UC, Network Vendors: Buy, Sell, Hold?
As in baseball, UC and networking vendors on the bubble need to position themselves to buy -- a la Mitel and Extreme Networks -- or be sold.
It's the middle of summer and the baseball pennant races are heating up in most divisions. As the trade deadline loomed this week, teams on the bubble (not sure if they're in the hunt for the playoffs) had to decide if they should stand pat or be sellers or buyers. My team, the New York Yankees, decided to be a buyer, and in my opinion made some astute moves that set it up for a deep post-season run.
In thinking about Major League Baseball, I see an analogy to the communications technology market.
Mitel at Bat
Two recent examples come to mind. The first is Mitel's recently announced decision to acquire ShoreTel, which in turn has in part built itself up through a number of acquisitions in recent years -- Agito Networks (mobility), M5 (cloud), and Corvisa (cloud/CPaaS). Although these acquisitions enabled ShoreTel to fill in a number of gaps, they weren't sufficient to make the company profitable by GAAP measures. They weren't enough to allow ShoreTel to differentiate its offerings.
The emergence of cloud competitors minimized the previous competitive advantage ShoreTel enjoyed with its "Brilliantly Simple" networked PBX. Although its cloud revenue, of more than $130 million, were notable, not enough so to overcome overhead. ShoreTel had been looking for strategic alternatives -- i.e., to sell itself -- for a while, and just prior to Mitel's bid, the company reorganized to focus on the cloud, emphasized the agent model, and eliminated channel positions as well as its consultant program.
Returning to the baseball analogy, ShoreTel chose to be a seller because it didn't see itself with a winning lineup.
By contrast, Mitel has had a series of successful acquisitions, including Aastra (PBX), InterTel (PBX), PrairieFire (contact center), and Oaisys (call recording) -- as well as failed prior attempts for ShoreTel and Polycom, and a brief fling with Mavenir. The Mitel acquisitions did two things -- they allowed the company to fill in gaps in the product line and build critical mass in the core voice/UC space. With last month's procurement of the Toshiba North American UC base and the ShoreTel purchase, Mitel will be able to further build a critical mass in both SMB premises as well as overall cloud sales.
Mitel chose to be a buyer because it thinks it has the necessary parts and depth to make a deep run. It has a reasonable track record of protecting the installed user bases of acquired companies. Time will tell if this continues (I would be a little nervous about the roadmap if I were a ShoreTel premises customer).
Certainly Mitel is a credible player and will receive serious consideration alongside Cisco, Microsoft, and the various cloud providers (i.e., 8x8, RingCentral, and BroadSoft-powered organizations such as Vonage and Masergy). In an industry seeing continued consolidation and competition from non-traditional sources (i.e., CPaaS providers such as Twilio and enterprise software vendors such as SAP), the Mitel strategy makes a lot of sense.
Extreme Networks Running Home
The second case is about Extreme Networks. It has acted as a consolidator in the networking industry in a similar fashion to what Mitel has done in the voice/UC space. The recent Extreme procurements include Enterasys (LAN), Zebra Technologies (wireless), Avaya Networking (LAN), and a deal for Broadcom/Brocade's data center switching, routing, and analytics business is pending. Each of the selling companies had a reason to divest; for example, Avaya clearly needed cash and focus on its core UC portfolio while in bankruptcy court.
These new pieces, when added to a reasonable existing base of networking users, make Extreme one of only three networking players -- along with Cisco and HP -- with a complete wired and wireless network offering. (Of course, Cisco and HP have significant portfolios outside of the networking space.
So Extreme's decision to be a buyer has made it a significant pure-play networking vendor. It has already announced an initiative to use common hardware to support the different network operating systems portfolio, a move that should go a long way in protecting the installed base. Its post-acquisition size may allow Extreme to be more successful in marketing differentiated products such as the Shortest Path Bridging Fabric Connect (previously Avaya Networking). Time will tell.
To the buyers, here's hoping these acquisitions will position you for the long term and that you will treat your new employees and customers right. For enterprise readers, may the market always provide you with great choices to cheer on.
"SCTC Perspectives" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communications technology professionals serving clients in all business sectors and government worldwide.