Cisco Proclaims Their Collaboration Intentions

At Cisco’s Collaboration Conference wrapping up in San Francisco today, Cisco doubled down on their bet on collaboration.  Since acquiring WebEX in 2007, Cisco has not been shy in acquiring companies to rapidly fill out their Unified Communications and Collaboration Portfolio – 3 of the 4 acquisitions announced in the last month are directly beneficial to their collaboration portfolio – Starent enhances mobility, ScanSafe enhances security, and Tandberg enhances open video capabilities. Cisco has also tasked their development teams with improving and delivering new products enabling them to deliver a dizzying 61 distinct new products and product upgrades.    A year after publicly proclaiming their intent to compete aggressively in the collaboration market, Cisco is leveraging their agility and speed to deliver a cacophony of capabilities to the market.

Cisco’s Collaboration Portfolio is keeping up with the Jones... and the Smiths and the Johnsons

Cisco announced large and small product upgrades and introductions this week.  Cisco is clearly aiming to equal and exceed the capabilities of other best of breed vendors across the Unified Communications and Collaboration market.  The 8.0 generation of Cisco Unified Communications Products were in evidence, and there were many interesting new products.

· InterCompany Telepresence  - Cisco is providing a Cisco-hosted, publicly available directory of telepresence rooms and their new Cisco Media Experience Engine 5600 delivers a purpose built chassis to support interoperability of various video systems as well as video bridging capability.

· Enterprise Social Software – Cisco announced a range of products and concepts to more easily allow communities of interest to form and collaborate within businesses.  The Enterprise Collaboration Platform works with several other products including Pulse  -- an opt-in feature that allows users to accept automatically identified skills and capabilities to populate their profiles, and suggest topics or communities of interest; and Show and Share – a video centric set of community tools.

· WebEx E-mail – Cisco is completing a leg of their collaboration strategy by delivering a 35G mailbox for under $10 per month.  This hosted e-mail is fully compatible with MAPI enabling Outlook users to seamlessly adopt the solution.

Cisco acquisition and product development activities show that they are in the collaboration market for the long haul  and making big bets – and their public announcement of their pursuit of industry standards communicates their acknowledgement that open standards are the best way to achieve business-to-business collaboration – which will be the holy grail in this market.

Cisco’s Public Commitment to Industry Standards

Cisco is frequently criticized for developing and adopting their own standards – which Cisco maintains is critical to a leading edge technology company.  Yesterday they mentioned their participation in the Hiroshima IETF meeting to propose standards at least three separate times.  They are working to deliver standards to the industry around telepresence, presence, and IM interoperability among others.  This public declaration of Cisco’s support for creating, proposing and adopting standards is an important step enabling the entire industry to rationally consider adoption of standards to simplify the deployment of these new technologies.

The New Economy and Approaching Recovery

Cisco is singularly sanguine in their confidence in the recovery of the IT sector, and Forrester shares their view, believing that collaboration will be a key theme for firms as they look to invest in the recovery.  2010's recovery will have a dose of economic reality introduced into buying decisions. ROI and TCO will be critical considerations for companies investing in technology.  Cisco is moving aggressively to deliver Unified Communications and Collaboration as a service enabling variable, pay as you go business models. Cisco resellers (a rich mix of VARs, Sis, and Service Providers) can now deliver a new, very broad set of communications and collaboration solution components – the question is how to engage in the optimal business mode to deliver the highest ROI.  Some will find that they will have to partner or develop new relationships to deliver blended deployment models leveraging both on-premise and in-network capabilities based on the needs of the customer.   Just down the hall at Cisco’s partner conference this is the hot topic – how do disparate channels blend their on-premise, managed, hosted and ‘as a Service’ capabilities to jointly approach customers in an effort to induce them to spend their budgets and fuel the IT recovery through 2010.

Avaya proposes to acquire Nortel – Kissing cousins could be merged by the end of the year

What has happened?

Avaya has announced today, July 20, 2009, their desire to acquire Nortel’s Enterprise Business Unit  and the shares of Nortel Government Solutions and DiamondWare, Ltd, bidding $475M for the businesses.  Avaya has offered to assume $28M in debt associated with Nortel Government Solutions as part of the transaction.   This kicks off a set of processes that will lead to a new owner for Nortel – and it may be Avaya or some other bidder.

