While channel surfing recently I landed on a reality TV show where people bid on abandoned homes without knowing what’s inside. Occasionally, something of true value is found—maybe even something that might make the new owners wealthy. One might say that something like this happened when Avaya acquired Nortel Enterprise Solutions (NES) in 2009.
Comparatively, Avaya inherited rooms upon rooms where old Aunt Norty had stashed the detritus of her life. There were, however, many treasures. One find, known today as the company’s SDN Fx™ Architecture, might be compared to a Picasso found stashed away in the attic. That’s the good news.
The bad news is that ownership of this possible treasure has led Avaya to repeat an episode in the ongoing serial drama of the company’s history. A lesson learned in the past, that Avaya is about creating business applications and is not fit to compete in the data networking industry, is being relearned. Rather than creating a Cajun Switching sequel, it is time instead to call in the tech industry equivalent to Sotheby’s and gain the true value of the Nortel bequest.
Follow the dollars
I make my case most urgently by saying the company’s customers have voted with their dollars over a long period of time to say why Avaya is important to them. The numbers tell the story. In the 2015 fiscal year, the company reported it had generated just over $4 billion in revenues. Slightly more than half of Avaya’s 2015 revenues were derived from providing services.
According to its own literature, Avaya provides “world-class contact center and unified communications technologies.” The company defines its business today as offering four things. One is called Team Engagement Solutions. This category is in some ways equivalent to what others in the industry call Unified Communications and Collaboration. The second category in Avaya parlance is Customer Engagement Solutions (aka contact center). Overshadowing both of these categories are the Avaya Services revenues. This largest category of revenues is generated directly because Avaya is in the business of providing those Team and Customer Engagement solutions. Then there is the Avaya Networking business.
In a good quarter for the networking division, such as fiscal Q1 of 2016, the company generates about $50 million from the software-defined networking (SDN) portfolio and a line of Ethernet switches. On an annualized basis, that means the networking portfolio generates about 5 percent of Avaya’s total revenues.
This hardly consequential contribution to Avaya’s bottom line is in stark contrast to the attention paid to the topic of data networking by the company. For instance, at the recent Avaya user group meeting, the company dedicated a full one-third of the executive keynotes to the topic of data networking. I was there. I heard great compelling use cases such as video surveillance and impressive sales success stories. I also wondered what all that had to do with the reasons why 99 percent of the participants had invested in attending the event.
Moving up the stack and away from the infrastructure
Meanwhile recent product announcements by the company underscore that Avaya is moving farther up the applications stack and farther away from infrastructure. As Zeus Kerravala recently wrote in Network World, the company has launched “new products, all designed to help Avaya customers develop new, faster ways of engaging with workers or customers.” Kerravala continued, “All of the announcements were centered on Avaya’s Breeze platform, the company’s development environment.”
I keenly understand that SDN is not infrastructure in the sense of cables and switches and that there may be justifiable reasons for why Avaya feels this endeavor is important. The hard facts, though, are that Avaya primarily competes in an industry that is roiled by change, teaming with new competitors and stalked by major international competitors.
At the same time, the revolution in the data networking market to “white-box, bare-metal switching” and a software-defined control plane is creating significant new opportunities. Billions of dollars are at play for companies that are fit and focused for the bare-knuckled competition. The problem for Avaya is that the company doesn’t don’t fit the single-minded, no-holds-barred, competitive profile that is required to succeed.
Given the competitive forces at work and the widely reported resource realities that Avaya faces, hanging on to the data networking portfolio is only doing a disservice both to the possibilities for those innovations and distracting resources away from the other parts of the company. This is insight that an earlier generation of Avaya’s leadership evolved to after the era of Avaya Cajun Switching saw the company invest significant resources over almost a decade before the program faded.
On the other hand, by putting the networking business up for sale, Avaya could use the proceeds to focus more on what means the most to the overwhelming majority of the company’s customers: team and customer engagement solutions.
Given what Avaya is trying to accomplish with Breeze and other recent application innovations, it would seem that the core of the company’s business needs every available resource and not the ongoing distraction of Cajun Part Deux.
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