Transcript for Hosted UC, ShoreTel and M5 Networks
Blair Pleasant: Hi everybody. Welcome to this week’s UCStrategies Industry Buzz podcast. This is Blair Pleasant here with my fellow UCStrategies experts. Today we are going to talk about Hosted Unified Communications. Hosted UC has gotten some attention recently, especially since ShoreTel announced plans to acquire hosted provider M5 which lets ShoreTel now provide both premise-based and hosted UC solutions. ShoreTel joins companies like Mitel, Siemens Enterprise Communications, Cisco, and others that have also added cloud-based or hosted UC offerings. And actually, that brings up a good point that we will talk about later, what is the difference between cloud-based and hosted UC offerings? But first, Jon Arnold, can you give us your thoughts about ShoreTel’s acquisition of M5 and entering the hosted business?
Jon Arnold (:54): Thanks, Blair. I think it is good that we are talking about it, because it is so timely and it is so big. And I think it is a very surprising, at first glance, piece of news. ShoreTel is a middling-sized player. They are never going to be as big as Cisco, but they have got to really differentiate themselves from all the littler guys behind them. We have been to their events, and we kind of know what their strengths are. They are a little bit behind the curve in terms of being a true market leader. Their video story isn’t that strong. Their mobility story is just getting there. They have been trying to move towards the hosted space and talking about it, but they have never had the horses to do it themselves, and the market is just changing so quickly right now.
We all know how much tablets are changing the game almost overnight in terms of end user expectations. And the same thing I think is happening here. This hosted cloud space, and I know we will talk about those definitions later, it’s been out there for a long time. But it has really reached some critical mass now to the point where it’s becoming a strong story line, especially for the SMB guys. I know ShoreTel talks about how they are going up-market with more of their revenues coming from the enterprise side. But still, the SMB’s are really kind of a core market for them. Cloud is a natural fit, so they are at a point now where the game is too far along and changing too fast. They have got to make a move to make a statement, and I think this was a perfect opportunity for them. M5 has been in the game a long time, 10 years plus.
Dan Hoffman has done a great job not just to build a business around this, but he has also grown it. They purchased Geckotech in Chicago a couple of years back, and that gave them a footprint, and an additional asset that is really critical for any hosted or cloud-based offering. When M5 was just based out of New York, they only had one data center in New York City. By acquiring Geckotech, they picked up a second data center in Chicago. That gave them some critical redundancy. I know others will speak to this later, but you need that to have a true hosted solution that will work and have a backup not based in the same geography as your other data center. That gave them some flexibility, and also a physical footprint to grow the business. They are in two of the biggest markets, Chicago and New York. Plus of course, they reach nationally. So they have a good business model and they have proven it. I think that is the key that ShoreTel saw here. They have the money. They have the growth story, but they don’t have a true type of cloud or hosted solution. I cannot quite remember what the customer base is with M5. I think it is at least 500 customers, but it might be closer to a thousand. So they have a core mass of customers right away.
What is interesting with M5 by the way is that they originally were a Broadsoft shop, but they have since moved on from them and have developed their own solution in-house. If we talk more a little bit later about makes a cloud offering successful or not, the big question I think ShoreTel I am sure did their homework on was to find out just how scaleable M5’s infrastructure really is. Because if they are going to expect this business to grow exponentially, I don’t know if that’s been proven yet. I am sure that Dan and his team have the smarts to do that, but that is the only question mark some people might have here about their underlying technology. The last point I will make here is that M5 has developed a strong tradition of being customer focused. They know how to win business, and they know how to keep business. Their front line staff are really good. I have had some first hand experience with them. That is key here, because they also of course, know how to service small businesses that will complement ShoreTel. How they take this to market though is a huge question, and I know that we will get to that later when we start talking about channel issues and stuff. So I will leave it at that. It seems like a steep price to pay, but I think it is a necessary price to get that footprint in the market for ShoreTel and establish themselves as a major player in this space. I think we have more consolidation and rolling upcoming for sure. And in this move, I think it is going to kick-start a lot of that.
