A Perspective on Avaya's Public Stock OfferingA Perspective on Avaya's Public Stock Offering

Even after the stock offering, Avaya will need to balance the risk of pursuing "next-generation collaboration" markets with the need to nurture the core voice telephony and contact center businesses.

After 4 years under private equity ownership, Avaya has announced its plans to raise $1 billion in a public stock offering that will likely value the company somewhere between $5 billion and $8 billion.

Such a public stock offering is always accompanied by a Form S-1 Registration Statement (S-1) which describes the company's business, suggests future directions in support of the investors' decisions, and highlights both the company's value proposition and the associated risks. Eric Krapf has already described the offering in financial terms on NoJitter.com.

This UC eWeekly is a perspective on what the S-1 information might mean to enterprise customers. This is informed from our UniComm Consulting experience with enterprise customers, both as we assist them in planning their Unified Communications roadmaps and interact with them at Enterprise Connect, Interop and other venues.

The following nine categories represent what we see as typical customer expectations relevant to the Avaya S-1 information; each expectation is accompanied by quotes from the S-1 and a brief commentary. A more comprehensive version is available at UCStrategies.com.

1. Core Enterprise Telephony: The S-1 statement opens with, "We are a leading global provider of next-generation business collaboration and communications solutions...." The emphasis throughout the S-1 is on Avaya providing a new "intuitive and personalized user experience, seamlessly integrating various modes of communications and collaboration, including real-time voice, video, instant messaging and conferencing, and non real-time email, voicemail and social networking." This emphasis certainly reflects market shifts to include other communications modes (Presence, IM, e-mail, collaborative workspaces, and video), but may not align with the core telephony expectations of many business enterprises.

2. Call and Contact Centers: The S-1 is very clear that contact centers are a key area of strength for Avaya today and that Avaya needs to respond to the changing customer expectations for contact center functionality. This seems to be a realistic position, reflecting Avaya's current global leadership in this solution category.

3. Economical Migrations for Avaya and Nortel Systems: This customer expectation is barely touched in the S-1, which only says "During the second half of fiscal year 2010, we completed the integration of the Avaya and NES product lines...." The lack of mention is surprising; hopefully, Avaya will prioritize a smooth and economical migration of the customer base to the new Aura solutions.

4. Unified Communications Solution Leadership: The S-1 calls out "Unified Communications Software, Infrastructure and Endpoints" as one of "five key business collaboration and communications product categories." Enterprise voice telephony is bundled into this group, not shown as a separate category. It appears that Avaya is focused on "next-generation collaboration," initially delivered via the Avaya-defined Flare experience, rather than unified communications in the context of flexible communication tools and technologies for job-specific communications interfaces.

5. Interoperation with Other Enterprise Systems: The S-1 describes the ability of Avaya Aura products to interoperate with other software-based products through a wide range of protocols, as well as support for a wide range of user devices, including PCs, tablets, and smart (cellular and WiFi) phones. However, the S-1 does not emphasize the need for interoperation with existing customer investments such as e-mail/calendaring/contact systems, collaboration systems, instant messaging and presence systems, business applications software, and network infrastructure.

6. Reliable System Maintenance: Avaya recognizes this expectation and emphasizes that its "product portfolio has been designed to be highly reliable, secure and scalable and is backed by an award-winning global services organization with services support tools to help our customers monitor, troubleshoot and manage their infrastructure." However, the S-1 also points to the risk that, "Business collaboration solutions are complex, and design defects, errors, failures or 'bugs' may be difficult to detect and correct."

7. Clarity of Sales and Service Channel Relationships: The S-1 states Avaya's intention to "leverage our sales and distribution channels to accelerate customer adoption and generate an increasing percentage of our revenue from these new high value software solutions and user experience-centric applications." Avaya indicates that developing skills in and relationships with the channel Partners will be an area of attention and investment. However, it also describes risks related to channel development, channel loyalty and channel conflict, leaving the overall sense of volatility and risk in this area.

8. Reasonable Pace of Innovation: The S-1 states Avaya's R&D investment at 8.5% of revenue, using SIP-based technologies with major development efficiencies. It is not clear whether the efficiencies of SIP-based development will close the apparent gap with large competitors who are spending between 14% and 17% of revenues on R&D (across those competitors’ entire portfolios).

9. Vendor Strength, Market Leadership, Reasonable Direction: The S-1 appropriately points to Avaya's market share leadership in voice telephony, enterprise (voice) messaging, contact centers, and related services. The S-1 also shows that Avaya is effectively managing their financial performance, resulting in cash-neutral operations and positive EBITDA, even though Avaya is losing money on a full P&L basis. However, even after the stock offering, it seems that Avaya will need to balance the risk of pursuing "next-generation collaboration" markets with the need to nurture the core voice telephony and contact center businesses.

If this topic interests you, please read the more comprehensive article at UCStrategies.com.