Specialist
Former SVP at Avaya Holdings Corp
Agenda
- Operating environment for UCaaS industry, focusing on Avaya (NYSE: AVYA) and RingCentral's (NYSE: RNG) recently announced partnership
- Improved competitive positioning and potential revenue and cost synergies
- Competitive pressures from cloud-based peers such as 8x8 (NYSE: EGHT) and main execution risks transitioning on-premise install base to cloud
- Outlook for year-end 2019, 2020 and beyond – product investment opportunities
Questions
1.
Could you identify any key recent developments for Avaya and RingCentral that lead to this established commercial partnership, comparing it to any other strategic options available to Avaya a few weeks ago?
2.
What are your top takeaways from the partnership structure? Do you think Avaya or RingCentral benefits more from this, near-term and long-term?
3.
Avaya’s management seems to characterise the partnership as a co-development whereas RingCentral is claiming ownership of the customer with its technology. Would you be concerned that Avaya will let Ring gain control of the core technology and diminish its ability to cross-sell and upsell its own products?
4.
What do you consider Avaya’s cloud strategy to be at this point, and what do you think it would take for it to pivot and benefit from this long-term?
5.
Jim Chirico at Avaya mentioned only around one-third of their roughly 100 million seats pay maintenance, and that the RingCentral UCaaS platform opens opportunity to expand the TAM. How might the ACO [Avaya Cloud Office] product cater to those unmonetised seats and is there a piece of that tail that would remain unmonetised long-term, given the type of businesses they are?
6.
What would you consider a successful business case to be for monetising that remaining two-thirds of Avaya’s unified communications installed base? Are there any users that you think are not interested in streaming cloud whatsoever and will roll off the platform?
7.
Do you think ACO could resonate with the enterprise base at all and win incremental business there, or do you think this would be a largely sub-2,000 seat strategy?
8.
Do you think this partnership allows RingCentral to win more enterprise-sized deals by leveraging the channel partnership, or do you think Avaya will largely try to limit that possibility?
9.
What functionalities for ACO do you think are necessary to drive that accelerated cloud transition? It seems as if Avaya needs to be quite active in the product development rather than just reselling the Ring product if it is to have success with those stagnant customers. Do you agree with that sentiment?
10.
Avaya claims that the partnership improves unit economics from day one. In what form could that happen? It seems as if the margin profile would fall somewhere between reselling and pure SaaS. What would pull it one way or the other over the long term?
11.
R&D seems to be around 7% of revenue. Do you think that will come down long-term, or might it be assigned incrementally to other initiatives such as the CCaaS product?
12.
Avaya management claims it won’t face the normal revenue issues during a cloud transition. Do you think that would be largely as a result of the USD 375m being prepaid, or is there something else that might let it face a smoother transition to the partnership?
13.
Do you think customer acquisition costs for driving the transition of the install base can be lowered across the board for the partnership? I understand ACO has probably lowered it for Ring vs their direct or channel efforts, but is there any reason to believe that CACs could rise for Avaya in the near-term?
14.
Do you expect any sales force disruption on the Ring side, especially given some of the higher-performing reps have gained some significant share at Avaya’s expense? Is that something that could cause near-term churn, or do you think they will pivot and continue on?
15.
Do you think there is a need to disrupt the pricing model as we suggested in the previous Interview [see Third Bridge Forum’s transcript: Avaya – Takeover Interest & UCaaS Growth Outlook – 13 September 2019] by moving away from the lease-style contracts and towards per feature per minute? Is there a meaningful portion of the install base that might be hesitant due to the pricing model and the economics don’t make sense for them, given they are depreciating the CAPEX?
16.
How do you expect this partnership to impact other players in the market, such as Vonage and 8x8 on the cloud side or major telecom offerings such as Verizon, AT&T or even regional CLEC? Would anyone face severe pressure from this partnership if it is executed well?
17.
What is your outlook for UCaaS pricing? It seems to have been quite strong recently, but given that it is a largely commoditised service and some competitive responses are expected, do you anticipate any profound price pressure?
18.
In our last Interview you mentioned the potential for partner consolidation, highlighting ConvergeOne. How might that happen, and do you still think that could be likely?
19.
If Avaya looks to fold a CCaaS offering into the partnership, what could that mean for the Nice InContact partnership that Ring has in the long term?
20.
Do you think the underlying network infrastructure for RingCentral could support a successful ACO transition at scale, given that it only supports two million seats currently, or are there meaningful uncertainties that remain there?
21.
Ultimately, do you think this partnership is incrementally a positive or a negative, both from a revenue and an EBITDA basis?
22.
Is there anything else you would like to mention about the partnership or do you have any closing remarks to tie this altogether now?