Blair Pleasant: Yep, I would agree. Thank you, Jon.
Dave Michels (5:07): Hi, this is Dave Michels. I thought I would take it from three different perspectives: an industry perspective, why I think this move was brilliant, and the dangers that lie ahead.
So from an industry perspective, I think it was really good for the industry. It validates the hosted space. I think there was probably a collective sigh of relief from M5’s competitors, who saw this acquisition as validation of their business model and potential license strategy. ShoreTel bought M5 for $160M. I estimate that to be about four times revenue. ShoreTel needs to pay $80M up front and that is a pretty big purchase. ShoreTel reported that it had $115M in cash just last December. M5 has about 2,000 customers and 60,000 seats, that’s 30 lines per customer. There are not very many public companies to compare them to, 8X8 is a public company and they are probably a little less in revenue than 8X8, but almost triple the average customer size. A reasonably strong and stable management team, including Dan Hoffman who has been running it for 12 years. So I think all in all, it's probably a pretty good move and this acquisition is a good thing.
Now I’ll tell you specifically why I think it was a brilliant move for ShoreTel. I really very much like ShoreTel’s vision of best in class, premises, and hosted. I like that. They went through the buy versus bill analysis and they came up with buy. They identified the key reasons being that the technical fit wasn’t good to build and they needed the executive talent – it would take too long to acquire both or to build both. And so buying made a lot of sense and I agree with that.
M5 is a reasonably strong player in hosted. Not a strong brand, but ShoreTel has a reasonably good brand. M5 has reasonable penetration in both Boston and New York. An added bonus is that ShoreTel is a little weak in the East Coast, so that comes together nicely. The companies have reasonably strong cultural fits. M5 was positioned as a visionary by Gartner in 2011. And the difference between the visionary and leader – in the Magic Quadrant – is the ability to execute and ShoreTel is strong on execution, debt-free, and generally gets marketing. By this time next year, ShoreTel will likely have one of the strongest brands in an otherwise highly fragmented market.
Overall, I think it was a good move; offensive and defensive move for ShoreTel. But it won’t be easy. There are a lot of dangers that lie ahead. Integration challenges are significant and I think this is a big area that is not being given enough attention. Mitel and Siemens opted to build their hosted solutions largely because their solutions were effectively cloud-ready. ShoreTel’s core products are not cloud-ready, not strong in SIP or virtualization, nor multi-tentative. Buying was the right over building decision, but buying such a different platform and operation is not a trivial integration exercise.
ShoreTel has identified two initial integration areas that they are talking about; the ShoreTel Mobility Solution and their phones. I do not think that either of these are low-hanging fruit. Short-term, mobility is a strong play for the enterprise space and how well it fits in the M5 sweet spot may be a little tricky. On the phone side; SIP is not ShoreTel’s strong card. Their phones are MGCP and only offer basic SIP support. M5’s customers are currently standardized on Cisco phones.
Organizationally, there are some big challenges. We will get to the channel later, but regardless of channel or direct, M5 directly services these customers. It is not a wholesale provider. This is new for ShoreTel, which prides itself on indirect relationships selling to dealers that resell systems.
But the biggest issue or risk here is really around cash management and management attention. ShoreTel is not a profitable company, presumably neither is M5 and in fact, Dan Hoffman specifically cited access to capital as one of the reasons he sold the company. Both companies need cash. Both need heavy R&D, and neither offers near-term synergies to the other. When ShoreTel bought Agito in October of 2010, it also resulted in a separate business unit and a separate sales channel and now that candle is going to be burning on three ends.
So I think there is going to be some interesting challenges here, but all in all I think it's a good bet.
Blair Pleasant (10:00): Let’s go back to my previous comment about the differences between hosted and cloud. A lot of people use the terms interchangeably. So are they the same, or are there differences? Marty, what are your thoughts on this?
