNIVERGE BLUE Customer Ownership: wholesale service where partner sells, bills, and supports (L1 and L2) the service. Partner takes topline revenue. NEC handles taxes. 
   2. UNIVERGE BLUE Revenue Share: Channel partner marks up wholesale price, sells NEC-branded service, and provides L1 support. NEC bills and handles taxes, and performs L2 support. NEC pays partners the markup. 
   3. UNIVERGE BLUE Agency: Channel partner earns a monthly commission on NEC-branded services. NEC acts as a master agent.
4. NEC is responsible for calculating taxes and is already FCC-registered. NEC will use data from the Intermedia billing platform to determine taxes. 
5. UNIVERGE BLUE CONNECT has three license levels: ESSENTIALS, PRO, and PRO PLUS. All CONNECT plans include cloud telephony, team chat, and base integrations (AD, G Suite, and Outlook). PRO and PRO PLUS subscribers also include MEET and SHARE, SMS. PRO increases the quantities of supported endpoints, integrations, and collaborative participants. 
6. Key features of PRO and PRO PLUS include voicemail with transcription, webfax, spam caller protection, hunt groups, call recording, softphone, and more. 
7. UNIVERGE BLUE ENGAGE CCaaS also has three levels: CORE, ADVANCED, and COMPLETE. CORE is only available as a bundle with UCaaS CONNECT and is designed for small, voice-centric teams. ADVANCED  and COMPLETE optionally works with CONNECT UCaaS are full-featured CCaaS solutions. ADVANCED supports additional channels such as SMS, web chat and email.  
8. NEC will remain in the declining premises-based UC business worldwide. 
9. Intermedia is responsible for billing data and will provide third-level support to NEC. 
10. At launch, there will not be any deployment migration programs for UNIVERGE BLUE. All installs will effectively be new installs. This reduces the incumbent’s advantage to account access, which has not proven to be very valuable for premises-based vendors. 
11. NEC has several migrations to develop from the original UNIVERGE BLUE UCaaS as well as from customers using multiple platforms, models, and devices. 
12. NEC does intend to support NEC phones on the new offers. Initially, the services will only work with new NEC phones, which NEC intends to provide at no charge to early customers. Later this year, NEC intends to support selected NEC endpoints that customers may have, though they will require a firmware upgrade. 

3. What’s In It for NEC?

1. NEC now has reasonable SMB cloud offers (UCaaS, CCaaS, meetings/webinar, file sharing). 
2. NEC is also getting assistance from Intermedia on billing (tax and remittance). 
3. This partnership provides NEC a graceful, albeit slow, exit from UC. NEC will leverage its base and channels to migrate customers to the cloud without significant investment.
4. There is very little downside for NEC. It retains its portfolio, brand, channel, and customers. There is also limited upside as they pivot these assets to an external provider. 

4. What’s In It for Intermedia?

1. This arrangement gives Intermedia access (as the incumbent) to NEC’s installed base and channel partners. The partnership is potentially Intermedia’s biggest thus far. Intermedia’s UCaaS voice revenue is estimated at just over a $100M run-rate. 
2. NEC has the primary responsibilities for marketing, training, channel management (recruitment, development, programs), L1-L2 support, and billing. 
3. Intermedia, through NEC, now has a path to expand globally. Currently, it offers only a limited set of services globally, such as email. It now plans to launch UCaaS and CCaaS services in Europe and Asia. 
4. If all goes well, Intermedia will experience rapid growth. 

5. NEC Original UNIVERGE BLUE

1. NEC is using “Original BLUE” and “New Generation BLUE” to distinguish the old UNIVERGE BLUE from the new Intermedia-powered offers. 
2. The Original UNIVERGE BLUE launched in 2015. It was a self-hosted offer based on NEC UNIVERGE 3C, the software-based UC solution that resulted from NEC’s 2007 acquisition of Sphericall. 
3. Original UNIVERGE BLUE was UCaaS-only. It did not have components for meetings, chat, or CCaaS. 
4. Original UNIVERGE BLUE is both a public UCaaS offer and a private cloud offer. NEC serves some very large customers on the private cloud version. 
5. NEC operates UNIVERGE BLUE but uses data centers owned by NUSO. NUSO offers SIP trunks that are often integrated into UNIVERGE BLUE private cloud offers. NUSO is the new brand for what was the cloud division of SoTel. 
6. NEC will continue to operate Original UNIVERGE BLUE. It intends to migrate its UCaaS customers to UNIVERGE BLUE CONNECT as contracts expire. 
7. SoTel (NUSO) had developed a Team Chat offer that featured an NEC-branded version of Atos/Unify Circuit. This solution was on display in the NEC booth at Enterprise Connect 2019, branded as “UNIVERGE BLUE Team Collaboration.” The service launched in late 2019 but was discontinued soon after. NEC’s reseller agreement was with SoTel, not Atos/Unify.
8. Four original UNIVERGE BLUE Services (BACKUP, RECOVER, SV9500, and SIP Trunking) remain available to partners. Original UNIVERGE BLUE UCaaS will become unavailable to new subscribers. 

