Vertical Communications – Can They Succeed Selling Direct?
I was one of a few UC Experts attending the recent 2016 analyst event for Vertical Communications in Dallas, and with the last one being back in 2012, there was a lot to get updated on. They certainly have a clear sense of purpose now, at least in terms of market focus and business model, but technology-wise they are trying to cover an awful lot of ground. In short, they are doing enough of the important things to be successful, and in time, the market will tell them which technologies and applications have value, and I’m sure they’ll adapt accordingly.
To clarify, our group was a mix of analysts and consultants, and while analysts like me focus more on the business issues, the consultants honed in more on the underlying technology, which in Vertical’s case is pretty important to understand. I say that because their technology is largely homegrown, and I’m not in a position to gauge how well it measures up to the bigger and better-known vendors in our space. I also say this because much of the content presented to us was a deep dive around their architecture and Vertical ONE Framework.
I’ll leave that for others to dissect and stay in my comfort zone, sharing views instead about their business focus and go-to-market strategy. I want to specifically speak to those themes as they will help decision makers assess Vertical during their buying journey, and to better understand why they are pursuing a direct route to market.
Vertical’s Business Focus – Product-Level
There are two aspects to consider here, and I’ll begin with their product focus. Vertical is not – and never was – a UC vendor in the sense our readers might normally think. They don’t have a telephony pedigree, and are not an enterprise network vendor, so it’s not surprising for them to have limited mindshare in the UC community. While UC is very much an element within their Wave IP platform, they don’t talk about it the way most UC vendors do. Rather than focus on enhancing personal productivity or collaborative efforts, their value proposition is built around workflows and how they impact end customers.
We heard this word a lot at the conference, and if you didn’t pay close attention, one might think they were closer to pure play collaboration vendors like Slack or Redbooth. Of course, they’re not, but “workflows” is starting to become a broad umbrella in enterprise circles. Depending on how you define things, Vertical could be seen crossing into the worlds of IBM, Oracle, SAP, etc. – but again, this is not their focus. This makes Vertical a bit difficult to categorize, since UC or telephony are not their core business, and their vision of workflows differs from what CEBP aspires to.
Workflows are certainly important, and if UC can help, that’s great. However, if your objective is to have a tighter integration between VoIP and other applications, or to ensure employees have a consistent collaboration experience across all endpoints and networks, Vertical is probably not the vendor for you.
As an aside, their Vertical ONE Framework has parallels to ShoreTel in that they have a singular platform now that supports all three UC deployment models: cloud, premise-based and hybrid. This is something that all UC vendors are heading towards, so it’s not that unique.
While they offer pretty much what ShoreTel offers, their objective is to improve workflows and business outcomes, not sell you a phone system. They are not an infrastructure vendor, but if your business is struggling with inefficient business processes or ineffective ways to communicate with customers, then Vertical may well be the vendor for you.
Vertical’s Business Focus – Vertical Markets
So, while their focus on workflows may send mixed messages, their vertical market focus is laser sharp. This was probably the strongest take away from the conference, and a great validation of the company’s namesake. A great deal of time was taken to show how successful they have been in the retail sector, and this looks like their sweet spot. It was clear from the presentations that they understand the needs of this market, what the ideal segments are for their offering, how to sell against the competition, how to properly support customers both pre and post deployment, and what the emerging needs/opportunities will be as technologies mature and shopping habits change.
Based on what we heard, it’s clear why they have been successful with retail, and to a lesser extent, they showed us solid examples for auto dealers. Other key verticals include hospitality and healthcare, but their calling card clearly seems to be retail. However, while retail is a huge sector and a great market to be strong in, their collaboration and workflow needs aren’t that complex, and it’s not clear how much upside there really is for add-on services.
Perhaps more importantly, this sector is being disrupted by ecommerce, and I didn’t hear anything about how Vertical is developing solutions to help retailers bridge the online and in-store experiences to keep customers coming back. If these trends continue, the overall number of retail sites will decline, making this sector a bit less attractive as a growth opportunity. Overall, however, I have long favored companies that build around verticals and develop deep expertise to find niches they can own.
Furthermore, companies like Vertical are too small to be major players with a horizontal solution that covers as many companies as possible with ubiquitous technology. With homegrown technology, they will have more success going after verticals that are poorly served and have real pain points around which Vertical can develop high-value tailored solutions.
Vertical’s GTM Strategy
Vertical is still emerging from the shadows of both Mitel and Inter-Tel, so some legacy DNA remains. As such, roughly one quarter of sales still comes through dealers, and a recently acquired network of direct sales offices – via Fulton Communications – still sell a lot of Mitel. Presuming they stick with the plan, these pieces will recede over time, and the vision is for Vertical to be solely direct for generating sales.
While this may be the best way to ensure brand exclusivity when going to market, there’s a reason why most vendors rely heavily – if not exclusively – on channels. Aside from being a more scalable model, it provides vastly more options for tailoring your reach into specific verticals or regions. Since the channels own the business relationships with end customers, their radar range is far greater for coming across new opportunities that vendors would never see when selling direct.
In theory, the channel also brings value via deep expertise in your products, along with technical resources to properly support the end customer. Of course, that’s one of the fundamental challenges now facing the channel not just with UC, but as solutions like UC move into the cloud. Many have not kept pace, and these changes are more like threats than opportunities to them.
This, in fact, is what Vertical is seeing, and they rightly note that channels have “under-invested” to support today’s technologies, and now their business is at risk. A key concern for Vertical is that this lack of current knowledge makes it hard for channels to differentiate the various vendors they represent for their customers. Vertical is not a household name, and that’s going to hurt them every time.
While it’s tempting to say that channels haven’t kept up because the cost of upgrading skills is too high or that vendors don’t offer any help, Vertical’s experience has been the opposite. As other vendors do, they have a certification program – Vertical University – to keep their technical people up to date and to qualify new people coming into the business. Their programs are offered at no cost to channels, and to date, only three attendees have taken up the offer. At face value, it’s hard not to agree this is a prime example of how channels remain under-invested, and as they fall further behind, the problem will only get worse.
This is just one of several reasons why Vertical believes the direct model is best for them. Ultimately, they want to have full control over the sales process, and it would seem they have seen enough opportunities fall between the cracks because the channel didn’t know how to properly sell Vertical. Another key benefit is the ability to customize solutions along with developing a flexible pricing model to go with it. I would agree these are inherent advantages over entrusting the channel to close the deal, and clearly Vertical believes this is the way to go.
Of course, going direct also puts you at odds with the channel, so you’re always swimming upstream, much like what Tesla is up against with the Big 3 in the auto business. However, good products/solutions will always find a market, and I’ll certainly be watching closely to see if Vertical’s strategy will pay off. I think they’ll keep doing well with retail and auto dealers, and the rest remains to be seen.
At minimum, Vertical could be a bellwether for how the channel is faring amidst all this disruption. The above maxim applies to channels too, and if they no longer have a good solution, the market will go elsewhere. Vertical has already reached that conclusion, and if they’re on to something, I wouldn’t be surprised to see other other vendors follow suit.