Why are Nortel and Avaya interested in joining forces?

This proposed transaction will help Nortel to get out from under the financial issues that brought the company to file for creditor protection on January 14 of this year, through an acquisition with the backing of private equity holders including Silver Lake Partners.  It allows existing Nortel customers to see a timeline and track a set of milestones to the completion of the process.  Both Avaya and Nortel would benefit from the increased scope and scale of operations and products – a combined entity would be a leading player in the markets in which both companies participate, including voice switching, unified communications, messaging, audio conferencing, and contact center. Avaya is confident of their ability to continue to reinvent and invest in the ongoing business at the same time that the integration of Nortel and Avaya is accomplished – should their bid be approved. 

Will this deal get done?

The question is this “Will the creditors, courts, and regulators approve the acquisition?”  MatlinPatterson, who holds approximately 10% of Nortel’s corporate debt, has expressed reservations about the sale of the wireless networking business to Nokia-Siemens (MaitlinPatterson still has a week to submit a competing bid in the auction of that wireless networking business  - and could extend that bid to cover network solutions as well), raising the specter of holding Nortel together for a period of time in order to maximize the return to Nortel’s bond holders.  Other bidders can be anticipated in the process, Nortel’s role in the Enterprise Communications market is important and $475Mn is not so high as to discourage other bidders.  Regulators will surely want to scrutinize – and potentially alter – the terms of the deal as well. 

Kissing cousins may just tie the knot – but it will take time

Much like the combination of AT&T and BellSouth reunited parts of the old Bell Systems broken apart by government regulators in 1984, this deal brings together even older parts of the Bell System, namely parts of Bell Labs, Western Electric, and Northern Electric of Canada that were separated in 1956.  Putting these entities together would be hard work requiring combining corporate functions as disparate as legal and HR, reinventing a joint innovation process, rationalizing products roadmaps, optimizing support and services processes, and defining branding for the entity. 

None of this detailed work can be begun until the legal and financial processes are complete, and that will likely not be done until fourth quarter – quite possible late 4^th quarter – of this year.  Why so long? Avaya’s bid has been approved as a stalking horse bid by creditors, now the courts need a week to 10 days to study and approve the bid.  Then an approximately 60 day 363 (or stalking horse auction) process will take place allowing competing bids to be submitted for evaluation.  At the conclusion of the stalking horse period, and only at that point, will the winning bidder be known.  Once the courts, creditors and regulators (and Nortel if there are competing bids) have dotted their i’s and crossed their t’s, then the deal will move to closure. Regulators around the world – the US SEC, and the EU Competition Authority for example - will likely review the transaction in detail, potentially adding more time to the process.

In the end both firms seem happy with the proposed combination

Nortel has committed to achieve a fair return for creditors while finding a home for Nortel’s people, technology and products.  Joel Hackney, President Enterprise Solutions at Nortel believes that a combination with Avaya is an excellent vehicle to do just that.  Kevin Kennedy, CEO of Avaya, believes that the combination will help to accelerate the transformation of Avaya’s channels, and improve the innovation processes that R&D can use to bring new technologies and capabilities to market.  Once the financial hurdles are cleared, the task of making clear how these strategic objectives will be achieved can begin in earnest.

What should existing Nortel and Avaya customers do?

Take note of the schedule and track the progress particularly during the stalking horse period. If an alternative bidder emerges it will likely be during that approximately 60 day period.  Nortel customers should be more confident about their future as Avaya is one potential buyer who understands their needs and will devise processes to deliver new technology and/or support existing technology to deliver superior quality of service.  Management of a merged entity would seek to minimize customer impact – especially since they still have a huge vested interest in ensuring that the customers do not defect to other UC&C vendors.  Existing customers of both firms should probably wait before making large-scale investment or alterations to Nortel and Avaya infrastructures to avoid undertaking a potential second re-architecture when the deal is completed, but incremental improvements and capacity additions can be undertaken as originally planned with minimal risk.

What do I think?

I think the proposed combination has the potential to create a competitor with the scope and scale to compete in the Unified Communications market around the world through both direct and indirect channels if the current proposal is executed.  The new firm will be challenged to establish, maintain, and grow their brand presence and awareness in the market.