6. How This Differs From Avaya-RingCentral

1. NEC/Intermedia has the advantage of not being first. The Avaya-RingCentral partnership was announced in October 2019 (and launched this month). 
2. These new offers are strictly branded as NEC UNIVERGE BLUE services. There is no mention of Intermedia in the branding. Also, NEC is introducing a new look (colors and icons they will regret) with the UNIVERGE BLUE branding. 
3. Avaya and RingCentral created a master agent agreement. Avaya pays its VARs a commission on sales. NEC also has this option, as well as two other options. NEC and its channel partners have more flexibility than Avaya and its channel partners with branding and pricing. 
4. Avaya agreed to discontinue products and/or transfer them to RingCentral — namely, its Powered By program, which hosted Avaya IP Office in Google Cloud. Unlike Avaya, NEC is not terminating or transferring products to Intermedia. Avaya and RingCentral exchanged payments and equity to structure the program. Details are unknown, but it is unlikely that either NEC or Intermedia made a significant payment to the other. 
5. Avaya Cloud Office has to compete directly with RingCentral Office. The two services are identical right now and will likely remain that way. It is not clear if the new NEC-branded services will differ from other Intermedia UCaaS and CCaaS offers. 
6. Channel conflict and customer ownership are less risky with NEC/Intermedia, as the Intermedia brand is invisible to customers. Also, Intermedia primarily sells through channel partners, and none are as big as NEC. NEC’s street pricing will be comparable to Intermedia’s pricing. 
7. NEC/Intermedia has a narrower launch window. Avaya/RingCentral announced in October 2019 and launched in March 2020 (6 months). NEC/Intermedia announced in April and intends to launch in May (~3 weeks). The launch is being accelerated in response to the coronavirus.
8. Avaya and NEC both enabled support for their own endpoints. 
9. Avaya is going to market with a leading UCaaS solution that is working its way upstream into larger customers. Intermedia is currently better suited for SMB. 
10. Both Avaya and NEC strengthened their portfolio with a modern UCaaS offer. NEC is also significantly expanding its portfolio into new services (video, file share/storage, messaging, and CCaaS). This increases its competitors as well as the necessary skills for partners to sell and support. 

7. Dave’s Thoughts

Winners

1. Intermedia: Intermedia has tremendous upside. The upside is incumbent access to a global customer base of premises-based accounts. The product is already designed for rebranding. The development effort required to meet more advanced PBX features and endpoints will accelerate product maturity. 
2. NEC: NEC makes a face-saving effort that allows it to reduce investments and also potentially sets up an exit from UC/CC. There is no honor in shutting down a business or even selling it to a competitor. 
3. NEC channel partners: It’s no secret that customers are migrating to cloud-delivered communications services. The resellers gained an expanded and upgraded portfolio with multiple go-to-market options. The only portfolio loss was the Original UNIVERGE BLUE UCaaS, which was not a competitive offer. The new required channel certifications are relatively simple. 

Losers

4. RingCentral: RingCentral pioneered these partnerships (three times now: AT&T, Avaya, and Atos/Unify), but this one got away. Even worse, NEC’s arrangement is more flexible than RingCentral’s template regarding branding and go-to-market. 
5. Dialpad: Dialpad has a competitive UCaaS, meeting, and call center offer. It has a strong partnership with SoftBank, which has boosted its presence in Japan — NEC’s home and primary market. 

