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6 Top Priorities for New Avaya CEO Alan Masarek
Last week, communications vendor Avaya announced Alan Masarek would take over the role of president and CEO from Jim Chirico, who held that title for the past half-decade. Masarek is the person that took Vonage from being a consumer-focused VoIP company that ran silly commercials with sillier jingles to a company that served the needs of businesses. He did this through a multi-step process that I had outlined in this post, and when the transformation was done, he turned the captain’s chair over to Rory Read.
The playbook for Vonage was to invigorate the culture, stabilize the business, and then move into adjacent markets. While the overall strategy at Avaya will be the same, the tactics to get there will be different. To stabilize the business at Vonage, Masarek was able to make several acquisitions and roll up many of the undervalued UCaaS providers like Simple Signal, Nexmo, and iCore Networks. Now, however, that market is so heavily consolidated that the type of deals Vonage got likely can’t be had.
I won’t speculate on how Masarek plans to change the company culture other than say he’s good at it. He has a Google background and did turn Vonage offices into places people wanted to go to. The world is different now, and the physical office won’t play as big a role, but culture comes from getting people to buy into the mission, and he’s good at that. Also, Avaya has so many people that live and breathe the company, so that should give him a running start.
Stabilizing the business is an interesting challenge. The advantage that Masarek will have at Avaya compared to his early days at Vonage is that he’s now leading a globally recognized business brand with a massive install base of customers comprised of the “who’s who” of every vertical. Most of the global 2000, the top banks, airlines, healthcare organizations, governments, and more all use Avaya solutions and equipment. In fact, I would guess that almost all of us interact with Avaya on a daily basis. We just don’t know it.
Given the large install base, the first path to stabilizing and returning it to predictable growth is to get the subscription engine running again. Much of the growth Avaya saw over the past few years had been from migrating the install base from traditional maintenance business to its new subscription offering. I’ve heard the speculation that Avaya has converted its install base, which is why growth stalled.
I believe install base conversion has slowed, but I don’t believe the entire install base has been migrated. Avaya has millions of contact center seats and tens, possibly hundreds of millions of UC seats, and that alone could drive Avaya’s growth for years. The question is how to incentivize those customers to embrace a subscription model. Many of them likely have systems that are fully amortized and are paying no maintenance, so customers may not see the need to shift to subscription. There are several benefits, such as free Avaya Spaces or Workspaces (CCaaS), but Avaya needs to do a better job selling the value of what customers get.
For some customers though, a different model will be required where Avaya takes on some risk with the customer. A good past example of this is when Computer Associates (CA) moved to a subscription model. Many customers resisted, so CA let customers move to a month-by-month subscription model instead of a longer-term one. This put the onus on CA to continually deliver new features that customers would find useful. If CA didn’t, the customer pulled the plug. Avaya could use a similar tactic.
This brings me to my second step in stabilization, and that’s to focus on product innovation. Avaya has had some solid product innovation over the past few years, such as the media processing core (MPC), but they also seem to spread themselves too thin and try to be all things to all people. The month-to-month subscription model I suggested only works if new products and features are delivered, and regular product development and delivery requires focus and some product rationalization. For example, IX Workplace and Spaces are both UC clients but have had different roadmaps; they should be brought together. Also, OneCloud CCaaS is commercially available, but it’s still a 1.0 product.
One area of innovation the company should be more focused on is Microsoft Teams interoperability. Teams is widely deployed across Avaya’s customer base and Avaya could help customers make the most out of Teams by providing the calling capabilities behind it. Ideally, you want the whole UC pie, but given Microsoft’s momentum, making Teams better is a good approach.
Another task in stabilizing the business is rightsizing the company spend. In the earnings preannouncement, the company stated, “it has initiated cost-cutting measures that are expected to primarily impact the company’s overall selling, general and administrative expenses, as well as discretionary spending.” This requires taking a hard look at people functions and requires some difficult decisions to be made.
One area that Avaya could look to lighten headcount is in the services area. Because Avaya deals with the “biggest of the big” customers, there is a significant amount of customization and other services work to be done. Avaya could look to offload many of those people and that function to a services partner. Keep the high-margin consulting-type work but low-margin, people-heavy functions could be offloaded.
Accelerating growth requires bringing some unique capabilities to market, and to do that, Avaya should double down on its Experience Builders Program. While most vendors have a developer program, the Experience Builders program is designed to leverage the composability aspect of its products by enabling multiple organizations to deliver a unified solution. A good example is highlighted in this post, where Clemson University, Journey.ai, Toolwire, and Avaya collaborated on a remote learning application. This isn’t an easy process but does modernize how people think about the role of communications.
Another focus area should be investing in OneCloud CPaaS and making this a primary go-to-market solution. Avaya currently positions the product as its development platform, but it’s more than that. CPaaS is the foundation for which communications-centric experiences are built on, and it should lead sales efforts. Masarek is well educated in CPaaS; his biggest, most significant acquisition at Vonage was cloud communications platform provider Nexmo. More and more, it’s my belief that CPaaS is the product people sell with the applications, such as Spaces, merely being examples of what can be built. Composable experiences will determine the next wave of winners in the communications industry, and that starts with CPaaS.
Lastly, I would like to see Avaya increase marketing activity. Chirico had a lot of strengths, but his investment in all aspects of marketing did not reflect a company the size of Avaya. All of the successful communications companies, RingCentral, Zoom, Five9, and others have one thing in common, and that’s they over-invested in marketing. Communications buyers tend to be very brand driven, and that has paid off for Avaya’s competitors. Zoom is associated with ease of use, while Ring and Five9 are the de-facto standard with cloud in UCaaS and CCaaS, respectively. Avaya needs to do similar with what’s next and market to what it believes will drive the next wave of buyers. To be fair, it is currently doing this in the area of experiences, but its much smaller competitors spend a much larger percentage of revenue on marketing.
What I outlined above certainly won’t be easy as the company sits on a shaky financial foundation. At its current run rate, $580 million at the high point, nearly 10% of revenue is needed just to support the debt leaving Masarek few dollars for investment. Cost cutting will help, but growth is a must. Masarek worked some magic with Vonage, and now it’s time to do the same with Avaya.