Polycom Ignores Death Knell, Fights Back Against Cisco2:00 PM EST Fri. Dec. 14, 2012
When Cisco revealed plans to acquire Tandberg in 2009 and soon after vaulted to the No. 1 spot in worldwide market share for enterprise videoconferencing, it was easy to think that the proverbial bell had tolled for Polycom.
With consolidation in the space redrawing the battle lines around enterprise-grade video spending -- smaller competitor LifeSize was acquired by Logitech not two months later -- it seemed only a matter of time for Polycom, as the remaining videoconferencing provider of a certain scale, to find a buyer if it had any hope of competing with a Cisco sales and marketing machine more than 40 times its size, revenue to revenue.
But a funny thing happened en route to Polycom's supposed fade-away: it changed management, expanded its purview, mapped out its future, threw its arms around the channel and decided to start marketing its strengths and value proposition -- including how partners could better profit -- against Cisco.
"You don't get a lot of 'atta boys' in this market. We feel like we were in a boxing ring these last two years," Andy Miller, who became Polycom's CEO in May 2010, told CRN in an October interview. "So that's incredible perseverance on our part against a competitor like Cisco. We're outnumbered 10 to 1 from a sales force perspective, and their leader is the best salesperson they have for video. It's a credit to our company for the market share we've gained."
The Polycom entering 2013 looks very different than the Polycom of 10, five, even two years ago. Miller's ascent brought across-the-board changes to the executive team, as well as a significant shift in Polycom's overall purview, to where supplying telephony and videoconferencing equipment is less important than the higher-margin returns of software integration and a solution-selling approach staked to customer appetite for video.
Miller is a veteran of the space and as familiar with the various nuances of selling video as anyone; he joined Polycom in 2009 as executive vice president of global field operations, and was chief executive of Tandberg from 2002 to 2006. His tenure as CEO thus far has brought some of the most dramatic changes to the San Jose, Calif.-based company since its 1990 founding -- something longtime Polycom observers say was long overdue.
In 2011, for example, Polycom rebranded the software infrastructure many of its products rely on, formerly known as the UC Intelligent Core, as the RealPresence platform, and continued to build out that platform with well-received launches such as RealPresence Mobile, for video use on smartphones and tablets.
Around the same time, Polycom began a series of targeted acquisitions: Accordent Technologies for its video content management platform in March 2011; the high-end video and related managed services assets of strategic ally Hewlett-Packard in June 2011; and the web-based video collaboration tools of ViVu in October 2011. It also began to shift away from less profitable, "old Polycom" businesses like the wireless handset business it had acquired with SpectraLink in 2007 -- sold, as of December 2012, to Sun Capital Management.
"This was a company of point products," Miller said, describing Polycom's state when he joined the organization three years ago. "When I came in, there was not a strong road map in place in terms of where we were going to go. We didn't have a three- to five-year road map that anticipated where the puck would be going."
In May 2012, Polycom mounted a global rebranding, complete with a new logo, intended to align the company with how software was changing the overall unified communications landscape and playing up Polycom's approach. And in October 2012 came the biggest move of all: the launch of new software offerings that included cross-platform bridging, a multiprotocol MCU that runs on industry-standard servers, and cloud-based services sold through partners.
At the time, Polycom described the launch -- its centerpiece is called RealPresence Cloud Axis -- as the largest in its history. Its implications -- how it cements Polycom's ability to compete with Cisco, partner with other stakeholders in video and UC, and also fend off smaller spot players, such as Blue Jeans Network and Vidtel, that offer services such as multiprotocol bridging in the cloud -- are significant, as was the news that Polycom fully supports Scalable Video Coding technology, supplied as a software update to RealPresence products.
"We made it really clear that these cloud-based technologies, we would not sell them direct," Miller said. "Our goal is to make sure we augment and expand the partners' opportunity to make money."
NEXT: Is The Industry Seeing A New Polycom?
As financials go, things haven't been entirely rosy. Following several strong quarters in 2011, Polycom during its first quarter of 2012 reported lower-than-expected revenue and a whopping 56 percent profit decline. Things looked up in second quarter, with $359 million in revenue, up 5 percent year-over-year. Third quarter was less certain: revenue of $335 million, down 6 percent year-over-year, though as Polycom indicated, at the higher end of its expectations.
But if Polycom has a tough time convincing some financial analysts of its growth prospects, it's made up for a lot of that skepticism in tech industry analyst notices, which are currently some of the best in its history.