Marty Parker (10:12): I am going to suggest that based on experience of building products for enterprise solutions and building products or attempting to building products in my previous assignments for carriers, shared tenant, often called shared tenant or multi-tenant products, those are very different product capabilities. In my mind, I tend to put hosted in the category of an enterprise product that is operated and managed in a co-located site or in the network, sometimes even managed on a customer’s premise. But let’s talk about hosted in a cloud model, in a network model by a service provider or a carrier.
Recently for example at the Cisco Collaboration Summit in Miami in December 2011, I think we heard them say that they had approaching 40 service providers who would be hosting Cisco Unified Communications manager, the hosted version of it. And when those companies do host that product, they create a separate instance, a separate copy, of Cisco Unified Communications manager for each customer. Which means even with virtual machines, they still have to have multiple virtual machines deployed in their data center for each customer. Those require management overhead, maintenance, support, even though they are sharing compute power.
On the other hand you look at multi-tenant, which is a product designed from the beginning to support many, many different users. The ability for my company to have its own three-digit dial plan and not have that three-digit dial plan be visible to another company is a matter of software settings, not of creating another instance of the product. And of course, we see tons of that kind of hosting in business applications; Salesforce.com would be a stellar example of that. We have seen it in telephony in the past in Centrex services. We have seen it in public instant messaging services that now have click to communicate, for sure. We definitely see versions of that in things like Skype, but when you get around to Enterprise Telephony, we are just now starting to see that. We see that broadsoft has those kinds of capabilities, and there are a number of others. Maybe we will come back to this topic later Blair, but a number of others who are actually doing this in a multi-tenant shared environment, which provides for ease of federation, provides for scaleability at an economic level that isn’t possible with hosted. So I think these are subtleties of things. But since the costs to a service provider have to be passed through to their customers, or else they become unprofitable, presumably, these will reflect over time in differences of price.
Blair Pleasant (13:24): Okay, that makes a lot of sense. Now when we talk about ShoreTel and M5, one of the reasons that it was important for ShoreTel to get into the hosted business is because one of the markets that they target is the SMB. A lot of times when I hear people talking about hosted services, it is really talking about the benefits for SMB’s. So one thing I would like to talk about is, what do we see as the key market for hosted services? Is it just SMB’s, or do you also see mid-sized and large enterprises also moving towards hosted?” Jon and Art, do you want to talk about this? Art, why don’t we start with you.
Art Rosenberg (14:00): Well, there are a couple of ways to look at it. And some of it ties back to what Marty just explained, where there is a need to have customization or whatever, as opposed to standard kinds of functionality, basic communication and telephony and so on, and it is just a question of administration and changing some parameters. But you can actually share the platform; you can share the software, etc. It is just that you change the controls for different users. It is almost like what happens inside an organization where everybody has their own kind of core management options they can control. But I think that UC is going beyond simple person-to-person contacts and telephony stuff. It is going into information access. It is going into a CEBP, which is applications. And especially get into the contact center and self services. I think the larger the organization, the more that is going to be true. They are going to have a lot of self service applications and so on; whereas the smaller organizations may not.
So if you think about it from that perspective, obviously there is going to be a demand for accommodating customization more by the larger organizations, if they want to take advantage of anything that is in the cloud or hosted, and so on, which they probably will, because they don’t want to take responsibility for all the software or for equipment then the little guys will just say, “Hey, I want the basic service. Just give it to me simply.” So on the one hand you can accommodate the SMB’s easier and you can do it with smaller kinds of capabilities, but I think the concept is one that will apply to larger organizations, because they are going to want to do more. And that is where you are going to have to have that differentiator.
Dave Michels (16:00): I think there is a big opportunity regarded hosted services in the enterprise when it comes to branch offices and hybrid solutions: effectively, a premises-based solution in major locations, with the option of using a hosted service in remote sites that’s integrated into the premises solution. This offers the best of both worlds – internal dialing, mobility integration, and reduced IT for the field. Mitel, Siemens, and Fonality all offer various degrees of a hosted premises hybrid solution, but I do not think any of them have this nailed yet. I think it will be really interesting for ShoreTel, because ShoreTel has been very strong with multiple systems, database propagation, and if they can tie that kind of functionality into a hosted offering or a hosted hybrid offering, I think that will be very interesting for the enterprise.
