Unify – An Outlook
I spent a few days last week at the Unify Analyst and Consultant Summit. This was an interesting event as the last Unify event like this was in late 2014 and this event reflected the changes in the company over the last 15 months. It was a great opportunity to evaluate the progress and outlook for Unify in the Unified Communications and Collaboration space as well as for the company overall.
Clearly the biggest news in Unify is the acquisition of the company from Gores and Siemens by Atos. The acquisition actually closed last Wednesday and was announced to great fanfare and a champagne toast (Atos is a French company so it had to be champagne). In many ways this was the most significant discussion of the event. As most of you know, Unify has been owned by Gores, a private equity company with 51%, and Siemens for the last few years. For those of you not familiar with Atos, it is a French Managed Services Company (think IBM Global Services, HP, CSC, etc.). The company has annual revenue of about $12B, making it the 6th or 7th largest in the world, primarily doing business in Europe. The company may be best known as the IT integrator for the Olympics since 1992. I first worked with Atos when Nortel/Avaya built the network and communications infrastructure for the Vancouver Winter Games.
It is clear that the motivation for Atos buying Unify is rooted in services. At the conference, the Unify team indicated that 60% of their approximately $1.2B revenue is in services. Based on a $371M acquisition price and a services revenue of $720M, this looks like a good deal. Assuming a return of 10%, the deal is paid in about five years, and there are significant upsides for Atos selling additional services into the Unify customer base.
However, this leaves a key question about the long term commitment of Atos to the Unify product line. It was heartening to hear Eric Grall, Head of Managed Services of Atos talk about Atos product strategy. Atos already has both the Bull security and networking products as well as Bluekiwi, an enterprise social networking product in their portfolio. In fact, with the addition of Unify, Atos now has a products business that exceeds $1B of annual revenue. The company sees products that are specialized as being a critical component of their overall business strategy of offering companies a path to “digital transformation.” While the majority of the revenue of these products is sold outside of the Atos services channel, they are strategic to the services offer as well. All of this portends well for an ongoing investment in the core and new Unify products.
From a product perspective, Unify is putting significant emphasis on their Circuit product. Circuit is a WebRTC-based platform that has been in the market for about a year. While the recent Cisco-announced Spark is actually very similar, Cisco has extended Spark to have direct PSTN connectivity while Circuit is based on using an underlying voice platform like OpenScape for voice and PSTN access. Overall, Circuit is a viable option to add next generation contextual conversation-based collaboration onto OpenScape or other voice platforms. From an OpenScape perspective, the biggest announcements related to a packaged offer for the mid-market. Beyond products, Unify is focusing on key verticals, claiming significant growth in North America. Finally, the company demonstrated a Next Gen 911 service that is designed to enable the thousands of PSAPs to migrate to a new solution for 911.
Overall it was a positive event for Unify. In a discussion with executives, they indicated that in 2015 Unify added about 1.5M new end user seats. Based on an installed base of just over 30M (as presented by Unify at the event), this means that in 2015 Unify acquired enough new seats to replace the typical 5% annual churn in the space. If this is true it means that for the first time in many years, Unify actually did not lose installed base in 2015. This is clearly the first step to both stabilization and growth. Dean Douglass, the CEO who joined Unify about two years ago, and his team, is to be given substantial credit for turning around a double-digit loss in 2014 to a flat 2015. In fact, when questioned about new customers, the Unify team indicated that the major vendor they were replacing was Avaya, a point emphasized by two former Avaya Contact Center customers on a panel talking about their transition to Unify. This progress and momentum has put Unify into a position to remain a viable competitor going forward.
As to the outlook for Unify, it is both based on internal and external events. Clearly, Unify and Circuit must compete both with a renewed Cisco strategy that also implements WebRTC and cloud with Spark and the emerging penetration of Microsoft through Skype for Business. The key challenge is both to retain installed base, but also replace those who transition to another vendor. Beyond that, the challenges that come with the Atos acquisition are internal. Some of the current executive team will no doubt leave after accomplishing (and being compensated for) the Atos acquisition. One key part of the last two years was a focus on North American management to get into the market. If the replacement executives are European this may dilute that effort. Mention was made of taking advantage of the Unify go-to-market to sell other Atos products and services, an activity that could defocus the Unify team. Finally, the pull of the $11B services customer base could also sway both Atos and the Unify team, moving focus from North America.
Overall, I was impressed with both the results of the last 15 months as well as the outlook for the future. In late 2014, the outlook for Unify was bleak. The company was losing both revenue and installed base at double-digit levels and there was scant funding for new efforts or extended innovation. Over the last year the team has stabilized the business, found a well-financed owner with significant synergies, all while maintaining share and focus. If Atos can keep the team focused, add to their market scale through the Atos customers, Unify may be a player as the market moves forward.