Avaya CEO Chirico spells out strategy at critical Engage conference

Avaya kicked off the first day of their big customer event by focusing on their partnership with RingCentral and how it fits into their overall vision. They also announced the Avaya Cloud Office UCaaS solution with RingCentral, which will be available later this quarter.

Avaya’s Jim Chirico onstage at Engage

PHOENIX – Avaya has spent many – to be honest, most – of its Engage customer events over the past decade under the shadow of potentially imminent doom. An earlier purchase of the company that relied on increasing the company’s debt piled on liabilities they could never pay off despite often interesting technology, and culminated in a Chapter 11 bankruptcy that cost it their networking business. After they emerged from that in late 2017, Avaya still faced a dilemma in the absence of a strong cloud option where they could migrate legacy on-prem customers in an increasingly cloud world. Last fall, amid distressing rumours of a potential sale to Mitel, Avaya announced a partnership with RingCentral which would see an Avaya-branded UCaaS service based on the RingCentral platform come to market, to facilitate that migration of the install base. On Monday, to an audience of what can only be described as incredibly loyal customers and partners who have stuck with the company through all the turmoil, President and CEO Jim Chirico outlined the company’s strategy going forward, discussed the RingCentral partnership together with RingCentral’s CEO, and announced the much anticipated Avaya Cloud Office UCaaS offering. With rivals poised to purloin legacy customers if this all goes wrong – competitor Five9 had a coffee truck in front of the convention centre to offer inbound customers free lattes and a migration sales pitch – there is a lot on the line.

“We’ve never been better positioned to empower the enterprise to customize and extend your communications platforms,” Chirico told an audience of around 3000 in a bullish opening keynote. “This is the best time in my 13 years at Avaya.”

Chirico drew an analogy between Avaya and their local NFL team in Santa Clara, the San Francisco 49ers, emphasizing that their complete collapse in the fourth quarter to lose Sunday’s Super Bowl does not transcend the fact that they made it that far after a disastrous 4-12 season the year before.

“They understood it would be difficult to transform, but they invested in the future and made bold moves to become stronger – not unlike the changes we have made at Avaya,” he stated.

Chirico stressed that in the last year, Avaya has made what he termed groundbreaking industry moves – investing in the product portfolio and their customer-first strategy, while remaining committed to the roadmap despite the quarterly pressures of being public.

He also emphasized that in a world where the rate and pace of major transformations around cloud, mobility and video continue to accelerate and make partnerships and ecosystems more critical, Avaya continues to strengthen their foundation to keep up.

The first aspect of this has been innovation.

“This company needed to get back to our roots,” Chirico stressed. “We lost our way a bit on innovation. So we focused on delivering innovative solutions that can operate at scale and provide higher value for customers. We have greatly increased our investment in cloud, as part of the increase of our overall tech investment by over 100 million.”

Chirico focused here on Avaya Cloud Office, which Avaya formally announced at the event.

“Customers have asked us for years for a multi-tenanted UCaaS solution,” Chirico said. Accordingly, Avaya looked at options that met four specific criteria: improving capabilities; leveraging the strength of brand, making sure it is highly profitable, and looking at it all through the lens of a customer-first program.

“This allows Avaya to activate our base and continue to fuel our growth,” Chirico emphasized.

The second area of focus is a greatly enhanced ecosystem.

“We needed to build out partnerships with industry leaders, and enhanced and built out our ecosystem to provide an opportunity to unlock the edge, with partners like AT&T, Google, Verizon and Verint,” Chirico said. “These partnerships are game-changers. They create a differentiation in our offers that we can bring to market which allows us to grow our Total Addressable Market. Avaya now has relevance and gives us leading edge technology to protect your businesses.”

Tony Bartolo, Avaya’s EVP and Chief Product Officer, who recently returned to Avaya less than two months ago, said that philosophy has fundamentally changed here since his first term with Avaya between 2008 and 2012.

“It’s a different concept from when I left, that not everything has to be invented here,” he said. “It’s now much more of an open partnership model, with partners who may compete in some use cases, but who we partner with in others.”

Chirico emphasized that to facilitate this transformation, Avaya brought in leaders that support this mindset and support a culture of teaming and partnership.

The third focus area was Avaya continuing to strengthen its financials.

“We reduced our debt by $250 million last year [of a current debt structure of a little over 3 billion], and bought back 12 million of outstanding shares,” Chirico said. He emphasized that 90% of the Fortune 100 install base is Avaya customers, which he said was truly an amazing asset.

“We have also added over 6000 new customers last year alone,” he stressed. “This included over 500 competitive displacements, and contrary to what you hear and read, these were against the likes of Cisco, Five9, 8×8 and Mitel.”

Looking ahead, Chirico identified four strategies Avaya is taking to build on success.

The first is to protect the enterprise.

“We built a private hybrid cloud that tackles the variables large enterprises have to consider in their move to cloud,” Chirico said. “We delivered this hybrid solution a year ago this month. We are actually a large hybrid cloud player. It’s one of the best kept solutions in the company.”

