Will UC Become a Loss Leader?
Fellow UC Experts have been writing here recently about change in the UC space – both the nature of change and the pace of change. Things are changing quickly and more often in big ways than little ways. The surprise move by Mitel to acquire Mavenir is a great example, and as noted by Phil Edholm and Michael Finneran, the rationale is not all that clear, but it also marks some new directions that I think are a sign of things to come with UC.
In the large shadow of MWC this week, Mitel’s news was certainly well timed, but it speaks to a couple of these new directions. One is the rising tide of mobility and how it may finally now wash over everything UC and push everyone to make yet another right turn. Second is the growing focus on service providers as both partners and routes to market for UC vendors.
I don’t want to dwell on Mitel, but this move is even more interesting given their recent attempt to acquire ShoreTel. They had a strong rationale for that idea, but it’s a very different growth strategy. The path of least resistance is to acquire competitors and tack on market share for a set of customers you’re already serving. Even though Mitel has long had a mobile arm – unusual among UC vendors – Mavenir takes them down a very different growth path, and one that’s not in their core playbook. By definition, this makes it a riskier move, but sometimes you have to make bold moves to be in on the next wave.
So, who is the customer?
Mitel isn’t the only vendor trying to get it right with UC. While some vendors are highly focused and leveraged around UC, it’s not the only line of business for others. Cisco’s Collaboration portfolio, for example, is strategically important to them, but fairly small in terms of revenues. No doubt, there’s an interesting analysis waiting to be done going up and down the vendor roster assessing the importance of UC to their business – and I know it’s all over the map.
This brings me to the question of who is the customer in today’s environment, and the title question about whether UC will become a loss leader. Generally speaking, vendors aren’t getting rich with UC, and it’s certainly not as lucrative as selling hardware, but that’s the reality now – sort of. As UC features increasingly become embedded in other applications and platforms, it becomes harder to monetize.
Similarly, as businesses move away from a telephony-centric environment, there isn’t any costly hardware to bundle UC with. Phone systems are in decline, and when it comes to mobile devices, BYOD pretty much makes this an employee-funded option, leaving UC vendors with little more than software licenses to sell.
Service providers, on the other hand, still spend lots of money on hardware-based infrastructure, and that’s a big part of Mavenir’s appeal to Mitel. Longer term, sure, carriers will get behind SDN/NFV and move away from Capex-intensive infrastructure, but for now, there’s still good business to be had. Mavenir may not be profitable, but they have great carrier relationships, and that’s really the story here.
Stepping away from Mitel, my broader view is that carriers may represent better growth partners for UC than selling via channels to businesses. Platform vendors like Metaswitch, BroadSoft and VoIP Logic are built this way and are doing pretty well. UC vendors generally don’t sell this way, but carriers have a lot of market power, and have their own motives for offering UC to retain their base and find new revenues to offset the decline of legacy services. I know we’re talking apples and oranges here, but Mitel is playing both sides with Mavenir. There’s not much hardware they can sell any more to business customers, but now they can sell lots of it to carriers via Mavenir. For vendors that miss having that kind of business, this is one way to add large chunks of revenue to your top line.
More important, however, is that carriers find UC attractive because it’s a new solution they can easily bundle with everything they’re already selling to business customers. Their competitive pressures are no less challenging than those facing UC vendors, so both players have good reason to bring UC to market. Carriers are hungry for new services – and aren’t great at building them in-house – so they’re a logical target for UC vendors. They also have the means to push UC through to their customers, and this could accelerate overall market adoption of UC.
What’s at stake?
If selling UC via channels to businesses isn’t driving enough growth – or profit – it’s not hard to see the appeal of working more closely with carriers. They already have plenty of choices, but if UC vendors can offer the right value proposition, that could be another direction. In Mitel’s case, Mavenir gives them a direct entrée to carriers, and maybe that’s the way to go here. The main idea is that if carriers represent a better growth opportunity than selling to end customers, it’s hard to fault a vendor for trying.
As we know, UC will get harder to monetize, especially as it becomes software-based, virtualized and hosted in the cloud. Without any physical hardware as an anchor, the perceived value will fall, and it’s not hard to envision carriers giving it away as a loss leader to keep customers in the fold. When carriers can bundle UC with everything else, they can still make great returns on connectivity and really lock customers in. Of course, this pits carriers against channels in vying for the business, and that presents another right turn that could take things in yet another new direction.
Disruption is never neat and tidy, and as UC vendors seek to find growth, they may have to consider new and different options. Staying in your back yard is safe and familiar, but if the bigger picture around you is shifting, this will only buy you months, not years. For now, it’s hard to argue there’s nothing bigger than the cloud and mobility for moving the needle, and while the former is in everyone’s DNA now, mobility has long remained elusive with UC. Mavenir may not be the answer for Mitel, but you can’t fault them for trying, and sooner or later someone will get it right with mobility and UC. If I’m right, then it might be as simple as selling to a different type of customer.
Also on UCStrategies on this topic: