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ShoreTel goes big in hosted VoIP: A Q&A with CEO Blackmore

By , Network World
October 02, 2012 02:08 PM ET
Peter Blackmore

Network World - ShoreTel, which made its mark in IP telephony by simplifying unified communications and reducing total cost of ownership, recently broke into the hosted VoIP business with the acquisition of M5. Network World Editor in Chief John Dix caught up with ShoreTel CEO Peter Blackmore to find out how integration of that company is going and where he is taking the company.

You've been CEO for almost two years now and the largest development in that period was the acquisition of hosted VoIP supplier M5. Why did you acquire them and what have you achieved since?

Last year in June we discussed with our board the changes in the market and the growth of voice-over-IP in the cloud, and we agreed that ShoreTel, notwithstanding the continued strong growth in the premise, would need a cloud solution.

The issue was, do we buy or do we build? We knew we could build a cloud platform, but the time it takes to build it, scale it, get the data centers running, get new accounting systems that do very different sorts of billing than we do, it's a three-plus year exercise. So we decided to buy.

BACKGROUND: ShoreTel Mobility release showcases M5 cloud capabilities

The reason we decided to buy is when the market starts accelerating to the extent cloud is, there's a window of opportunity where you can find good targets and you can also afford the target. So we think we got the timing just about right.

There are 80 voice-over-IP cloud companies in the United States alone and we talked to 25 of them, not as targets, but to learn and to understand their business model and understand what worked, what didn't work. Then we talked seriously to nine companies and selected M5 by November. Between November and January we did the term sheet and closed on March 23. So it was a very diligent process.

Why M5 versus anybody else? We wanted a company with their own intellectual property. One of M5's attributes is they can link Salesforce.com in the cloud to their voice-over-IP in the cloud; you can share data. That is a very sticky application and there are many more you can add by building a network of apps and linking it to voice. You cannot do that unless you have your own IP.

The business model in cloud is totally different to premise. You ask a customer to pay monthly one month ahead of their usage. Therefore, it takes about two years to get the return on your investment, and for that to be a good investment you need the lowest churn rate and the highest ARPU [average revenue per user]. M5 has an ARPU in excess of $60, which we believe is the highest in the industry, and a churn rate of 0.2% per month, which we believe is the lowest in the industry. So that was two of the key factors.

We then asked, "Is it a proven business? Do they have a proven management team? Are they ramping?" And they were doing all of the above, so that's why we chose them. We've had our first full quarter with them, which was the June quarter, and their bookings gross was 43% higher than the previous year, which is excellent. And they're doing very well, so we're delighted.

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