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The Big Question on Avaya’s Chapter 11 Filing: Is Their Future Bright or Will They Be Dimming the Lights?


Presented By: CrmXchange

When any business files for Chapter 11 protection, there is always immediate speculation about whether it is the basis for a positive turnaround that will guide it back to profitability or a stopgap measure that will merely slow down an irreversible decline. And when the business is one of the pillars that an industry is built upon --as is the case with UC/contact center giant Avaya, which recently announced they had taken the step to positively restructure their debt—the outcome can create ripples throughout the entire ecosystem, affecting everyone from customers and channel partners to competitors and start-ups.

Is the glass half empty or half full? It depends on the perspective of the person you are asking. Avaya is confident that it is in for the long haul and is taking the right approach. “Our sales and P&L are healthy. In the contact center space, we’ve achieved 13 percent year-on-year growth,” said Karen Hardy, Avaya's Vice President for Customer Engagement Product Management. “We are in a situation where we have a bad balance sheet. By overhauling our debt, we can stop having to pay the high interest rates which are encumbering us.”

Hardy expects a positive outcome in the ongoing debt for equity swap process. Quoted in a recent post by respected industry analyst Sheila McGee-Smith, President and Principal of the eponymous analytics company, she said she expects to see Avaya ultimately having more resources freed up to “invest in sales and technology.as well as to turn up the marketing machine.”

When the announcement came out, Hardy was in the trenches conducting a boot camp for partners on Oceana, Avaya’s next-gen contact center application, based on the company’s Breeze development environment. “It gives us an open, expandable platform upon which applications can be built using Avaya Snap-Ins,” said Hardy. “The Breeze platform allows us to go in with a consultative approach for Oceana to better understand what journeys the customers of our clients are taking. Consumers want to seamlessly go between their application channels of choice, whether web, voice or email and have the agent know exactly where they’ve been. With UC, we can embed all channels.”

Hardy notes that Oceana has already been deployed in numerous proof-of-concepts (POCs) for clients since its general availability last fall. While Oceana was initially announced as a premise-based or private cloud solution, all of the POCs have been deployed from Amazon Web Services (AWS) and Hardy acknowledges it will be available there later in 2017 and expects it to go into full production sometime this year.   

But while Avaya paints a rosy picture of its prospects, there are industry voices that are quick to point out the thorns. “We have been busy replacing legacy on-premise solutions like Avaya for the past five years,” said Mike Burkland, President and CEO of cloud contact center specialist Five9. “Their current situation is another chapter of a long and painful downturn. They have accumulated $6 billion in debt and couldn’t attract anyone to acquire their contact center business. They couldn’t afford the three- or four-year transition to cloud that would have made them competitive and basically took no action. Their financial burden also meant they weren’t in position to make an acquisition of a strong cloud center provider as NICE accomplished by bringing in inContact or Genesys did with Interactive Intelligence.”

Industry analyst Esteban, Principal and Founder of ThinkJar concurs with Burkland. Quoted in a Fonolo customer service blog examining Avaya’s status, he said “The chickens have come home to roost—it’s not possible to redo a giant hardware-based vendor into a nimble cloud-based provider.” And in the same blog, Kevin Brown, Managing Director of multi-channel analysis and design firm VoxPeritus said “Avaya’s comment about moving to software as a service sounds like buzzword bingo to me. Perhaps it’s a part of their strategy, but it doesn’t ring true to the contact center community.” 

Sheila McGee-Smith took a somewhat more hopeful view in the blog. She sees one key factor is that Avaya—after exploring the possibility of selling their contact center business—decided that it was in fact the “crown jewel” of their company. She wrote “One can imagine that Avaya contact center partners do face less uncertainty with the business staying as part of Avaya than they would have with it as a separate entity.” .
Avaya’s products, partnerships, and reseller network dominate the contact center space like no other supplier on the horizon. Once it was decided they would keep it all intact, they set a course to try to do what is necessary to continue the double digit revenue gains that both contact center and networking have achieved.

Hardy acknowledged that Avaya is 70% dependent upon its channel partners to build and retain business and is cognizant of the importance of keeping the lines of communications open with its network of third party resellers and integrators. But Five9’s Burkland sees the Chapter 11 announcement as a tipping point that will drive them away in droves. “Channel partners do not want to bet their business on Avaya,” he said. “VARs are realizing that market demand is overwhelmingly shifting toward delivering technology that ensures a superior customer experience. The economics of having a recurring revenue stream have become more attractive to them and many are now looking to affiliate with cloud-based providers like us,” he said.

To provide evidence of the possibilities for potential channel partners, he pointed out that Five9’s subscription revenue was up 43% last year after its 35% growth the year before. “Acceptance by enterprise has fueled the growth of the cloud: it is now mainstream in large enterprise companies.” He sees great growth in the market. “There are 15.8 million contact center agents worldwide. With the vast majority of centers seeking to either replace legacy systems or upgrade their current cloud solutions, this represents a $24.8 billion recurring revenue opportunity.”

What would he do if he were in Avaya’s position? ”Businesses are looking for new technologies for the modern consumer,” he said. “Partnerships with CRMs such as Salesforce and Oracle are important and providing intelligent routing of customer interactions is vital to help deliver on the promise of better customer experience. Their solutions cannot stand still.”

Hardy says Avaya has an 18-month roadmap in place that includes building further on the Breeze platform, support for their solutions on AWS, issuing 90-day product releases as Oceana continues to progress, more emphasis on social, increasing inbound/ outbound capabilities for blended agents, strengthening their Snapp Store to provide useful snap-in applications for developers and working closely with their 3rd party partners. They will explore all options including potential acquisitions. She also points out there are already a number of snap-in applications available through their Zang PaaS, including an SMS Connector. “Cloud is our ultimate direction,” acknowledged Hardy. “Offering an open API is one of the ways we plan to protect the investment of our partners”

How will it all shake out? The example of Aspect, another company making the transition from being a primarily on-premise supplier to a cloud provider, was cited by many industry observers and was mentioned in the Chapter 11 announcement by Avaya. Their pre-arranged transaction bankruptcy last year appears to have turned out well. But Aspect had a head start, having already made major investments in technology partnerships, research and acquisitions. They had pivoted to deriving 60% of revenue from cloud-based solutions by the end of 2015 before they began the restructuring process. In the case of Avaya, only time…as well as implementing the right strategies and successfully executing them…will tell the tale.