The consensus of several analyst reports was that despite a softening videoconferencing market overall, Polycom in the first and second quarters of 2012 gained about 8 points of enterprise videoconferencing market share. Much of that came at the expense of Cisco, whose overall collaboration business has struggled in recent quarters, and in 2010 and 2011 angered many a partner during the messy integration of Tandberg.
Miller is confident Polycom seized that opportunity appropriately and earned partner loyalty as a result.
"I wouldn't use the word 'exploited' because I think we outmaneuvered them. Nothing was a gift," Miller said. "We knew they were going through challenges in terms of product, people and consolidation and I think we did a good job leveraging our product road map for the channel. We want our partners going in leading with Polycom, and feel that they're selling better products for more margin."
Forrester Research's third-quarter "Wave" report on room-based videoconferencing, released in August, detailed how Polycom is set up to thrive in an environment where businesses want to use videoconferencing both in the office and via mobile devices but need integration with SIP-based UC environments, better pricing and better skills to bring down some of the barriers to use.
Forrester put Polycom slightly ahead of Cisco in terms of overall market leadership with products, strategy and partner programs each taken into account.
"Polycom has a diverse portfolio of endpoints including a range of options for immersive telepresence," wrote Forrester analysts. "It is not an end-to-end provider of UC, networking equipment and collaboration software, but through technology partnerships (with Microsoft in particular), it provides video endpoints that work well in multivendor environments. Many of its endpoints also interoperate natively with popular nonstandard protocols and codecs."
The CloudAxis launch itself brought a lion's share of accolades. Ira Weinstein, senior analyst and partner with Wainhouse Research, described it as akin to the "innovation and vision that made Polycom an early market leader in video collaboration."
"Make no mistake: We are seeing Polycom 2.0," Weinstein said at the time.
NEXT: Polycom's Channel Chops
While Polycom remade its image and revamped its priorities as a technology provider, another important shift happened a little bit below the corporate surface. Perhaps realizing that Polycom for too long had treated partners as afterthoughts and had provided channel engagement one major solution provider remembers as "loose and unfocused," Polycom executives retrenched and began to remake the vendor's channel go-to-market approach.
New channel leadership has helped. Ron Myers, who became Polycom's global channel chief in 2009, is a former Tandberg sales vice president. Maurizio Capuzzo, vice president of global channels and alliance marketing, joined Polycom soon after Myers and is also a practiced hand in the UC channel. Both were in place before Miller took over as CEO, but they have continued to work on channels under a slew of Miller-era hires that include everyone from Executive Vice President of Sales Tracey Newell and CFO Eric Brown to North America Theater President David Ruggiero.
"When we first talked [in early 2010], the program hadn't been changed for six years," Myers told CRN. "Since then, every year we've made minor tweaks but, overall, partners have seen a behavioral change from a rewards standpoint. We are going to continue to stress the importance of competency development, of partners representing our products and especially services, where partners that invest will see a significant margin differential."
About 95 percent of Polycom's annual revenue -- $1.5 billion for its fiscal 2011 -- touches the channel, and the company now has more than 7,000 solution provider and alliance partners. The challenge now, Myers said, is to keep those partners both loyal and profitable and insist on incremental business opportunities to expand their sales, especially as it pertains to services.
Navin Mehta, who joined in August 2011 as senior vice president, global services, is leading the charge on evolved Polycom services programs that reward partners for work in areas such as network assessments, as well as make them more money in bread-and-butter services areas such as maintenance renewals, Myers said.
Services are a tricky topic in the Polycom channel. Mike Brandofino, executive vice president of AVI-SPL, the $550 million Tampa, Fla.-based integrator and managed services provider, said that it's good Polycom understands it needs to orient its channel toward services on top of box-selling. But he's concerned Polycom will end up either competing with AVI-SPL for services or better enabling smaller competitors to resell Polycom services and take hard-won business away from his company.
"My concern is how deep Polycom will go into delivering services in a way that competes with us," Brandofino said. "We'll be paying attention because we spend a lot of time and money differentiating ourselves from mom-and-pop shops selling boxes. Polycom is doing what it needs to do to survive but its strategy might not be as good for some partners."
AVI-SPL, like other major A/V integrators, has built and acquired significantly in the past two years to create both breadth and depth in its services portfolio, from VNOC to multimedia presentation display, managed video networking and digital signage. AVI-SPL's goal is to derive one-third of its business from services revenue, which would put it way ahead of what industry association InfoComm pegs as 3 percent for most integrators in the space.
