How's the Nortel integration going?
The integration is going fairly well. If I were to look at it from the point of view of R&D organizations and the innovation we will bring to market over the next several months is largely due to excellent integration of our product portfolios. On the execution of R&D road maps and product portfolio I think very well. Did we go through a period of time where making sure that you can fill orders and ship from one place to another and deal with those kinds of logistics issues? We absolutely have, and I think we can say those are ebbing and those are kinds of things that you have during your first quarter of integration. We're now hitting our second quarter of integration and most of those kinds of challenges are becoming mainstreamed, moderated or eliminated.
Nortel and Avaya Essentials
Whether we have fully dealt with customers and we have moved from our heels to our toes yet I think really is the work that is ahead in terms of selling the combined customer base new products from the joint entity, and can we get people excited. This period right now is about bringing a lot of innovation to market, and now the question will be are our customers as excited about it as we are? The true litmus test for the integration is probably roughly six or nine months off. On most operational details we have the normal first quarter challenges from shipments and logistics. Second quarter things are feeling pretty good and the litmus test is ahead of us.
What's your best pitch to Nortel customers to encourage them to continue as Avaya customers?
First realize that the Nortel customer base was sitting in a world of fear for a very long time, probably on the order of 18 months. I would argue that if I had been sitting and I hadn't departed from Nortel during that 18 months, when Avaya walks in and says number one we're going to support your products for the next five years so you don't have an immediate problem with things going away, and we're making investments in many of your products or their subsequent releases, and you'll get new features on them, we're financially sound, and we have a plan for the future.
The second thing is that there's a group of people that are in wait-and-see mode and the promise for Avaya and Nortel is that we can migrate that base more inexpensively now and in the future more than any competitor that will come out and rip and replace all their assets, which is what the other competitors will and have to do. One of the enablers of this group migration is this technology called SIP [Session Initiation Protocol] and what we're doing with it. You can start with SIP as a lobe and let it metastasize and grow all around the existing Nortel and/or Avaya infrastructure. And so that's working very well.
Third we have a full pipeline of innovation that is ultimately the future and we're making good on our promises.
How do you regard Avaya's competition?
Our specialization is in real-time communications, and this notion that two companies [Avaya and Nortel] that were in the business of the private branch exchange. Both of these companies are expert in migrating the Fortune 1000 from decade to decade in their real-time communications. So that's our expertise; that's our specialization. For people that want to perpetuate that smooth migration we'll have a significant say.
Cisco is a relatively new entrant vis a vis the era of IP networking, a very, very large department store of technologies. The router, the switch, the software that now can sit on the router, switch or server and in fact platforms that are multipurpose to be servers, routers, switches and such are now the reality that they execute well, no doubt about it.
A third dimension to competition is Microsoft, who has as their rite of passage Active Directory. Every communications system needs a directory of endpoints and a well-delivered Exchange platform as a way of routing messages. And of course they're big like Cisco.
And then a last dimension is the cloud, whatever form that will be. It could be a service provider, it could be a Google or Skype, it could be an IBM LiveOps, it could be an Oracle of the future. I would say that our approach to that is that we realize our strength is in migration. Second, we realize that in order to be able to compete with an industry of such giants we have to be fit for purpose. Example: We can do a unified communications deployment with two servers where it would take one competitor five, another 10. Our use of virtualization is more economical, if you will.
We see these four competitive elements in the marketplace. Our immediate position is to be a partner, an ingredient provider and have relevance with the cloud, being interoperable with our competitors — that's the nature of our industry. But make no mistake that there are two giants out there that covet this space.
How do you see the cloud shaping up?
The cloud means many things. It could mean hosted services, managed services and I suspect we will try to enable all. My belief is that we are in a period of time when we are excited about the cloud, and this is being driven on two fronts. One is the geographical dispersion and delivery of applications and the second is the promise of cost reduction. Recessionary periods have driven the cost reduction side of it more. I think the cloud is going to happen, but I think it will be less ubiquitous, that we'll find places where it really sings and places that are less relevant. The economics of compute cycles are going to favor heavy applications to be conducted in the cloud I'm sure. But will those same issues of policy, domains, security and so forth continue to crop up and be an influence to which applications become viral in the cloud and which ones don't? I think they will.
What role will partners play in Avaya's cloud plans?
Let me give you an example, and I'll use this in a hypothetical way. Much of what we do can be built into two categories. One is infrastructure, providing basic voice services. Today many of our partners provide those kinds of things, some as a managed service, some as a cloud service. Companies like our service providers might do that. Our products are used to enable those services, but make no mistake they are the ones that bill the end customer. So we are an enabler at the infrastructure level. That being said there could be cases where we at an applications level want to be a cloud on a cloud. So we could provide analytics, tagging — basically value-add that sits on top of the real-time communications system — be it video, be it voice, be it text — that would be very appropriate for the analytics that come out of this company to survive.
Contact centers are a good example where there are very specific algorithms that make a difference between low-end contact centers and less low-end. So my answer to you is generally speaking historically we have been enablers for others to provide services from a cloud. It is comprehensible that there are places where Avaya could play where we could serve as a value-add to a cloud.
