Mitel-ShoreTel Promises Unique SMB Benefits, Viable Enterprise Option
Former competitors must combine strengths, leverage opportunities.
The biggest benefit of Mitel's acquisition of ShoreTel is that the combined company will be a champion of small and midsize businesses in a way competitors are not, while also offering a solid alternative for enterprises using Avaya, Cisco, or Microsoft.
As much discussed elsewhere on No Jitter (see related links at bottom), a week ago Mitel announced an agreement to acquire ShoreTel for $430 million. The value of the combined company will be $1.3 billion, Mitel CMO Wes Durow said. Mitel expects to cut $60 million in operational costs, primarily in finance, marketing, and HR, he added.
Each company boasts a strong SMB customer base. And the overlap in the two companies' channels and footprint is only 10%, since each has complementary strengths geographically and vertically, Durow said.
Like all UC providers, Mitel sees cloud, and specifically UC as a service (UCaaS), as the future. That's where the R&D dollars are going, and where the bulk of the growth is anticipated.
But Nemertes consistently finds in our research that many enterprise IT leaders either do not plan to move to the cloud for any UC apps at all (a jump from 8% to 15% in the past year) or are still evaluating or planning such a move (percentages vary depending on which UC apps; the range is from 40% to 46%). These findings, from the global digital transformation research of nearly 800 companies we conducted in second quarter 2017, are reflected in the chart below.
The ShoreTel acquisition helps Mitel serve not only the UCaaS base, but also the on-prem and hybrid bases -- and any company that desires any of these architectures moving forward. Mitel will continue to support those that want to stay on-prem or adopt a hybrid architecture.
Competitors RingCentral (the market leader), 8x8, and Vonage focus solely on UCaaS, which is great for companies that know they want to move to the cloud or already are there. But it eliminates those that don't -- and Mitel can serve these types of companies. What's more, as a 4,200-employee company with a wide portfolio of voice, collaboration, and contact-center products and services, it also is well positioned for enterprises.
Former Foes Must Welcome Strengths
My advice to Mitel and its employees is to forge ahead with humility and awareness of ShoreTel's strengths. The two companies have been staunch competitors for years, and only three years have passed since Mitel initiated a failed bid to buy ShoreTel. Mitel clearly has the upper hand now.
Though Mitel has acquired other companies successfully (Aastra Technologies, Oaisys, and Toshiba's North American UC systems business), ShoreTel arguably is the most competitive of the bunch. That will result in defensive postures from employees on both sides, as they must succumb to and adopt each other's best practices.
In various research projects we have conducted in the past 15 years, ShoreTel has typically performed well. Its operational costs for IP telephony and unified communications have been the lowest, or among the lowest, for small and midsize businesses. Mitel can learn from the simplicity of ShoreTel's engineering to help reduce operational costs.
ShoreTel has some solid R&D in its Connect platform, which extends from on-prem to cloud environments, offering a compelling proposition for those that will have a hybrid architecture either temporarily or permanently. Mitel can layer its apps over that architecture, serving cloud, on-prem, and hybrid customers. (Keep in mind, on-prem architectures still are the most prevalent.)
Until the past year, ShoreTel customers rated the provider high across the board in technology, value, and customer service. This year, however, its ratings were about average -- a stark departure from previous years as ShoreTel has undergone staff changes and departures. Mitel must examine the issues emerging among ShoreTel customers, and address them immediately.
Though many companies are evaluating cloud-based UC, many plan to stay with an on-premises model, particularly those with more than 500 employees. If cost savings is a greater concern than agility or offloading tactical functions, they'll lean toward the less-expensive on-premises solutions. (See chart below on the primary drivers for companies moving to the cloud for UC).
Opportunity to Differentiate
Mitel has an opportunity to differentiate itself in cloud services regarding control and customization, as do other cloud providers. But so far, I have only seen providers pay lip service to the issue.
Many companies view their communications and collaboration capabilities as competitive differentiators, not only for external interactions, but also internally. If multiple companies within an industry are using cloud providers, they are hostage to their (and their platform providers') upgrade schedules, feature rollouts, and new capabilities. Everyone gets the same things at the same times. Where is the differentiation per company, then? And where is the control to determine which users get which features when?
This is one reason why cloud services cost more operationally than on-premises platforms, according to our research. IT leaders must assign staff to manage the relationship, and act like a lobbyist for the company's best interests. Those roles didn't exist in an on-premises world, for the most part. If the platform provider didn't offer a feature, IT could buy it from another provider and integrate it. If IT didn't want to roll out certain features or upgrades, it didn't have to. Arguably, they could integrate cloud services, but that's not as easy to do as it is with on-prem systems.
This certainly presents opportunities for channels, but Mitel needs to do a critical analysis of the combined company's channel structure, which stands at 3,200 partners. Even though many of these partners are small, and Mitel claims overlap is only slight, it's a big channel ecosystem to manage. That said, Mitel has a good track record of managing its partner ecosystem well.
Ultimately, customers will have power through communicating their concerns and demands. So, don't be shy, IT leaders! Make sure the acquisition succeeds.