The second is to extend the benefits of cloud across the entire customer base.

“We are all-in on our cloud initiative,” Chirico indicated. “We made the decision to do this for UCaaS with our RingCentral partnership. We are now turning our attention to CCaaS through our own efforts, and we will bring this to market this year.”

The third strategy is the Avaya IX Subscription model, which Avaya introduced late last year to allow customer to shift purchases from CAPEX to OPEX, and which was featured on the show floor at the event.

“This new OPEX consumption model gives customers an easier opportunity to take advantage of cloud-native microservices to drive further innovation,” Chirico said.

Finally, Chirico said that Avaya would power the virtual workplace of the future with technologies like behavioral pairing, reporting and analytics.

“These will have capabilities unique to Avaya that address a more customized customer journey, and build technology that is customer-centric and will provide customization for personalization. It will also do it at scale, and do it on a feature-rich platform.”

Chirico was then joined onstage by RingCentral founder and CEO Vlad Shmunis.

Chirico and Vlad Shmunis onstage

While the Avaya-RingCentral partnership was announced in late 2019, born-in-the-cloud RingCentral is a largely unknown quantity to many Avaya customers, particularly to the 50% or so that are enterprise. While RingCentral has invested heavily in recent years to make their technology suitable for the enterprise, they did start in the SMB. The partnership has helped RingCentral enormously to date – their stock has basically doubled – but selling the company to enterprise customers was clearly a focus in the keynote.

“This partnership combines our robust 5 9s technology with Avaya’s brand and loyal customer base, and the combined product is a seamless experience,” Shmunis said. “It is really good for the enterprise customer, with best of breed functionality. There is not another combination like this in the world today. Cisco has nothing even close. This is the only way to get that conventional customer base into the cloud.”

Chirico expressed confidence that ACO, which will be available later this quarter, will keep customers at Avaya.

“Our customer base and partner base [around UCaaS] were getting ready to switch,” Chirico said. “We’ve been able to prevent those people from moving. They are staying with Avaya. We haven’t publicized it much, but our end points will also ship with RingCentral, which provides a new channel for us.”

Chirico added that while Avaya had been selling a public UCaaS solution before, it didn’t meet customer or company needs.

“That base was ripe for picking,” he said. “It was large, but it didn’t drive much profitability. Since the announcement in October on the partnership we have been spending a lot of time with our partner base and customer base, and worked with customers who were thinking of moving, especially direct ones. There were many of them. We went in there and maintained those accounts. Now, with that [ACO] product available in the next 6-7 weeks, there is no reason for customers or partners to bring in another vendor.”

“The product is on schedule,” Shmunis said. “People from the two teams like each other, which is important. ACO leverages uniquely the tens of thousands of man hours invested by RingCentral in our platform.”

Shmunis also stressed that ACO will be a very different product from RingCentral’s own offering.

“There is no duplication of ACO vs Ring Central Office,” he said. “ACO will have advantages aimed at Avaya customers like migration scripts, Avaya endpoint support, and native support for global customers in areas where RingCentral does not sell at all.”

Pricing between the two products has not been finalized, but they will be competitive with each other. The pricing generally will be on parity, and there won’t be a pricing war with RingCentral Office.

ACO is bringing about the end of Powered By IP Office, however.

“Powered By IP Office was a wholesale offer for selected partners around cloud subscriptions,” Chirico said. “It was very good for partners but in a wholesale cloud model, it was not very accretive to the company. It also didn’t span well to a UCaaS environment. So we are ending that, although we will support all the contracts that are out there, and for countries where we don’t have ACO we will continue to operate it as business as usual.

“Partners understand where the technology is going,” Chirico added.

Chirico also thinks ACO will be a major asset among SMB and midmarket customers.

“The SMB to small midmarket is 50% of our seats today, and there’s a real opportunity to convert some of that base to a cloud solution – that hundred seats or less market,” he said. “There’s an opportunity for us in the master agent role with ACO as well. That’s a competitive space, but we think that there is a market there.”

Chirico said that while it may be a while before the cash register really begins to ring, the fundamentals are in place to do well with ACO.

“This is not a commission-based venture,” he said. “This is a true strategic partnership between RingCentral and Avaya. Although it’s early, our pipeline continues to grow, outpacing even my expectations.”

Rob Finucan, CEO of Avaya partner Combat Networks, which has multiple offices throughout Canada and has won multiple Avaya Partner of the Year awards, agreed that steps have been taken to maximize the likelihood of the deal’s success, but also noted that the companies still need to deliver.

“Jim Chirico is very much invested in this partnership with RingCentral and has a very big stake in its being successful,” Finucan said. “It has been a very good deal for Avaya financially and now we get to the key point, of how many of their endpoints move to the cloud with RingCentral.”

Daniel Silverman, President of Toronto-headquartered telecommunications service provider Telanet, said that he is looking forward at Engage to hearing a critically important aspect of the new offering.

“Exactly how are we going to make money selling ACO,” he said.

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