Avaya ENGAGE took place earlier this week. I followed along via Twitter and Facebook to think it through, seeking to discern what’s ahead for the new Avaya.
Momentum
In his keynote, Avaya President and CEO Jim Chirico talked about a foundation of strengthened financials that are fueling investments. Avaya was one of the most profitable companies in the space in 2019 with an adjusted EBITDA margin of 24.3% and gross margin over 61%. Last year it also grew its cash reserves above $750 million and reduced debt by $250 million.
It’s worth recalling that Avaya emerged from Chapter 11 with a strong customer pipeline and balance sheet, going public again on Jan. 17, 2018 (NYSE: AVYA). Tellingly, just months before that date, it sold its networking business to Extreme Networks. At the same time, Avaya was working with Spoken (a cloud-based provider of UC and CCaaS solutions utilizing conversational AI) on product integrations between Spoken’s cloud-based services and Avaya Call Center Elite and Aura Communication Manager. By March, 2018, Avaya would acquire Spoken, deepening its push to bring CCaaS to Avaya customers while adding 170 patents and patent applications to its already impressive patent portfolio.
At ENGAGE, Chirico pointed out that in 2019, the rate and pace of adoption accelerated when it came to the move from on-premise to cloud, the shift to mobility, the rise of video, and the growth of partnerships and ecosystems. Meantime, M&A and strategic partnerships have helped accelerate the company’s technology capabilities, drive scale, extend reach, and grow the accessible market base. He reminded listeners that Avaya is a company with over 100 million seats of installed base that added over 6,000 new customers last year alone. He emphasized that these wins included over 500 competitive displacements – including from the likes of Genesys, Cisco, Five9, 8x8, and Mitel.
But the more absorbing aspect of Chirico’s talk was the tension he identified as existing between what he sees as two species of enterprise – those that are “vendor led” versus those that are “customer led.” For Chirico, many established contact center vendors are focused solely on pushing their technology onto customers, which almost inevitably produces a set of complexities hindering customer journey personalization and flexibility. On the other hand, there are vendors that are more “API rich,” pulling customers into a DevOps modeled world. This latter approach provides a high degree of creativity, but also tends to result in a lack of basic capabilities and mature features while being costly and time-consuming.
Avaya, Chirico proposed, means to capture the best of both approaches by featuring technology that is customer centric and allows for personalization, that provides significant CX flexibility at scale on a feature-rich platform, positioned between the push and the pull.
Addressing the Gap: Avaya Cloud Office by RingCentral (ACO)
It’s clear that for Chirico, Avaya Cloud Office by RingCentral (ACO), first announced last October, seeks to help the company inhabit that sweet-spot between the push and the pull.
Chirico pointed out that for years, customers and partners had been asking Avaya to fill a gap in the Avaya portfolio and bring to market a multi-tenant UCaaS solution. The logic was clear – customers wanted to be able to retain all their Avaya functionality, but have it delivered through the cloud globally and across multiple devices; they wanted best-of-breed, state-of-the-art functionality without being tied down to a particular location or underlying carrier. Avaya therefore ran a deliberate and purposeful process, considering options with four key criteria in mind:
1. Improve technology capabilities, especially in the UCaaS multi-tenant segment;
2. Make sure the solution leverages the strength of the Avaya brand;
3. Ensure the result is accretive and profitable;
4. Consider everything through a “Customer First” lens.
Chirico was joined on stage by RingCentral Founder, Chairman, and CEO Vlad Shmunis to further articulate the logic behind the union – with ACO, customers will receive the advantages of a solution tailored by a market leader in UC on-premise (Avaya excelling at traditional business communications with a huge footprint of 100 million seats, or ~ 25% market share), and a market leader in cloud (RingCentral being born in the cloud, with two million cloud seats, or ~ 25% of the cloud market).
In effect, it’s a public cloud and multi-tenant UCaaS solution designed to provide an array of options and features in one app on any device and location, obviating the need for Avaya to buy a UCaaS vendor or invest in an entirely new UCaaS solution.