 What do you think?  Let us know.

Nortel’s Fate Is Still in the Wind – but not for long

I have just returned from the Annual International Nortel Networks Users Association (INNUA) Meeting in Pittsburgh, PA.  At the event, I was again struck by the loyalty of the Nortel customer base.  There were 1,500 some in attendance.  I saw Nortel customers and partners who hailed from Boston to San Francisco and  as far away as Denmark, India, and Brazil.  Nortel had a group of nearly 250 partners from the Carribean and Latin America in town for training as well.  Attendance was down considerably (nearly cut in half) compared to last year, but those who were in attendance were serious – considering their options and Nortel’s future.  While Nortel compared their history to Pittsburgh’s – a gritty town with staying power that has reinvented itself for the new economy – customers really wanted to know about the future. Nortel preferred to focus on comparisons to the six  time World Champion Pittsburgh Steelers – customers wanted to compare then to the Pittsburgh Penguins wondering whether they could pull off one more win to take the Cup. 

Through the time I spent at the event Nortel executives hammered on their message of continuing transformation for the company.  CEO Mike Zafirovski focused on the commitment his executive team was making to Nortel employees, customers, products and technologies.  His ultimate aim was to find a way for all of them where they could prosper – while Enterprise General Manger Joel Hackney focused on the continuing success of Enterprise initiatives and future plans for new products and services.  Customers and partners were buying the vision, and wanted to know how it would be implemented.  Mike and Joel announced that they expect answers would begin to be delivered within about  month, and quickly departed for an unscheduled trip –presumably to pursue negotiations related to answering that question.

At this point, I believe that Nortel is committed to putting their products and employees into the market as part of a larger organization, capable of generating the scale of operations to succeed in a consolidating global market.  That means a business combination with another entity with complimentary capabilities – and Nortel is not in a position to buy.  So the question is “Who might buy Nortel assets and business operations?”  Likely not a single entity, as few organizations other than Alcatel-Lucent, or perhaps Huawei, have the breadth of voice and data communications businesses across Enterprise and Service Provider to provide a home for Nortel’s varied product lines.  Siemens and Avaya are the options Nortel enterprise customers ask about most frequently.  European and Latin America customers seem to like the Siemens option as it provides them the potential for smother interactions and greater attention.  A couple customers were curious if an Avaya acquisition would enable them to streamline their heterogeneous infrastructures, but partners worried about what the combined Avaya-Nortel channel model would look like.  Delivery of services related to Unified Communications in particular has become an uneasy market with channel partners worried about Nortel’s ability to deliver services without competing directly – and no one at the INNUA conference was confident that they could count on Avaya’s new focus on indirect sales and delivery for the longer term.

In short, Nortel’s customers demonstrated loyalty and commitment to Nortel – and Nortel returned the commitment at this user group meeting, but the details of how these intentions and commitments will be fulfilled are still in the wind. 

 

Henry Dewing

Do You Like To Be Benchmarked?

By Peter O'Neill

I have just completed a benchmarking excercise where we invited various IT vendors to tell us about their Channel Incentive Operations as a basis for a research report we will publish in the summer.
Many of the vendors we contacted were suprised that we do this type of research at all, but Forrester clients are getting used to this as we expand our library of reports for vendor strategists. 
Those vendors who did talk to us get, in return for their providing us highly-sensitive operating cost and headcount data, illuminating benchmark feedback so that they have an idea of how they operate compared to their peers. The feedback phase starts next week and we have 10 vendors in the benchmark so a good comparison can be made. The funniest interview was with a very high ranking executive of one vendor (so clearly, they thought it was important to talk to Forrester) who then had to tell me
every five minutes, "I am sorry, we cannot give you that information" -- a total waste of his and my time. 

In our prospecting for interviews, several vendors told us that they did not wish to participate in this excercise, which is reasonable, but nobody told us never to come back with another idea.  

We would like to more benchmarking and write it up in reports. We see the opportunity for Forrester to acquire the role as mediator within the industry for comparing notes between peers without revealing secrets to competitors. That is our idea but we’d also like your feedback. Do you agree with us? Please leave a comment for us below on this. Thanks.
 
Always keeping you informed!
Peter