Three Questions for the New Avaya

Three Questions for the New Avaya

Nicolas De Kouchkovsky png
Three Questions for the New Avaya by Nicolas De Kouchkovsky

 

Only one month after filing for Chapter 11 protection, Avaya held its users group conference, ENGAGE 2017 in Las Vegas. I did not attend the event but followed it carefully. The bankruptcy was of course at the center of most discussions. The focus was mainly about the likely and financially desirable level of debt. There were also many conversations about technology. Avaya made several product announcements under the scrutiny of customers, partners, and analysts, all eager to assess Avaya ability to innovate moving forward. I recommend you listen to last week’s UCStrategies podcast for a summary of the event.

Now that the dust has settled, I would like to offer my perspective. If I continue to believe Avaya will be able to restructure itself, it needs to make three important decisions.

What Market Category to Focus On?

Avaya has without doubt a history of innovation. In the past couple of years only, it launched four new platforms: Zang, Breeze, Oceana, and Equinox. However, looking back at the past decade, I am challenged to find any blockbuster among the new products Avaya launched or the new markets it entered. Like many telephony providers, Avaya has aspirations to provide all the elements of a communication solution by itself. It added organically, by acquisition, or as a professional services package, numerous offers to its portfolio and ended up spreading itself thin across many product categories. Sales of these new offers remained incremental and market traction limited. Avaya needs to choose a few market categories to focus on and align its execution muscle behind them.

What Role in the Broad Collaboration Market?

Several waves of collaboration applications have transformed the communication and collaboration market. Enterprises are now approaching buying decisions more from the standpoint of the collaboration tools they can provide to enable their distributed workforce rather than telephony and communication. The collaboration capabilities that Avaya and the other telephony vendors have been adding to their communication solutions for the past two decades have enjoyed limited success. These solutions dependencies on the underlying telephony infrastructure turned out to constitute major impediments to company-wide deployments, in particular in large enterprises. Collaboration has now grown into a much bigger market. It is dominated by very large brands, such as Microsoft, Google, Cisco, and growingly Salesforce. It is regulated by Geoffrey Moore Systems of Record and Systems of Innovation forces. Large vendors that enjoy the status of technology provider of reference can leverage it to deploy collaboration features across an organization. Smaller vendors can succeed with innovative solutions provided they focus on a specific use case and are packaged to make “deployment a breeze” (pun intended). This trends should get further accelerated as voice becomes a feature of many software applications. Avaya must decide how it wants to participate in this broader market.

What Leeway to Pivot to the Cloud?

Communications is rapidly moving to the cloud. Arguably, larger companies that constitute Avaya core target have been slower to adopt such deployment model. However, the market has clearly indicated a preference for consuming communication solutions as a service from the cloud. Avaya has released cloud offers, but it takes more than products hosted in the cloud to meet the market demand. The approach for selling and servicing customers needs to be changed. In addition, pivoting from a software and services business model to a subscription one is very challenging from a financial perspective. All the analysis I read about acceptable levels of debt are based on Avaya current EBITDA level and do not factor the additional investments required to transform its go-to-market and absorb deferred cash flows if it were to transition its business model from licenses paid upfront to subscriptions. Avaya future capital structure will determine its ability to pivot to the cloud. 

I remain both hopeful and confident a new Avaya will emerge out of the bankruptcy process. For it to strive, it will have to address these three strategic questions.

 

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