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Beth Schultz
Beth Schultz is editor of No Jitter and program co-chair for Enterprise Connect. Beth has more than two decades of...
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Beth Schultz | September 01, 2016 |

 
   

Avaya Angst Must Come to an End

Avaya Angst Must Come to an End Deals are hard to win, even among enterprise loyalists, with so much uncertainty hanging over the company.

Deals are hard to win, even among enterprise loyalists, with so much uncertainty hanging over the company.

So, as we learned with this week's news of the Interactive Intelligence acquisition, Genesys evidently is not buying Avaya's contact center business, as was the gossip a few weeks back. First reported by Reuters, this rumor turned into such hot fodder for industry speculation that contact center analyst Sheila McGee-Smith's No Jitter post on the purported purchase even ended up with the site's second highest number of page views in August.

In many ways, Avaya has become the poster child for an industry navigating the transition from hardware to software (see a related No Jitter post from earlier this week, "Communications Assets: All Sweated Out or All Shook Up?") -- and it seems everybody is awaiting its next steps. While still a top-ranked UC company, Avaya has been experiencing steadily declining revenue in the wake of shrinking demand for UC hardware. As reported last month, total revenue for Q3 fiscal 2016, ended June 30, came in at $882 million, a $117 million drop year over year. Avaya isn't alone in its transitional struggles, of course, but it carries the added weight of lousy credit ratings and the extra burden of crushing debt -- some $6 billion of it, with $600 million coming due in about a year.

As everybody's known since the company's Q2 quarterly briefing in May, Avaya is exploring asset sales and "other potential strategic opportunities," whatever those might be. So little wonder that Avaya has turned into grist for the rumor mill.

On the Edge of Uncertainty
We'll likely never know where exactly the "Genesys is looking to buy Avaya's contact center business" rumor originated. But we can all be certain about this: Scores of Fortune 500 contact center managers were no doubt sitting on edge upon hearing that speculation. What would the future hold for them should Avaya spin off its contact center business?

The analysts and consultants I've talked to in recent months about Avaya's future have all sorts of suggestions as to how the company might right itself. A starting point, most agree, would be to offload the networking business... though at the same time they question whether any buyers would be interested. The video conferencing portfolio has come up as a suggestion, although the same caveat applies, and others have noted that Avaya's managed services business, with its high margins and decent revenue stream, might be attractive to a systems integrator, a la Atos's acquisition of Unify.

Writing for No Jitter about the potential Avaya asset sale back in May, UC analyst Dave Michels proposed: "Some assets appear relatively simple to separate -- namely the networking division, hosting business, its collection of patents, and possibly its newly created subsidiary, Zang." But I've talked to others who suggest that the Zang communications platform as a service (CPaaS), along the Breeze development environment and its Oceana manifestation for the contact center, are where the real long-term value for Avaya resides, and none should be sold off as piece parts but rather should comprise the foundation for the company's resurgence. Better to bundle up and sell off its older telephony and UC technologies -- or, absent an interested buyer, put them into bankruptcy.

Back in June when Avaya announced Oceana, McGee-Smith had this insight to share with the No Jitter audience: "Avaya is hoping that the Oceana announcement and roadmap will give existing customers a reason to stay with the company as it builds out the full solution. For some of the huge Avaya contact centers, with tens of thousands of agents, change is always slow. This early view of Oceana, Oceanalytics, and Workspaces may be enough to keep them loyal to Avaya."

The same could be said for midmarket enterprises, which Avaya is wooing with IP Office Release 10, introduced this week (see No Jitter coverage here and here). And, we hear, Avaya has other "major" product announcements in the works. "Avaya is doing a lot not just in R&D but in getting that R&D into production and into the hands of customers, faster," Victor Bohnert, executive director of the International Avaya Users Group, shared from the insight he has as a liaison between Avaya customers and the company.

The Limits of Loyalty
Being an Avaya loyalist is one thing -- and there are plenty of those thanks to the strength of legacy products providing value within a significant installed base. But dealing with an aged Avaya environment in need of upgrade is another; and soliciting competitive bids for next-generation, cloud-based UC and collaboration capabilities, no matter the legacy gear in place, is yet another.

This is to say, Avaya has a better shot at winning repeat business then it does at signing on new customers. The problem is twofold, suggested Diane Myers, senior UC research director at Infonetics Research. The financials are troubling but more than that is Avaya's lack of mindshare, she said.

Ever the stalwart, Avaya does get to the enterprise table and it does have the ability to win new customers. "I see that. I have examples of that. ... And it is doing interesting things, and has shown it can innovate on technology," Myers said. "But ... it doesn't have the buzz. It's not considered to be especially innovative even if it is doing innovative things."

From what I hear, more often than not (but perhaps not as often as competitors would like us to believe), Avaya will lose enterprise deals, even when its technology is the best option, once the company's uncertain financials come into the decision making. Even if Avaya sells off its UC portfolio, that business isn't going to disappear into thin air -- but what enterprise IT executive wants to contend with the mess a transition from one vendor's care to another's would surely entail?

We've heard from various sources that Avaya's goal is to have its plan in place when it closes the books on its fiscal year come Sept. 30. That would be wise, indeed, and over the next few weeks I'll be sharing more thoughts from Avaya watchers as to how the company might best proceed. The angst must end!

Editor's note: This is an updated version of the original post, which inadvertently stated Q3 revenue represented a 117% drop, rather than the correct $117 million.

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