Have you given any thought to how best to include social media in business applications?
There are several levels of it. One is, is it possible to integrate easily the social media applications, be it Twitter, Facebook and others? And the answer to that is yes. Our [contact center and UC] products that come out next week are more friendly towards integration and enabling people to leverage what's out there in social networks than any generation before this. We also look at social media as a potential to help our business. We have on our customer service side we actually have programs that monitor social networks look for mentions and when we see something we sometimes jump on it and find out that we can turn an unhappy customer into a bigger customer. I think a lot of people do that. There's no doubt social media is penetrating both from use cases inside a company like Avaya as well as an intense need to realize that social media is becoming its own form of directory, if you will, that has to be integrated into contact centers and IP communications.
For me right now the use of Facebook as an alternative to a directory mechanism is probably the one that we are most focused on and how to integrate that into a call flow so people can actually be on Facebook and go in one step. I'd say the routing of an interaction and the repository of the essence of a directory is key. Facebook in my mind is a little bit different than many of the other things like a Twitter flow because in the case of Facebook it's a publish-and-subscribe vs. a push. Most of the world heretofore used messaging to push. It represents a different paradigm from which to interact with and message out of I guess is the point. Years ago you would have done integration through computer-telephony interfaces and that would be pretty expensive and long-standing to do. Today with SIP you could do that kind of integration in a week or two, sometimes days. I think that's the cool part. Social media is meeting up with a generation of call center and unified communication technology that's far more friendly to be integrated with.
What's your thinking on Skype?
Skype and Avaya are believers in SIP Our approaches to SIP are quite different. One is more of a peer-based implementation for a consumer. Ours is more of a hub-and-spoke implementation for an enterprise. Secondly I think Skype offers an increasingly more proven service for a very attractive cost. So if you are Avaya and access more people was important, Skype is a force that we would want to be a friend with. The fact that we have a strong presence in the enterprise is a complement to the traditional embedded base of a Skype. You could broaden your question really to the cloud in general. You could argue that anyone in the cloud could be a competitor to us, and I think my message to you is that we see the cloud as an opportunity to embrace in the near-term. We are pragmatic in that anybody who is your friend in the near-term could become a challenge to you in the long-term.
Maybe you can talk some about the general economy, the global market for unified communications and what you see as opportunities and strategies.
Let me reflect my comments to two categories of products that we have. One category of products we picked up with Nortel Enterprise are the data products, and the demand for data products tends to run with the use of the Internet and data and capacity. That has been fairly healthy and continues to be healthy despite the mixed messages that one reads in the newspapers. People aren't stopping their use of the Internet and we expect that to continue.
On the unified communications and contact center products, those products are products that are driven by productivity gains in companies so they have to be willing to take a return on investment 18 months from now, and they are largely driven by employment. In those regions of the world where employment is going well — Asia for example — we see a very healthy demand. And those regions where employment is slower, less demand. The bottom line is things are certainly healthier than they were in the worst part of the recession but almost the answer to that question has to be answered on a per theater or region basis because employment has a stronger correlation to demand.
How tough is it right now to convince people that they can achieve an 18-month ROI?
It depends on the customer size and the situation. Let me give you an example. We have made a very large investment in SIP. It allows for dial-plan consolidation or trunking consolidation so you can flatten your architecture, more of a hub and spoke environment. In some companies you can apply that and get a payback as quickly as four to six months. What we have found is that those companies that are very large and have bought other companies and are even larger. Think about industries that are consolidating like pharmaceuticals, banking — they have been the pioneers in adopting those technologies. So they are big, they'll have a lot of savings because they have a lot of wide-area trunks that they're paying for some of which become redundant as they consolidate buildings and sites. Those industry segments are very vibrant, buying a lot of the technology and driving the adoption of SIP.
In contrast to that if you were a small-to-medium business and had only one site, SIP brings other attributes but not as compelling a return on investment. Those sales of SIP will occur because of a new feature or a new capability that you want and you couldn't get otherwise. My real message is that SIP is being adopted and is penetrating fairly rapidly. It's happening exactly where you'd expect it would with those that are restructuring and changing in their industries and in those cases the investment is sometimes less than a year. They almost have no other choice. There's no other mechanism to get such a quick return on their assets. They have to restructure.
The Avaya message for this year is innovation. What's the message for next year?
It's a year to redefine the company. This October I think is the 10th anniversary of the spinout of Avaya from Lucent. I think it's the third anniversary of the company having gone private. We will have the most product releases in this calendar year that the company has seen certainly over that decade for sure. The remake of Avaya is that it has to become recognized as an innovator. It has been a company that earned its stripes embracing its customers extraordinarily well, taking care of them, but not necessarily being on the forefront with innovation. Seeing us expanding our recognition as innovators, being fit for purpose people seeing the differentiation in everything we do is pretty key. I think the innovation thread is something that we want people to take notice of this year it's the beginning of the reinvention or redefinition of the company. I believe over time what is now thought of as unified communications and call centers and such really begins to become a company more focused on multimodal collaboration. That's quite a walk from a PBX company, but I think that's where we're headed.