Starting with new CEO Rich McBee on down, Mitel executives kept to a tight message at last week’s channel partner conference in Fort Lauderdale, FL: Mitel has taken the necessary steps to fix channel conflicts; the company is the leader in virtualization; and it’s focused on mobility as a key emerging requirement for enterprise communications systems.
When it comes to the channel, much of the conflict originated with Mitel’s acquisition of Inter-Tel in 2007, McBee explained to me. That acquisition brought along with it a direct sales force that wound up competing with the Mitel channel. Mitel moved to fix this with a reorg earlier this year that resulted in a loss of about 50 internal jobs but, McBee said, ended the channel conflict. Phil Keenan, EVP of Americas Sales for Mitel, described the reorg, in his talk to the conference, as "rip[ping] the Band-Aid off." He added that in addition to eliminating the channel conflict issue, Mitel was emphasizing its model of transferrable licensing to channel partners, so that, "You own the customer; we do not."
It's no secret why this move was crucial for Mitel. Since going public in April 2010—in an IPO that one financial analyst characterized as an "unmitigated disaster," the company's shares have proceeded to lose more than half their value in the ensuing year-plus. In a conversation at the channel partner event, Mitel CFO Steve Spooner told me that his focus is on getting that value back up, and key to this objective is to grow revenues, which have been flat (the company reports its fiscal 4Q numbers at the end of this month). Getting the Mitel channel re-energized and established as the sole provider of the company's products to the 100-2,500-seat mid-market is, in turn, the key to growing revenues, Spooner said.
Part of what's intended to get channel partners and customers energized is virtualization. Mitel used the channel partner conference to make a strong case that they’re the industry leaders in virtualizing the complete range of software used in communications deployments. As a proof point, they brought Carl Eschenbach, co-president of VMWare, to the stage to describe the two companies’ tight partnership and to promote the idea that real-time applications like voice can be virtualized without any performance penalty that would compromise quality of service. Privately, VMWare execs told me that, though their company is vendor-neutral and the Mitel partnership is non-exclusive, Mitel really has been the "most aggressive" communications vendor when it comes to pursuing this partnership and the technology innovations that it offers.
Mitel executives say 850 of their customers have taken advantage of the partnership to enable virtualization on VMWare virtual servers, and that somewhere between 1,500 and 2,000 virtual appliances running Mitel applications—up to and including call control—have been deployed.
Nevertheless, virtualization represents "a long journey; it’s not going to happen overnight," Tim Kostyniuk, VP Product Management & Solutions Marketing told me. But the benefits of virtualization--which have become abundantly clear to datacenter managers and others within the IT organization--will be equally clear to those responsible for communications, Kostyniuk assured me. He noted that one Mitel customer used virtualization to reduce its overall server deployments from 120 to just 12, and said customers are seeing a 5X-10X reduction in the need for physical servers to support Mitel UC applications.
Several folks I talked to at the conference offered, unprompted, an analogy between today’s virtualization transition and the beginning of the move from TDM to IP a decade ago. Just as telecom managers worried about their applications' performance over IP networks and about their own position in the organization, so today's IP communications professionals have been skeptical about real-time performance in virtualized server environments, and often lack strong relationships with those who run the datacenter. But the issue of control is less troublesome, since in most cases, the communications teams retain responsibility for actually running, managing, troubleshooting, and planning strategy for the real-time apps that now simply live on a different server in a different place.
When I talked to Carl Eschenbach after his speech to the channel partner crowd, he said the technology challenges of real-time performance truly have been solved—to the point where a virtual machine can be moved from one physical server to another, and Mitel applications running on that virtual machine not only will stay up, but can retain the call state of any active calls that were in progress during the transition.
In addition, it turns out that virtualization isn't just a play for big datacenters. VMWare--which owns 80% of the virtualization market--gets 50% of its business from transactions amounting to $50,000 or less, he told the audience. And while that's partly due to the fact that most companies, even the biggest, tend to start small and ramp up their virtualization deployments, it's also the case that 60% of SMBs say that virtualization is a high or critical priority, and VMWare's SMB business has tripled in the last 2 years.
Finally, mobility. Frankly, this had the feel of Mitel checking off a box at the conference—you can't not talk about mobility these days. Mitel's story here is its close relationship with RIM, including recently-announced support for its Unified Communicator Advanced client on the BlackBerry PlayBook, as well as supporting Android. And Mitel CTO Jim Davies told the audience that, "potentially, 30% of the revenue in [traditional desk] sets is going to be fulfilled in a different way," i.e., soft clients on mobile devices and other non-traditional enterprise endpoints. Still, though, Mitel execs made it clear to me that their sales of desk sets haven't slackened at all and that they fully expect the desktop phone to be around for some time to come.
Overall, this conference was first and foremost about Mitel trying to win back the hearts of a channel that had, by Mitel's own admission, become alienated by account conflicts. And while it was also about positioning Mitel as the leader in communications virtualization, that was about the only area of leading-edge technology that they emphasized heavily. This was about getting back to basics, rejuvenating the channel's commitment, and giving them a solution to sell that offers dramatic opex and capex improvements in the form of virtualization.
