Avaya Makes Its Case to Investors: Page 2 of 2

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Avaya CEO Jim Chirico speaking at investor day

Avaya CEO Jim Chirico addresses investors.

Four Pillars for Growth
 
After discussing the foundation set in 2018, Chirico switched gears to what's ahead. Avaya’s growth strategy is based on the following four pillars:
 
Innovate the Core -- This is actually a double entendre, as it refers to driving more innovation into its core products but also modernizing its massive installed base. Avaya’s biggest asset remains its installed base, which is about 5.5 million of 13.5 million (41%) contact center seats and 139 million (31%) of 450 million seats. Chirico referred to the Avaya base, which includes 90% of the Fortune 100, as the “envy of the industry.” In fact, enterprise-class customers comprise 80% of the base, providing Avaya excellent opportunity to play to its strengths. Most large customers want a hybrid offering, and Avaya is arguably best positioned to deliver that better than any other vendor.
 
For example, a business with 10,000 contact center seats isn’t likely to move everything into a public cloud for a number of reasons, including security and control of data. A likely migration path would be for the business to want to maintain its current voice platform and then layer on other digital channels. A pure-play would need to rip and replace, which can be disruptive.
 
Bring Emerging Technology to Market -- This revolves primarily around mobility and artificial intelligence (AI). In mobility, Avaya is largely focused on its unique toll-free “800” service that brings context to the contact center when customers call in via mobile phones. During his presentation, Innovation SVP Laurent Philonenko explained that 70% of 800 calls come from cell phones, ususally with no context. Avaya’s goal for this service is to hit $100 million by fiscal year 2021.
 
Related to mobility is the identity management service the company is working on. Identity management in contact center interactions is highly inefficient, with callers needing to provide credit card numbers, names, addresses, and other info. Avaya is developing technology that uses a combination of voice, video, blockchain, and more to change identity.
 
AI is an area Avaya has actually been strong in for years. I think back to 2012 and the company’s Context Store product for bringing context to interactions. Today, we call that “AI.” Back then we just called it “context.”
 
Also, the Afiniti partnership announced earlier this year provides better contact center routing for improved agent efficiency. Avaya’s real-time coaching, which allows on-the-fly agent training, obviates the need for classroom training. Avaya will focus on these four key areas for AI: Ava bots, predictive routing, conversation intelligence, and insights.
Avaya’s stated goal is to hit $100 million in AI-related revenue by FY2021; I find this goal a bit strange goal since AI should be infused into almost every part of the portfolio by then. With AI, in theory, the more customers buy, the more they save.
 
Go Broad and Deep in the Cloud -- Avaya recently launched its new marketplace for UCaaS and CCaaS, as I wrote about earlier this week in the post “Avaya Gets Jiggy With Public Cloud,” but the journey is just beginning. Avaya will continue to revamp its product line to be cloud-first, but will offer public, private, and hybrid flavors. Down-market, it will use its as-a-service offerings to go toe to toe with the cloud pure-plays and will focus on custom architectures upmarket.
 
Create High-Value Services -- The services business holds tremendous potential for Avaya, as it needs to lead its large enterprise engagements with services. The company has 2,000 service people, which is more than most of the pure-play UCaaS and CCaaS providers have in total employees. Upmarket, there is money to be made in the areas of high-value consulting services, upselling through customer success, optimization services, and business process change. A goal for Avaya should be to move to a model where services are embedded into the deals.
 
Painting a Positive Picture
 
At the event, I caught up with many financial analysts, and most agreed that Avaya made its case and provides a good investment opportunity, albeit one that requires patience. Given the current stock price, there isn’t a tremendous amount of downside risk. However, a number of factors could affect its growth and prevent the stock from moving.
 
The bear case on Avaya is that it’s unable to establish itself as a credible cloud provider and remains on the outside looking in. Given the brand equity RingCentral, Vonage, and other cloud providers have, particularly in the midmarket, this is a possibility -- so Avaya has work to do here.
 
Avaya has always had great products, but has had a hard time connecting the dots between product innovation and business transformation. From what I’ve seen, this is a strength of Avaya’s marketing chief, Becky Carr.
 
Lastly, and this is the biggest risk factor: Is Avaya’s channel ready to make this transition with the company? At its size, Avaya must rely on channel and transitioning a group that large is no easy task. But Avaya has been methodically churning out the ones that it feels won’t make the shift and adding in new ones, as CEO Chirico noted.
 
Overall, I think Avaya painted a positive picture at the event. The product is in place, and it has a big installed base. Now it just needs to execute.
 
Editor's Note: This post has been updated for clarification on certain data points.

Comments

Nice analysis Zeus. I think the revenue multiplier effect of moving customers to the cloud should be enough to convince investors in due time. Execution, as you say, is key though.