The fate of Avaya has finally been determined. It’s not being broken up, shut down or having parts stripped off it in a fire sale. Instead, Avaya filed for Chapter 11 bankruptcy to help shed the $6 billion debt load that is weighing the company down.
The question for the company now is what happens next? Obviously the business will be restructured. I believe the management team will keep the call center and UC businesses intact, as they go together like “rama lama lama ka dinga da dinga dong.” But what happens to the networking business? Post restructuring the networking division might be a more attractive asset to buy because many of the things weighing it down, such as pensions and debt, won’t be an issue. Avaya could sell it, then use the money to make an acquisition that could bolster its UC and CC business.
Right now, I believe the odds are 75/25 that it sells the networking division, but I urge Avaya management to look at networking as its best catalyst for growth. Avaya plays in three major categories: contact center, unified communications and networking. A quick look at numbers from Synergy Research shows Avaya as the current market leader with about 20 percent share. Gaining share in contact center will be a challenge, so it’s likely to grow at market rate.
Enterprise voice, one of the largest segments of UC and Avaya’s entry point, shows Cisco as the dominant share leader with Avaya as a strong number 2. Cisco is unlikely to cede share, and Microsoft is coming on strong, so again in this market, Avaya’s share is likely to remain flat or possibly decline as Microsoft ramps up its voice business.
Avaya’s position in the broader UC market includes many applications, but it isn’t nearly as strong as it is in voice. Gaining share there will require significant investment in new products. This will be a knife fight for years to come, and the challenge for Avaya is that there is not just one, but two dominant vendors.
However, the Ethernet Switch market shows a bit of a different story.
The market is massive, about $24 billion at the end of 2016. Cisco is the big dog with about $15 billion in revenue, and HP is a distant number two with $2.5 billion. If you combine the two, and assume taking share from the respective vendors is difficult, that still leaves $6.5 billion in share to go after with no other billion-dollar vendor. As I pointed out earlier, Avaya has a differentiated solution that can win deals now.
I believe the product is strong enough that it could take share from HP and possibly Cisco. But the buying dynamics around Cisco are unique, so for the sake of argument, I’ll assume Avaya’s TAM is 10 percent of Cisco + 25 percent of HP + the rest of the field, leaving a market opportunity of $8.6 billion. Its run rate right now is generously $300 million, so if Avaya captured only 10 percent of its total, TAM would almost triple the business. Execute well, and maybe it can push a billion dollars.
Changes Avaya must make
To accomplish this, some fundamental changes need to be made. First, the sales teams must have mandatory quotas for selling networking. Apologies to any salespeople who might take this the wrong way, but almost every salesperson I know is coin operated. If you want them to sell something, tweak the commission plans to make them sell networking. Currently only networking sales executives have quotas, and this needs to be companywide.
Also, the channel programs should be redone to promote network. One change that was made this fiscal year is that an Avaya partner can achieve the top tier by selling networking only, so that’s positive. However, there’s no mandatory network component to its channel programs. Avaya positions itself as a “full stack” provider. If that is the case, the channel needs to represent that.
The shift may be uncomfortable for its channel, but it’s something the resellers need to do. The world is becoming increasingly distributed, and things are being pushed out to the cloud, IoT driven and mobilized, so the network is becoming more important. Channel partners that don’t embrace the network may be on the outside looking in in a few years, so not pushing them in this direction—as uncomfortable as it may be—does them a disservice.
In fairness to the resellers, Avaya needs to help them in this area more with broader and deeper certifications. It recently rolled out its Avaya-Fx program, and there are now 450 Avaya Networking certified engineers. That isn’t game changing, but is a good start. The company needs to continue to invest here with different levels and specialties.
I’ll finish this post with a final message to Avaya CEO Kevin Kennedy and the board. Everything is being connected, and the network is now strategic. Keep the networking group, align sales and the channel, and grow it to a billion instead of letting someone else do it with your assets.