ACO enables chat, calls, video, meetings, virtual team rooms, screen-sharing, file sharing, and task management. Its packaging and pricing offer flexibility – clients may need to be up and running quickly, while others may embrace the solution in phases, moving to the cloud at their own pace. The solution adapts as a business expands physically or grows in employees. New releases are updated and secured automatically. It integrates with over 100 additional business apps. And Avaya has introduced flexible new subscription options that allow clients to more easily refresh their current technology stack, flex usage, easily add new apps, consume advanced bundled apps, and stay current with new technology. Avaya wants to make it easy for companies to migrate to the new Avaya cloud.
According to Chirico, “This is not a commission-based relationship. It’s not some type of joint venture. It is a true strategic partnership between Avaya and RingCentral.”
In other words, Avaya and RingCentral will aim to provide a unique offering, address a sweet-spot in the market that will activate Avaya’s base and fuel growth. It’s a strategic means to solve the needs of customers, to draw conventional enterprise clients into the cloud with a high-quality solution that should provide some revenue stickiness and lower churn. Avaya will be able to leverage its brand across eighty countries with a world-class platform and flex its investment resources and turn its resources to invest further in the contact center and CX market, while RingCentral gains access to a whole new partner network and one of the single largest PBX on-premise installed bases.
The Year Ahead
Fundamentally, Avaya’s roadmap intends to deliver differentiated solutions that provide high value for the customer and operate at scale. It’s looking to “bring the best tech to bear,” to unlock the Edge, and accelerate the value it can bring to customers through strategic partnerships with the likes of RingCentral, AT&T, Microsoft, Google, Verint, Verizon, Amazon, Salesforce, Tenfold, eGain, Nuance, IBM Watson, and Afiniti.
In fact, Afiniti, a provider of AI-based behavioral pairing technology, also was featured at ENGAGE. “Avaya AI Routing with Afiniti AiRo” is a new component of the Avaya IX Contact Center portfolio. Now, contact centers with as few as thirty agents in queue can deploy Afiniti’s technology, expanding the total addressable market by millions of agents. Afiniti is a charter member of A.I.Connect, an Avaya-led initiative that brings together an ecosystem of vendors and developers building AI-driven solutions across both the contact center and unified communications spaces.
In a sense, Avaya is pressing to become more relevant at a time of accelerating technological change, by – in Chirico’s words – “breaking through the inertia” to find that sweet-spot between the push and the pull, creating differentiation through a combination of new tech and strategic partnerships. As Dave Michels noted in a recent piece in the run-up to ENGAGE, “There’s a lot of moving parts as the apps, tools, and modalities of enterprise communications evolve. Avaya has to balance tech transitions across a portfolio in ways that accommodate channel partners and its global installed base.”
In summary, keep an eye on four key areas Avaya is focused on throughout 2020:
1. Continuing to build a private and hybrid cloud that meets enterprise needs (compliance/security, geographic reach, application integration, etc.) while providing flexibility for the evolution of core infrastructure in a step-by-step manner that aligns with clients’ business requirements.
2. Extending the benefits of cloud across the entire customer base. Now that Avaya has addressed UCaaS with the RingCentral partnership, it turns to CCaaS through its own cloud native development efforts, aiming to bring a purpose-built CCaaS architecture to market this year, with an eye to clients being able to layer innovation using microservices for rapid delivery, enabling innovation at the Edge with open APIs. In the wake of the RingCentral deal, Avaya R&D and marketing can now focus on CCaaS.
3. Executing on a new OPEX consumption model (ie, subscriptions) that will help clients take advantage of all those microservices that will drive further innovation.
4. Enhancing more personalized customer journeys through cloud technologies (capabilities that include virtual assistant, speech recognition, transcription, recording, behavioral pairing, reporting & analytics), blending UC and CC to power the digital workplace of the future.
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