Blair Pleasant (16:54): Jon, do you want to add to that?
Jon Arnold (16:57): Yes, I think there is definitely an opportunity for hosted in both the SMB and enterprise space. We all know the use case for this with the smaller guys is simple; they do not have the infrastructure and expertise to do this. I think if UC is marketed effectively to the SMB they will also recognize that it is a better way for them to stay on top of the curve, because they have to understand that UC is not a finished product when they get it. It is an evolving service and a series of applications that will keep coming with new ideas and innovations. The less IT expertise they have, the less likelihood they are going to be able to keep up and bring those applications in.
So I think that that is a key part of the sales job of the continuity of what UC brings that most SMB IT guys don’t have the capability to do, and they will see value in that. For the bigger enterprises and the larger operations, I think another key sales angle for this is just the idea that hosted is consistent with the trend of outsourcing, that they are very familiar with and doing anything that they view as non-core. And I think all enterprise IT guys are under that kind of heavy-duty pressure to reduce costs and overheads. It is less of an issue of the expertise, and more almost like a bottom line issue of saying, “We can do this more economically and efficiently in a hosted manner.” I think that will play well. I know a contact center was mentioned earlier, and that is another key area where outsourcing has become a really big deal. As UC starts to find its way more into the contact center space, the rationale in larger enterprises will be even stronger to see UC on a hosted basis.
Blair Pleasant (18:47): Okay, thanks Jon. Let’s turn this over to talking about, “What are the implications for channel partners?” Most of the vendors today are still struggling with trying to figure how to incentivize their channel partners to sell hosted services, rather than premise-based equipment. Why sell something that gets two or three bucks a month for a year or two, rather than something that gives you revenue out of the gate? Marty, do you want to talk a little bit about the implications for the channel?
Marty Parker (19:14): I would begin by recommending to channel businesses, to the executives of those businesses, that they take the view that their hardware business is going obsolete. That even their product license business is going obsolete. That the business they have made in the past by selling a PBX, or a PBX software package with licenses and putting servers under it, racking and stacking as they say, installing, monitoring, maintaining, is gone. And if you thought that way, you would look at the hosted and cloud business very differently. Now your current business may not be going away in a moment. It may take years for it to go away. And some of the maintenance contracts you have may last for those years, but that’s the beauty of it – they can pay the rent while you start up a new business. So if you say, “Aha, what if a customer can in fact buy these licenses and someone in the cloud is going to run all the servers and do the monitoring and do that sort of thing on a scale, that I don’t have to worry about, then what do I have to provide to the customer?”
The answer, I believe, will turn to your application skills, which by the way would be your Unified Communication skills, not UC the technology, but UC as a solution to business problems. You would be able to work with your clients throughout your community, or throughout your vertical focus area and say to them, “I know how to solve your problems in your industry. I know how you want to use communications, and I know how you can buy from any of these three cloud-based services. I know how to configure those. I know how to add applications to them. I know how to integrate to them. I can take your cloud-based Microsoft Lync or your cloud-based M5 network and I can hook it up to SalesForce.com.” By the way, I noticed M5 networks already has a connector to SalesForce.com. How about that? “So, I can go in and solve your business problem, even while these services are going on on a monthly recurring fee basis in the network. And I can still offer you a help desk. I can be the help desk for your people, so they do not have to go into the online forums and try to find the answer to their question. I can still be your first point of contact, so you do not have to have somebody on your staff managing the cloud-based vendor, because you still will have to do that, relative to adds, moves, changes, service levels, and so forth. But, I can do all those things for you.”
