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The Changing VoIP Landscape
2007-08-08
Basking Ridge, N.J.-based Avaya is leaving the harsh Wall Street spotlight via an $ 8.2 billion deal with private equity investors expected to close this fall, while ShoreTel chose the opposite path as it began trading on Nasdaq early last month, raising $ 75 million.
Others like Alcatel-Lucent, Paris, began operations in December 2006 following the $ 13 billion merger of Alcatel and Lucent Technologies, while Mitel, Kanata, Ontario, is snapping up Inter-Tel in a $ 732 million deal expected to close this quarter. Reports have also surfaced that private equity firms are interested in buying 3Com, though the vendor declined to comment.
RELATED: The Coming VoIP War
Cisco Systems, meanwhile, is shaking up the low end of the market with an aggressive push backed by a new small-business VoIP system that began shipping this summer and a small-business partner specialization unveiled earlier this year through which it aims to add 10,000 solution providers to its certified partner ranks. In addition, the San Jose, Calif.-based company in May acquired conferencing provider WebEx for more than $ 3 billion, a move that significantly strengthens its communications portfolio.
Along with those developments looms the potential impact on the channel of Microsoft's entrance into the space and the marketing deluge, product launches and partner recruitment efforts that come along with it.
Microsoft, Redmond, Wash., already has a year-old partnership with Nortel Networks aimed at jump-starting its entrance into the market, a deal that itself sent shock waves through the channel and seemingly cemented a growing rivalry between Microsoft and sometimes-partner Cisco.
Then, last month at its worldwide partner conference in Denver, Microsoft rolled out a voice specialization and revealed that it has begun recruiting partners with the skills to deploy unified communications solutions. The vendor took those steps in order to lay the groundwork for the scheduled launch this fall of Office Communication Server 2007, a linchpin in its unified communications strategy.
Application Skills A Necessity
For the channel, however, two things are already clear: first, that droves of new solution providers will be entering the VoIP and unified communications spaces, and second, that partners will need to develop new application skills to keep up with the changing market.
"It is more competitive. The IP telephony market is definitely changing," says Jeffrey Schmidt, president of SOTA Technologies, a 3Com partner in Coshocton, Ohio. "We're seeing pushes from Microsoft and Cisco toward thinking about VoIP as an application on the network vs. as just a box."
For solution providers like Dave Casey, principal at Carrollton, Texas-based Westron Communications, applications are the key to building a successful VoIP practice.
"Application integration is the story, tying VoIP with things like messaging, presence and CRM," Casey says. "In professional services, customers like law firms, medical and CPAs—where they attach the cost of people to particular cases—we can show that they're losing billable hours because they're not billing for phone calls made or messages back and forth."
The shift VoIP partners will have to make toward applications is inevitable, says Richard McLeod, director of unified communications solutions for worldwide channels at Cisco.
"We're now moving to a very applications-centric, a very presence-centric, a very business-transformation-centric power of unified communications. Partners are once again going to need to move to a new space," McLeod says. "Partners that are highly skilled in Microsoft Exchange will have some advantages; partners highly skilled in IP telephony will have some advantages. All partners will need to have some real clear understanding of contact center [and] unified messaging."
Cisco is investing heavily in helping its partners make the shift with design guides, training and financial incentives as they work to tie Cisco's unified communications platform with applications from vendors such as IBM/Lotus, Microsoft and Salesforce.com, he said.
Microsoft also predicts the emerging dominance of applications in the future of telecommunications.
"A messaging administrator is different than an IP telephony professional, and they have different buying patterns. But we think that will change and start to come together as software plays a more dominant role in these types of solutions," says Chris Caposella, corporate vice president of the Business Division Product Management Group at Microsoft.
Potential partner poaching by Microsoft has already begun as the company works to bring VoIP experts into its channel and team them with its existing software partners.
"Microsoft has had kind of a [competitive] play going on. They've been targeting organizations that in the past have been Cisco and Avaya partners. If you bring those people into the ecosystem, from a Microsoft perspective, you're getting a lot of that expertise," says Jay Lendl, vice president of Microsoft services at Granite Pointe Partners, a solution provider in Plymouth, Minn. "It isn't just expertise in the Microsoft platform: They already know VoIP and they already know call centers. They're in a great position to evaluate how Microsoft compares to all the other vendors' solutions."
When Microsoft partners that have expertise in Windows Server and Exchange team up with solution providers skilled in the ins and outs of realtime collaboration and VoIP, that's when the fireworks fly, Lendl says. "If you can bring that together, it really is a high value proposition for customers," he adds.
Microsoft partners that try to make the leap into VoIP on their own might be unpleasantly surprised, says Don Gulling, president of Verteks Consulting, a Microsoft, 3Com and ShoreTel partner in Ocala, Fla. "When we got into [the VoIP space] in 1999, one of the things we learned is that it looks easy on the outside. Executing it right is not as easy as it looks," Gulling says. "These Exchange guys that think they're going to get into voice, they're crazy. They don't know what they're getting into."
The Equity Equation
Cisco and Microsoft aren't the only two vendors that will be slugging it out for supremacy in the unified communications market. While both companies' pockets are deep, several rivals stand to benefit from shifts in their own equity equations.
Solution providers expect to see a much more aggressive Avaya after it comes off the stock market through its acquisition by private equity firms Silver Lake Partners and TPG Capital.
"Avaya going private takes quarterly earnings pressure off and lets them focus on the development they need to do," says Mike Taylor, CTO and vice president of emerging technology at Strategic Products & Services, an Avaya partner in Cedar Knolls, N.J. "Who knows? Maybe Silver Lake has another acquisition in mind that will help. There is a large potential opportunity for them."
3Com has already unveiled plans to spin off its TippingPoint security division via a public offering. It would also benefit if a takeover by private equity firms ever materializes, solution providers say.
"The best-case scenario is they dump TippingPoint and get the private equity buyout and a new board," says Verteks' Gulling. "The way to get out of a slump is to re-energize."
ShoreTel, Sunnyvale, Calif., is certainly invigorated after its IPO. Solution providers hope the company's newfound wealth will manifest in several ways.
"We hope to see more engineering resources, more marketing resources and more sales development," says Westron's Casey. "They've run a pretty lean staff in terms of sales and marketing, so we hope to see a boost."
Alcatel-Lucent and the combined Mitel/Inter-Tel also stand to cast wider shadows across the market with their increased post-merger size.
With so many players making aggressive moves in the market, it's difficult for solution providers to predict which vendor will end up on top.
"Customers are starting to see some of these things and at least have questions about what it means, but I'm not sure anybody knows yet what it means," says Strategic Products & Services' Taylor.
But that's no reason for partners to rest on their laurels. Solution providers that move now to build VoIP and application skills will be in demand as the inevitable market shifts play out.
"I think seeing the actual impact is still a little ways away," Taylor adds, "but it is coming."
By Jennifer Hagendorf Follett
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