It's a natural discussion because for A/V integration partners, there's little choice but to embrace services, Brandofino explained.
"You could say that Cisco artificially commoditized this space thanks to its distribution model," he said, referring to Cisco's aggressive marketing of Tandberg and other video products through its global legions of partners, which include AVI-SPL. "But the problem with video is that it's still a tough sell. It's still a 'push' product, in which you don't have the demand to just fulfill orders like you do a 'pull' product. We're not yet at a point where single-digit margins on video are made up for in volume sales."
All told, said Brandofino, Polycom has been a good partner in the past two years and with 26 percent of AVI-SPL's revenue in infrastructure, its Polycom sales are increasing and Polycom is considered a strategic line.
"Their approach to partners has been pretty good overall," he said. "What we're going to look at is the software [strategy] because there's not a whole lot there just yet in terms of how to pursue it with customers."
NEXT: What's Coming For Polycom's Channel
Back in July, Polycom reorganized its various channel programs into one global umbrella program, the Polycom Partner Network, that buckets partners in seven categories: Strategic Alliances, Technology Partners, Developers, Two-Tier Distributors, Solution Advisors (covering traditional VARs), System Integrators and Service Providers (covering transport and MSP partners).
In addition, it's continued to fine-tune the upper-echelon Polycom partner tiers, especially Platinum, and add more benefits. The higher partners are categorized, the higher the revenue thresholds and the more specializations that are required in key Polycom areas such as RealPresence Solutions. But those partners also see better discounts and access to Polycom sales, marketing training and engineering resources, as well as attractive services compensation, Myers said.
Top-level Polycom partners can earn as high as 25 points on some services packages -- a "significant margin delta that only a select few have," he said. Through Polycom support services and portals, partners also will soon get more help keeping track of services contracts that are about to lapse.
Polycom is beta-testing that offer with a handful of solution providers, Myers said, and expects to formally debut it and other programs at Polycom's TEAM partner conference in early February.
"Partners know that the ability to renew contracts before they lapse is very important," Myers explained. "It's a challenge to recover them after the fact if they do lapse, but it can also be a big challenge to keep track."
Overall, according to Myers and Miller, partners will see more programs that specifically reward demonstrated loyalty to Polycom. Several of those have been well-received already, Myers said, and include offerings such as Polycom Preferred, a deeper deal registration program that went live in 2009 and has seen a 300 percent increase in pipeline business over the past two years.
Polycom's also seen channel benefits from various strategic partnerships, including with vendors Adtran and ShoreTel, but particularly with Microsoft and its Lync UC platform. By tightly aligning with Lync at both product interoperability and channel strategy levels, Polycom has widened its channel net to include software-centric partners not traditionally inclined toward communications and video but seeing those technologies as natural extensions of the software UC platform.
Polycom is thinking about channels differently these days, said Myers, who saluted the work done by global sales chief Newell to bridge the divide between Polycom's direct sales apparatus and the partner field. "She's done a fantastic job of supporting the channel and encouraging the AMs and territory managers to understand partners and identify how and when they should be developing territory plans with partners," Myers said. "I have never seen better high-touch sales alignment between the channel and the organization. What we can develop more than anything now is a road map."
By and large, the Polycom channel community feels more comfortable about the future, even if they don't see the company's challenges -- starting with vicious Cisco competition and a shaky spending climate for video overall -- going away.
"There's a lot more now we can anticipate," said Buck Baker, president of ScanSource Communications, Polycom's top global distributor. "The improvements have been in planning and resources and the way they're enabling us to get more of the partners aligned."
"There's no question they have become a better partner," said the top executive at a national solution provider, who requested anonymity. "But the fact that the Polycom offering is by itself limited and they do rely on partnerships with Microsoft and the others to get them into bigger UC deals makes you wonder how much they can really grow. Look at Avaya: They were buddies with Polycom, but now [since acquiring Radvision], they don't really need Polycom. When you go in with Cisco, they own the whole thing so they can make adjustments to everything from the endpoints to the software to the services programs. That's still what Cisco has that Polycom does not have here."
AVI-SPL's Brandofino said Polycom will need to continue to find ways to protect and reward its most strategic partners, especially as they attract more solution providers that are looking to add videoconferencing market strength via acquisition.
"IT and A/V have converged,” Brandofino said. "The IT guys in the channel are realizing that they're missing a big piece of the pie now if they don't have the A/V piece."