Now, if in the process of that a reseller wants to also resell licenses on a recurring basis, then all you have to do is worry about the quality of the contract. Because if you sign a multi-year contract, then you will have a guaranteed revenue stream. And just like a lease you can take that to the bank, or to a leasing company, and get paid a lump sum up-front as a discount to that cash flow, which allows you to pay your salespeople the same way you are paying them today if you want. But, you are paying them for a multi-year contract; you are not paying them for the month-to-month subscription. I think people that want to buy on a month-to-month basis, you probably shouldn’t get into the middle of people that. Just offer them the professional services as I have mentioned already.
So you are going to find that you need much more focus on customer’s business needs. You can also focus on the appropriate devices and appliances, the IP phones, the video end points and so forth. And you can also focus on federation and applications, things that the customer will want that they won’t have the skill and the talent to deal with, and the cloud-based providers either will not be prepared to help them, or will want to charge them a very large sum to provide those professional services remotely. So I think there is a new business opportunity. I will not say that you can change your old business. I’ll say that there is a new business opportunity here.
Dave Michels (23:29) Hi this is Dave again, I have two channel concerns; one is longer term and one is more near term. Longer term, if ShoreTel continues to offer M5 services directly, it creates or introduces risks about channel conflict. ShoreTel has always been a channel-only company and as they figure out migration and hybrid strategies, this could be a real challenge and threat to one of their prized assets – a strong channel.
More near term, I think it's important to understand or acknowledge that hosted services or M5’s business is a very different business than what ShoreTel has been in. And this new business competes both directly and indirectly with carriers. Hosted providers are carriers. They provide dial tone and telephone numbers. Many carriers are getting into their own hosted voice solutions. In other words, this could endanger some of their service provider reseller arrangements, which have been strong channel partners for ShoreTel in the past.
Blair Pleasant (24:32): Art, did you have anything to add to that?
Art Rosenberg (24:36): I just want to second the motion of the opportunity. Clearly, it is a shift away from simple person-to-person communications to information that is accessible, online self-service applications. Think of it like the old IVR if somebody says, “I want IVR for my business,” who is going to help them do that.? It is not buying a box. It is doing some analysis or doing some design work on the interaction. So now the question is, it’s IVR that is now UC-enabled, because it is more than just voice. The old two-way interfaces can be improved upon with a multi-modal interfaces. And that is going to be particularly important as more and more people use smart phones or tablets. They are going to exploit all of that.
So there is an opportunity to take somebody’s business, the applications that they are familiar with in a particular market like health care or financial, universities, government, and say, “Let’s take this stuff and upgrade it and make them UC-enabled. And we can take care of helping in a design, and then we can take care of it in implementing and integrating those applications so that they all interwork.” So basically, it is a great opportunity. But, they are going to have to learn to become expert in these areas.
Blair Pleasant (25:57): Okay, great. One last question I want to ask the panel. Do you see any leaders in today’s hosted UC market, or is it still up for grabs? Marty, I know you have some thoughts about this.
Marty Parker (26:07): I sure do. When you look at the players that are out there making some good movements in this zone, I am going to look at the list for example...of the list of vendors who are responding to one of the three UC RFP’s that we have coming up at Enterprise Connect here on March 26th, 27th, and 28th. On the 26th, Dave Stein is running an RFP for Unified Communication on premise with a new IP PBX. On Tuesday, Brent Kelly is running that same requirement, the same profile, the same RFP, but his respondents will be hosted or cloud-based UC and PBX providers.
And then on Wednesday, I am running a session with the same set of requirements, except no PBX – Unified Communication without a new PBX. And we are getting different respondents to all of that. So just looking at some of the names, which I agree have been early adopters and leaders, M5 is on that list already for Brent Kelly’s session. 8X8 is one I am noticing. They have 30% year-over-year growth, and are turning in solid profits as they have been building their hosted enterprise telephony with some UC business.
CallTower is another one that has done quite well in that category, and CallTower now has taken a subsidiary business called Next UC, and they have started hosting Microsoft Lync as well. They have actually put in a cloud-based version of Microsoft Lync. Thinking Phone Networks is another example of that kind of a new company who is doing cloud-based communications. Meanwhile we see our good friends throughout the unified communication industry making motions in this regard. As you know, I talk about implementing unified communications from three directions, by upgrading your voice infrastructure, by upgrading your desktop office infrastructure, and by enhancing your application infrastructure.
