Let's start this week's blog with the same words I used to start the last one:
"SMBs have been a hard nut for UC innovators to crack. These customers' extreme sensitivity to price does not mesh well with solutions that typically cost a premium over the low-cost telephony systems and Centrex-like services that smaller-sized companies typically purchase for business communications."
But instead of veering off, like I did last time, toward Microsoft and how Lync is positioned in the SMB market, let's turn instead toward Cisco and Avaya, since they both have recently shaken up the lower end of their UC portfolios in ways that change how they approach SMB and midmarket opportunities.
This week Avaya announced that with the 9.0 software release of IP Office, its UC platform designed for SMBs, scalability has been upped from 1,000 to 2,000 users. (Avaya also said that the IP Office software has been decoupled from its underlying hardware and can now deployed on a virtual machine. And that the company would soon deliver Avaya-developed contact center software for IP Office, rather than relying on partner solutions. But it's the scalability thing I'll focus on here.) This builds on last year's IP Office 8.1 announcement that saw scalability increase from 384 to 1,000 users.
What makes these scalability increases so curious is that for the first decade of its existence, IP Office was squarely positioned as a communications platform for SMBs. But with the jump to 1,000 and now 2,000 users, 1,500 of which can be on a single server, IP Office is now even better positioned for the midmarket. (For a definition of what I consider SMB and midmarket, jump to the Note at end of this blog.)
Curiouser, Avaya already has a midmarket UC platform. Avaya Aura Solution for Midsize Enterprises scales to 2,400 users and runs Communication Manager, as well as other Avaya software, on virtual machines in a server that's easy for mid-sized businesses to procure and manage. With this and last year's scalability pops, IP Office has encroached on territories that were heretofore the domain of a previously-released Avaya product developed specifically for the midmarket.
Generally speaking, it's never great for a vendor to have multiple products selling to the same set of prospective customers. It makes R&D and support more expensive, and it potentially confuses the sales process. I can see how it could work for Avaya, though, at least in the near term. Increasing IP Office scalability and expanding its feature set so it appeals to midmarket organizations, IP Office resellers will have considerably more sales prospects that they can target. Meanwhile, partners selling Avaya Aura Communication Manager can also target the midmarket with the Midsize product.
When I asked Mark Monday, Avaya's VP of product management, about this, he said he expects Avaya resellers to position IP Office and the Midsize solution to different types of customers. IP Office will appeal to businesses with limited IT resources devoted to communications, with little to no customization requirements, with modest contact center needs, and with a comparatively limited amount of money to spend on a business communications solution. Customers of Avaya Aura's Midsize solution, on the other hand, will have more complex, more sophisticated communications and contact center requirements, and will have more money to spend on them. I think Avaya may in time need to trim down its portfolio so there is only a single midmarket UC system. But for now the two sets of Avaya partner--those targeting SMBs and those targeting enterprises--could benefit.
Cisco
Unlike Avaya, which has enhanced an SMB system so it's more relevant in the midmarket, Cisco has been busy killing off SMB products and taking its mid-range UC system down-market. What I'm referring to here is the end-of-sale of Cisco's UC 300, UC 500, and Business Edition 3000. The former two were the company's UC systems for small businesses with fewer than 50 employees. (Avaya, incidentally, nixed its small business-specific version of IP Office five years ago. So neither Avaya nor Cisco has dedicated UC systems for the sub-50 market anymore.)
Business Edition 3000 has been Cisco's primary UC system for SMBs ever since UC Manager Express, its PBX-on-a-router, was repositioned as a branch office system rather than a standalone UC platform for SMBs. Cisco Business Edition 6000, like Avaya IP Office, is now pulling double duty, being sold to midmarket businesses as it was originally intended and now serving as Cisco's UC system for SMBs as well.
With Business Edition 6000 now Cisco's UC system for both SMBs and the midmarket, the company can better focus sales, marketing, training, and support around a smaller set of UC products than it has in the past. This will in the long run be good for the vendor, good for the resellers, and good for developer partners. And--this point holds true for Avaya as well--it's potentially good for customers who won't, for example, necessarily need to migrate from one point product to another as their scalability and communications capability requirements change. But in the short term, there will undoubtedly be pain, with Cisco providing support for products that are EOS but not yet EOL, with resellers learning new skill sets to support products they may not have supported, and with customers needing to migrate off discontinued UC platforms.
So what's it all mean? First, it means both of these two major UC system developers have pretty much reversed the course of their midmarket strategies. Way back when, in the early days of the UC market, vendors typically had two product sets, one for SMBs and another for enterprises. There were no distinct midmarket platforms. Then came Avaya Aura System Platform, Cisco BE 6000, Unity (formerly Siemens Enterprise) OpenScape Enterprise Express and whatnot. So vendors then had three distinct sets of products, adding midmarket systems for buyers that were larger than small businesses but smaller than large enterprises. This trifurcated product strategy has failed and we're now moving back to more streamlined portfolios, with one UC system--BE 6000 in Cisco's case, IP Office in Avaya's--pulling double duty in both the midmarket and SMB space.
Second, it means that vendors still haven't really figured out what small business, SMB, and midmarket customers want to buy when it comes to UC solutions. Are they most likely to buy purpose-built appliances, server-based platforms, virtualized communications software? Does an SMB need a UC system that's distinct from a midmarket business's UC system? Or can one platform cover both markets? Vendors have thrown a lot of spaghetti at this particular wall. Much of it hasn't stuck, and it's uncertain that what's sticking now will continue to do so. Vendors will likely continue to fine tune their product strategies when it comes to what they sell to SMBs and midmarket organizations.
Finally, it means that the opportunity for cloud-based UC services is as wide open as ever in the SMB space. Cisco's comments in Sandra Gustavsen's write-up of the EOS announcements are telling:
"Cisco also indicates that its Hosted Collaboration Solution (HCS) available through Cisco partners may be a suitable alternative for some businesses.... Though HCS can handle hundreds of thousands of users, some Cisco partners, such as California-based collab9, are targeting midmarket businesses with about 100-2,000 users.... For businesses with fewer than 25 users, Cisco suggests evaluating a third-party SIP-based system or hosted service with Cisco IP/SIP phones as endpoint devices."
It's not just Cisco HCS and Avaya Collaborative Cloud partners that stand to have business driven their way. (Collaborative Cloud partners are few, and HCS partners are by and large fixated on large enterprise deals.) ShoreTel Sky, Mitel NetSolutions, Fonality, 8x8, and others could all see opportunities driven their way as the market heavyweights struggle with exactly how best to approach the SMB and midmarket space.
(Note on segmentation: Throughout this blog I've been using my definition of market segments:
* Small business--5-50 users
* SMB--50-250
* Midmarket--250-1,000
* Enterprise - 1,000+
Sure, there's a grey area, not a solid line, between each of the four categories. You want to put a company with 350 users in the midmarket space? No problem. You'd like to stretch the definition of midmarket to 1,300 users? Why not? I'm no creator of market share pie charts, so knock yourself out.
But the grey area doesn't spread infinitely in either direction. Speaking with one vendor, I was told that the company now defines midmarket as between 50 and 5,000 users. That's much too wide a range, so I'm not on-board with such a definition. And I doubt the vendor is either, really, since in a presentation last year they had slides showing the midmarket as up to 1,000 users.)
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