In its favor are that the company is privately held, has been at work streamlining and has installed key executives to carry out well-formed plans. The downside is that it faces formidable competitors — Alcatel-Lucent, Cisco, Nortel, Siemens, IBM, Microsoft — that are equally hungry and have different pedigrees that may give them an edge.
“'09 will be about being able to build innovation through a systems-like approach,” says Zeus Kerravala, an analyst with Yankee Group. “There are two things that companies can thrive at, one is operational excellence and one is innovation. If you're going to be a market leader, you have to do both well. Quite frankly, [Avaya] did neither well for a long time.”
Unified communications is still catching on, so vendors' positions are in flux. Plus, with a global recession taking hold, vendors will be challenged financially, and that could alter their relative success, experts say. The entire UC market for Q3 2008 was $3.1 billion as calculated by Dell'Oro Group. Avaya led the pack with 22% of that market, followed by Cisco with 18%, then Nortel with 11%. Two big names in unified communications — Microsoft and IBM — weighed in with 2.5% and .6%, respectively.
Avaya has led the field since 2007 when Dell'Oro started tracking UC, and it has made dramatic changes since then.
The company started down a new path under CEO Lou D'Ambrosio, who oversaw Avaya's purchase by Silver Lake Partners in 2007 and who charted a course to overhaul it. The plan called for doing better by being more efficient internally, shifting toward indirect sales, and focusing more on software and less on hardware.
Execution of that plan has continued under interim CEO Charles Giancarlo, who replaced D'Ambrosio when he resigned for health reasons in June 2008. A permanent replacement, Kevin Kennedy, takes over in January.
Avaya's apparent lead in UC, however, is not as distinct as it might be, says Alan Weckel, a Dell'Oro analyst. It's difficult to define UC, therefore difficult to say who sells the most and therefore leads. It's not like counting the number of firewall appliances bought or the number of seats of software.
“There are no UC metrics for units sold,” Weckel says. “A lot of UC sales today are still a PBX and IP phones,” so that hurts Microsoft and IBM in the rankings. “They play in the application space, but not phones or PBXs.”
Nevertheless, Avaya is in a solid position for several reasons. It is privately held and does not have to answer to the quarterly demands of Wall Street. It had large cash reserves and is cash-flow positive, Weckel says.
The company had old-school business processes in place, but now that it's being taken over by a private firm, Avaya can reorganize around profitability and even accept smaller margins to boost business long-term, Weckel says. “It's a transition they needed to go through.”
Cisco is the toughest competitor. Its share of the UC market measured by sales has been growing among enterprise customers, while Avaya is more stagnant. Cisco ships more VoIP lines, but has an installed base that pales in comparison to Avaya's, Weckel says. Cisco is doing a good job shifting from its proprietary protocols to open ones, and from a hardware focus to software in its VoIP offerings. “Will Avaya be there in five to seven years? The answer is yes. You can't say that for all the competition,” he says.
That is something Giancarlo agrees with. “There will be fewer vendors, without a doubt, in this industry several years from now than there are today,” he says.
Notably, Nortel is reported to have hired counsel to advise on whether bankruptcy is in its best interest. Other vendors — Weckel would not specify which — will suffer lower stock prices and perhaps be absorbed through mergers.
Avaya's Giancarlo speaks optimistically, however. “While the next several years are going to be very difficult for everyone, including high tech, I've been through nuclear winter — it was 2000 and 2001 — and I don't believe that this will be quite as difficult a time for high tech as that was,” he said, addressing a UC conference earlier this year.
On D'Ambrosio's watch, Avaya began focusing more on software and the potential for applications to make use of underlying UC infrastructure. To that end, the company established DevConnect, an application-developer community open to customers as well as independent software vendors.
“I think the DevConnect program is key to the business to help make that transition to software by adding a lot of [independent software vendor] partners,” Kerravala says. “They'll be able to take advantage of the software platform they've created.”
Microsoft, however, with its software predominance, stable of ISVs and a UC platform of its own, poses a significant challenge, Kerravala says. “Microsoft's product isn't mature enough that it's mattered up until now,” he says. “Ultimately Avaya has to understand that Microsoft's going to be there, and how do you leverage that fact?”
Microsoft already collaborates with Avaya on UC integration, but also with Avaya's competitors, so there is no distinct advantage there, Kerravala says.
The answer, Kerravala says, is to find a way to complement Microsoft infrastructure. “Avaya's got to find a way to be almost like Citrix Systems is to Microsoft,” he says. “Citrix, you could argue, competes with Microsoft, but ultimately they sit on the Microsoft infrastructure and make it better. They add value.”
“Can Avaya find a way to let Microsoft do what Microsoft does, and then sit on top of the Microsoft infrastructure and add functionality to it?” Kerravala asks.
A hint about what Avaya might do comes from Giancarlo. UC vendors as a whole have failed to follow the ease-of-use and content-rich model adopted by cell phone makers, he says. UC software needs to include standard applications, such as Rolodexes and address books that get used every day.
Also, UC client software must be portable to whatever device the customer wants to use, including cell phones, handhelds, laptops, desktops and kiosks “so that as we update and improve the endpoint software with new features and capabilities, that improvement is able to appear everywhere our customers may have employed a new endpoint or a new system,” Giancarlo says.
UC software must be open, so it can be readily integrated into enterprise applications, Giancarlo says. “As an industry we've set an extraordinarily low bar so there's a great opportunity to improve upon that,” he says.
That fits with Kerravala's take on where UC is headed. “To me that's the software-ization of UC, and being able to build a partner ecosystem around it,” he says. “You're looking at Avaya emerging as a much different company.”