And in the first category we see Interactive Intelligence offering cloud-based and hosted solutions. We see Siemens now doing that, and both Interactive and Siemens use the same software in their cloud-based version as they do for their premise. Cisco has three different product lines in the cloud now. One is the cloud-based WebEx Jabber approach, the merger of WebEx, Jabber, and Quad. Another is a product for cloud-based telepresence services called Callway. A third is the Cisco Unified Communication Manager in a hosting version, which dozens of service providers are now offering around the globe. So, they have three different irons in the fire.
Meanwhile from the desktop and office perspective, we see Microsoft with Office 365. I don’t know the actual numbers; they do not publish those separately, but that service seems to be getting good traction. IBM with LotusLive offers, you wouldn’t say PBX services, but they offer Enterprise Communications Services in that way and very much on a collaboration footing. And then Google of course, Google Docs with partners such as Esna Technologies plugging their communication functions into Google Docs.
Then finally you get to the application infrastructure, and SalesForce.com would be one good example who partners up with many of the people I have mentioned already, even M5 Networks for example has a plugin to connect their voice communications into SalesForce.com. So you see the application providers doing that. SAP is another example in that category. Some of the Oracle certainly has communication functionality they can build into their web portal business. And you see in health care and other verticals, people shipping softphone’s with their health care software and supporting tablets and iPhones and that sort of thing as the endpoint. So as we predicted, there are three different vectors running here, and a number of them are utilizing the cloud to advance their cause. Many of the companies that I have mentioned, the health care companies and the SAP for example, are also cloud services if you want to buy them that way. So in answer to your question comparable to M5 Blair, it’s 8X8, CallTower, Thinking Phone, those types of companies. But the traditional UC vendors also are putting their hat in the cloud and the hosted ring. By the way, I have to put Mitel in that hosted list as well. So a lot of players are moving into this space, I think confirming that there is really a visible opportunity here.
Blair Pleasant (30:56): Yeah, I would want to add a couple more to that list. You mentioned 8X8. I also see companies like Fonality and RingCentral. I just met with the new CEO of Fonality yesterday, and I think we are going to be hearing a lot of good things coming out of that company as well. RingCentral is another one that is also in this space. There are quite a few companies targeting more of the SMB. We haven’t been hearing about too much, because they have not been as vocal, but I think we will be hearing more from them in the next few months or the next year or so.
Jon Arnold (31:26): Blair, I have to add just a couple quickly here, by the way, as soon as you mentioned 8X8, that kind of starts the whole ball rolling for all these hosted guys that have been out there a long time. And I just want to add to that. I also have to mention SmoothStone and of course CBeyond. They are one of the original players in this space, being a public company. They have been at this a long time, and then you talk about Fonality and then getting into the whole open source space. That kind of takes things in another direction all together. But yeah, I think the list could go on and on and on. But I think those are the biggest ones that I can think of as well.
Blair Pleasant: Absolutely.
Art Rosenberg (32:04): Blair, this is Art. I want to bring in the approach that a couple of players are taking for hosted cloud-based services, and that is EchoPass and InContact. I attended an InContact meeting here in Santa Monica, and I asked them what it was that they offer that is better or different. They said, “We have been around for nine years, and people like us.” On the other hand, EchoPass is doing some very interesting things. I have known the CEO for a long time, and they are really partnering. They have set up a mechanism that everybody can interwork with everybody else. And not just themselves, but at whatever level of the technology that is needed, they can all be easily integrated on the internet. So I would include those.
Blair Pleasant (32:56): Yeah, and thanks for mentioning EchoPass. They have been around for a long time, as far as a hosted contact center.
Art Rosenberg: Right.
Blair Pleasant (33:02): Thanks. Dave Yedwab, we haven’t heard from you yet. I know you wanted to add to the discussion about ShoreTel and M5.
