The technology industry is never short of intrigue and drama. There are always rumors of who might buy whom, which executive left to go where and what new product a certain vendor might come out with.
The fate of Polycom has been one of the storylines industry watchers have been keeping an eye on. Earlier this year, Mitel announced it agreed to acquire Polycom for $1.96 billion. But alas, all things aren’t meant to be. In Hollywood, Bennifer broke up, and now Mitelocom will, too.
On the eve of the deal being finalized, Siris Capital came in, upped the offer to a cool $2 billion and broke up the proposed joint company. Like all things in life, there are some definite pros and cons to this announcement.
From an industry perspective, I think Mitel-Polycom is something the market needs right now. I’ve talked with Mitel executives about this for years, and I’m in violent agreement with them. The unified communications (UC) market is dominated by not one but two 800-pound gorillas (Cisco and Microsoft) that make it difficult for anyone else to have any kind of significant share. It’s like being an NBA team and always having to look up and see Cleveland and Golden State. It’s not much fun knowing your destiny is to lose to one of those two.
Oh sure, small vendor A might win the occasional deal here and there, but growing from $1 billion to $2 billion in revenue is significantly more difficult than hitting that first billion. Data from Synergy Research shows just how difficult this challenge is:
Mitel and Polycom combined would have made the company the #4 vendor, barely behind Avaya. It’s important to note that this chart shows all UC segments. In some sub-markets, Mitel-Polycom would be #3 or even #2.
For now, the deal appears to be dead. So, what happens next?
What this means for Mitel
For Mitel, it’s time to move on. Mitel CEO Rich McBee’s thesis that the industry needs to consolidate is still correct. There are too many small vendors and not enough share to go around. That still holds true, and it’s time for Mitel to look elsewhere and set its crosshairs on another vendor. This might bring a merger with ShoreTel back into play, or the company might try to do something a bit bigger and look at a company like Logitech.
Given the number of vendors in the UC market, there’s no shortage of options for Mitel. Jennifer Garner and Ben Affleck moved on and so will Mitel. McBee is one of the sharpest people I have ever met, and he’ll figure out where to go next. It’s still my belief that industry consolidation is badly needed in the UC market, and Mitel will be one of the consolidators. It just looks like it will be without Polycom.
What this means for Polycom
For Polycom, the implications are a bit bigger, but this does give the company a new lease on life. A quick look at Yahoo Finance shows the company’s stock price hasn’t moved much in four years, so it’s time to do something different. The challenge is that when a company is public, too much focus is on reporting the quarterly numbers, which is often at odds with doing what’s best for the business. That’s why Dell, Avaya, BlueCoat, Veritas and a number of other companies went private.
There are a few facts that are favorable to Polycom. The company has a great brand. Customers generally love the products—they are well built, and the brand is one that stands for quality engineering at a fair price. And its phones are the de facto standard now for cloud communication providers such as Vonage and RingCentral.
Polycom also has a deep relationship with Microsoft and is able to ride the Skype for Business/Office 365 wave better than any other Microsoft partner. It also has a number of unique features, such as auto mute and acoustic fence. Lastly, Polycom recently rolled out some cool new products, including Debut (small business turnkey solution), Trio (conference room phone and control point) and Centro (a middle-of-the-room video product).
However, too much of the company’s revenue comes from traditional hardware-based video endpoints that sit in medium to large conference rooms. The company needs to make the shift to being more mobile and cloud-centric. But under the pressure of being a public company, it is very difficult to do.
CEO Peter Leav has been masterful at making Polycom more profitable and leaner, but that solves only part of the problem. As a private company under the watchful eye of Siris, Polycom can let its new products curate in the market and then aggressively make major shifts to cloud and mobile, which if executed on properly, should create a bigger sale price a year or two from now.
Customers and channel partners of Mitel and Polycom should see no short-term impact, as the businesses will continue to run as they have been. Long term, it depends on where the two companies go from here. Its highly likely Mitel will continue to acquire businesses, which has been their modus operandi in the McBee era. Without the weight of being public, Polycom is likely to release more new products faster that are better aligned with current market trends.
Even though the merger is off, those are still story lines worth watching. More to come.