General

6. The Original UNIVERGE BLUE was a voice-centric offer. The new offers are broader and more competitive. The UCaaS market has evolved to also include video/meeting and team chat components.
7. The transition from a premises-based UC business to a cloud-delivered provider is difficult. Many of the major vendors did not make it (Aastra, Atos/Unify, Avaya, NEC, Nortel, Panasonic, ShoreTel, and Toshiba to name a few). The few that did make the transition include Cisco, Microsoft, ALE, and Mitel. Although both cloud and premises-based business models require expertise in communications, cloud-providers must also have expertise in scale, operations, and self-service. 
8. Cisco, Microsoft, ALE, and Mitel all made cloud telephony acquisitions (Webex and BroadSoft, Skype, Sipwise, and ShoreTel). NEC has struggled with acquisitions, and never acquired a cloud telephony provider. (Note: ShoreTel acquired M5 and then bet it all and lost on developing Connect — now Mitel Connect). 
9. The Intermedia services were not created for NEC. They will not have any familiarity (UI, admin, databases, feature names, etc.) to users of NEC products. That is, NEC is attempting to create a seamless migration path to a totally unrelated solution. NEC and Intermedia intend to develop better feature parity and a migration path, but this is more difficult than it sounds. Basic PBX features, such as BLF, displayed call park information, and hands-free intercom are difficult for many UCaaS providers. 
10. The Intermedia apps appear to be feature-rich, intuitive, and integrated. With only a few high-level demos, it is difficult to spot the gaps. For example, the Meet app seems rich, but does not yet have a room solution.
11. For years, NEC was the number-one global provider of premises-based PBX telephony. It offered highly reliable solutions around the globe for all sizes of customers. That market has been in decline for years. 
12. This partnership has been in the works for some time. Initial discussions began in 2016. The agreement was inked on April 6, 2020, and announced on April 21. Demonstrations on April 22 showed branded applications with extensive conversation history. There are 27 how-to videos on the UNIVERGE BLUE YouTube channel. 
13. The new portfolio of cloud-delivered services increases competitors. NEC’s new services will compete with cloud storage providers (Microsoft’s OneDrive, Google G Drive, Box, and Dropbox), conferencing providers (Amazon, Cisco Webex Meetings, Microsoft Teams, and Zoom), team chat providers (Cisco Webex Teams, Microsoft Teams, Slack, and Zoom), and CCaaS providers (Five9, Genesys Cloud, and NICE inContact). Companies listed are representative samples, not a complete list. To be fair, many of these companies are expanding into telephony. The issue is that the competitive landscape is changing dramatically, and very rapidly for the NEC reseller. 

Concerns and Unknowns

14. NEC’s brand and installed base are very strong in Japan. However, NEC does not expect to launch these new UNIVERGE BLUE services in Japan until 2021 at the earliest. 
15. Beta testing of these services launched in April. Seems a bit early to be communicating GA in May. 
16. It is conceivable the UNIVERGE BLUE offer could expand to include other Intermedia services, such as email. The partnership currently leverages only a portion of Intermedia’s products (UCaaS, CCaaS, meetings, and storage). 
17. Intermedia currently lists multiple Poly and Yealink endpoints on its website. Presumably, Intermedia will add NEC endpoints to its other offers. It is unknown if NEC (or Poly) has any feature advantages.
18. UCaaS suggested retail pricing in the US is expected at: Essentials $20, PRO $29, and PRO PLUS $35 per user per month.
19. NEC effectively becomes a master agent and distributor of cloud-delivered services. NEC has not demonstrated expertise in cloud-delivered communications services. NEC is responsible for partner management, recruitment, and development. 
20. These new Intermedia options will replace the original UNIVERGE BLUE UCaaS as contracts expire. The older platform is built on a feature-rich 3C platform. It seems inevitable that some customers will lose features. 
21. Many of the agreement’s details are not known or made public. NEC is public, but communications metrics are not visible within its diversified portfolio. Intermedia is not public.
22. Intermedia has a big challenge ahead as it expands globally over the next 18 months or so. The products are already designed for rebranding and can run on AWS, but global expansion requires broad localization efforts such as languages, currencies, taxes and regulations, data sovereignty, national compliance and certifications programs (GDPR), emergency services, and more — for each region and country. 
23. Neither NEC nor Intermedia has experience with communications taxes and regulations outside North America. 
24. NEC expects that these new UNIVERGE BLUE offers will appeal to SMB-enterprise customers. Enterprise may be a stretch. For a variety of reasons, enterprises will likely defer to more established and proven offers.  
25. Existing customers interested in cloud-delivered services will likely consider these new UNIVERGE offers. We do not yet know if they will appeal to net-new customers. 

Final Thoughts

26. It’s time to drop the all-caps in UNIVERGE branding. 
27. The partnership leverages the NEC brand and channel. This unique approach gives NEC a role that blends OEM and master agent models. Note that RingCentral’s partnerships (Avaya, AT&T, and Atos) all have RingCentral’s name in the new offers. 
28. While the new Intermedia offers represent a significant upgrade for NEC customers (features such as team chat, file share, and integrated meetings will seem magical), it is not clear how well NEC UNIVERGE BLUE will compete with first-tier UCaaS offers.
29. The most surprising aspect of this partnership is that NEC, a global company, selected Intermedia, which currently only offers UCaaS in NA. NEC/Intermedia plan to launch services globally over the next 18 months. Few, if any, providers have demonstrated such a rapid global expansion.
30. Compared to Avaya’s partnership with RingCentral, NEC has a more versatile model with a weaker partner. 
31. There are potential advantages to the NEC/Intermedia arrangement that could trigger Avaya/RingCentral to revise some terms. 
32. NEC’s premises-based products are mature and require little development. The customer base will continue to shrink — and that decline will probably accelerate. Presumably, NEC will continue to downsize its investments in communications and collaboration as it shifts away from OEM to reseller, integrator, and master agent.