David Yedwab (33:09): Clearly, ShoreTel having a good position in the on-prem UC space and M5 having a good position in the hosted UC space, it's an interesting opportunity to give the combined customer base the ability to choose whether they want an on-prem, a hosted/cloud solution, and/or a hybrid solution to marry some of their locations with an on-prem solution and some of their locations, likely smaller or mobile user locations, with a cloud version of a solution.
Interesting play, and a likely challenge going forward to see how ShoreTel and M5 decide to integrate and support their disparate, separate, UC platforms today. Interesting to see how that evolves and to see what the roadmaps are to ultimately have a common software stream for both the on-prem and the hosted solution.
Speaking further about the transformation of channels into a hosted space that Marty addresses; a couple of things I would like to say. Clearly the business model for hosted/cloud-provided solutions is traditionally different than the big up-front sale solutions that most value-added resellers have been used to over many years. However, in parallel with the evolution of the whole hosted/cloud space, we have seen a big growth in the number of managed service providers that are already providing a series of solutions that are more of a subscription-type service as opposed to a big up-front capital purchase. The evolution of the managed service provider into the UC space is something we are yet to see so far to a broad degree, but certainly going to be seeing more of that, and as others have mentioned, there are many players already offering hosted UC solutions.
One area that wasn’t discussed much previously, is the whole idea of Tier I, Tier II service providers more aggressively going after cloud-based hosted UC solutions. What we might want to call Centrex II or Centrex III (if you will) in the future. Clearly several major service providers have been offering broad soft-like hosted solutions on a multi-tenant basis for many years. And several have recently announced doing multi-instance large-scale hosted solutions for larger enterprises. And the split between multi-tenant and single tenant multi-instant virtualized supported solutions is going to be the technology question about the way hosted and cloud UC evolves.
Blair Pleasant: Thanks, David. Steve Leaden – what are you seeing as a consultant in this area?
Steve Leaden (37:00): Thanks Blair. This is an interesting time, I think, for the cloud-based market. It’s interesting, Gartner has predicted that the hosted cloud-based model in the UC space, also AKA voice as a service, which is currently at a $700M size at this particular point will reach at least 2.2 billion by the year 2015, which is really just a short time, 36 months out. So it is an interesting time.
As we are seeing in our space as consultants and analysts, we’re seeing that there’s less capital available with clients and they are looking at low capital ways of getting their technology current and managing the risks of older systems or caps or mergers and acquisitions – anything which is really driving a change in technology. Some of our clients, as I mentioned, have considered managed services, as well as hosted services and they are considering both the cloud as well, something on-prem.
In my opinion, ShoreTel’s M5 acquisition is very interesting. I see it as a leader in the market. They had the foresight to acquire a carrier to support the anticipated growth of a hosted market. And it gives them the advantage of really offering both a hosted, as well as a premise-based solution. So really in my opinion, it begins to accelerate more so the offer in the market and I think really ShoreTel is position to do so.
Up until now, we have really been seeing this hosted model really being catered more towards the FMB market. Interestingly, we are actually seeing traction in the mid- to large-space markets, as well. We are seeing clients with multiple thousands of endpoints across multiple sites, basically looking to “remove the headache” of managing the day-to-day telecom infrastructure and now with the additional complexity of UC, and giving that basically to an outside provider. Of course, that runs risks in the sense of that you are really giving all of our carrier-based services and your UC-based services all to one particular company. So whenever it gets into any kind of contractual component at that stage of any kind of negotiation, you have to have very, very strong FLAs and contract out in order to protect yourself as an enterprise user.
In summary, it is an interesting time for ShoreTel. I think they are really positioned to really take advantage of this hosted market. I think it is an exciting time, and we will see this transition more and more toward the cloud-based model, as all these applications get more complex and people just do not have the capital to support it.
Blair Pleasant (39:25): Thank you, everybody, for joining us and for some of these great insights. We will see you all next time.