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I was fortunate to be one of a few industry analysts invited to attend this week’s landmark update from ShoreTel to the financial analyst community in their hometown of San Francisco. Joining me from the UCStrategies group was Blair Pleasant and Stephen Leaden, and if you followed our tweets, you already know the gist of what was discussed.
Both Stephen and I have already written lengthy posts about their recent acquisition of M5 Networks, and I’ll spare you the public details here. I’d rather focus on what’s new and my key takeaways for UC. Some of these have already been anticipated and discussed here on UCS, but this was the first opportunity for anyone in the analyst communities – both industry and financial – to have direct, in-person dialog with the management teams of these companies in one place. I found this a pretty unique confluence of events and was quite happy to be there.
We heard a lot of validation about the momentum behind the cloud and how well ShoreTel is holding its own in the very competitive IP telephony market. Cisco and Avaya remain dominant, but the gap between Avaya and the #3 players is shrinking, and depending on who you talk to, it’s either ShoreTel or Mitel. I don’t think it matters who’s #3 here, as I think most people would say ShoreTel is faring better, and is perhaps positioned the best of all these vendors for what’s driving the market today.
I wouldn’t be saying that without M5 being in the picture, as this now gives ShoreTel a play on both sides of the fence – premise-based or cloud – and could prove to be the best model as everyone struggles to figure out where cloud is taking things (as Kevin Gavin said, “we can say yes to both”). So, what makes M5 so special? As CEO Dan Hoffman noted, their business is like real estate, with three key drivers – “reliability, reliability, reliability”. Unlike most hosted/cloud providers, they run VoIP over secure, private networks, and perform best with MPLS-enabled customers. This gives them a leg up on most competitors for the most fundamental characteristic of a voice service, as many offerings run over the public Internet, where QoS is difficult to apply at best.
Building off that base, they understand the voice 2.0 value proposition – it’s all about the applications and the experience – not just cheaper, reliable connectivity. With VoIP, dial tone quickly becomes a commodity, and their view is that high value applications are the best way to differentiate against low priced competitors. One example was their Live Answer demo – a simple cloud-based diagnostic tool that shows what percentage of calls is being answered live. This basic piece of information has inherent value not just in the contact center, but for any business where phone inquiries can lead to sales.
Another example is how they have embedded Salesforce.com into their voice service, enabling employees to have to full visibility to a customer’s history during a call – again, either for contact center agents or front of the house staff. This is exactly the type of integration UC touts, but M5 doesn’t really talk about this as UC. They take a different approach to voice with the cloud. For M5, the value of their service is not the call itself or their ability to deliver business-grade dial tone. The real value comes from the information wrapped around that call, and with all the intelligence and horsepower in the cloud, they can provide so much more to the business.
I think this is a big part of what ShoreTel sees in M5, who is not really in the business of providing lower cost hosted telephony. From the beginning, they’ve focused on how information can be added to voice to address specific business challenges. As they build a track record of the aforementioned reliable service, they earn the all-important trusted partner status with customers. This puts them in a great position to offer not just enhanced features like FM-FM, but higher value capabilities that actually require technical expertise, such as conferencing, mobility, voice recording, transcription, etc.
This is starting to sound a bit more like UC now, right? I think so, but we didn’t hear too many references to UC during the presentations. They’re definitely going in the same direction as UC, and trying to address the same types of problems. Both companies talked about the ascendancy of mobility, and it almost feels inevitable that in time, a smartphone will be the only device we use. ShoreTel may have a nice core of premise-based customers, but they’re following the puck, both in terms of upping their mobile game and getting religion on cloud. They’ll be the first to tell you their future does not lie in selling IP desk phones.
On that note, ShoreTel’s Pejman Roshan gave a compelling demo of how well they can extend 4 digit PBX calling to an iPhone. More importantly, he showed how much better it worked compared to Cisco and Jabber, which could not route the call past the cellular network and into the corporate network. Combining this with M5’s cloud service over a private network, they can offer all their customers high value mobile integration.
Both companies know that smartphones are driving the big growth in communications, and that value lies in the applications. By mining the information around calls in the cloud, they can identify new opportunities for applications, not just with mobile devices, but how they integrate with the other devices and screens used throughout the business.
My main takeaway from all this is that both companies have a good handle on how to create and deliver value to customers. I’ve talked previously about how the recurring revenue model of M5’s business will drive sustainable profitability for ShoreTel, and we heard more detail about that during the presentations.
Overall, I’d say there’s a good mix here of meat and potatoes IP telephony along with enough advanced applications to keep them on the right side of the innovation curve for the foreseeable future. We hardly heard anything about emerging trends like video or social media, but I don’t think that hurts them. These opportunities today are too disruptive for their core markets, and given that they’ve refined a recipe for success with everything else, they can afford to add those pieces when the business models mature a bit more.
To be fair, UC was discussed, mostly during the customer panel, so it is in their thinking. However, I don’t think most businesses or channel partners would call either company UC providers. Also, ShoreTel has bigger issues in terms of folding M5 into their operations – the business, their people, their customers and their brand - and I don’t think the UC moniker is keeping them up at night.
These are very practical companies, and both are successful because they’ve learned how to listen to what customers want and from there, develop a solution that adds value. So much of what they’re doing is UC in our eyes, but that’s not what customers are typically asking for. I think that will change as the UC concept takes root with businesses and end users. A lot of businesses are still just weaning themselves off of TDM, so we have to be realistic about how fast these changes will come – at least among the core customer set ShoreTel and M5 are serving. For now, I think we should just be happy things have come this far – we know it’s UC. As long as the customer is buying, does it really matter what they call it? I think I know what Peter Blackmore and Dan Hoffman would say about that.
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