Polycom CEO: 'Eight Out Of 10 Times, We Can Win Against Cisco'10:42 AM EST Wed. Dec. 19, 2012
Andy Miller joined Polycom in 2009, several months before Cisco acquired Tandberg, Logitech acquired LifeSize, and an ongoing consolidation among videoconferencing players seemed imminent. He became CEO less than a year later and began the strenuous process of not only growing Polycom but also shifting its purview -- something that hadn't changed much in the decade since Polycom bought its way into video dominance with PictureTel.
But if there's one thing Miller, a former Tandberg CEO, Cisco executive and longtime industry executive, has effected during his two years running the $1.5 billion company, it's change. Polycom today is very different than it was even a few years ago, having rebranded, refocused, re-engaged with a channel that it had all but neglected, and taken the fight in a tough market to Cisco, whose video market share has declined in the past year. Crucially, Polycom has shifted its own sales conversation from IP telephony endpoints and video infrastructure to software, services and cloud-based conferencing, all of which Miller sees as key to preserving video partner margins in the future.
In early October, Polycom mounted what it described as the largest product launch in its history, complete with new software offerings that included cross-platform bridging, a multiprotocol MCU that runs on industry-standard servers, and cloud-based video services intended to be sold through partners.
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Polycom's been challenged here and there on the earnings side, but its more than 7,000 partners, by and large, like what they're seeing. Miller joined CRN Editor-At-Large Chad Berndtson in New York in October to talk through Polycom's major moves.
CRN: Back when Cisco bought Tandberg and there was a lot of talk about the video market consolidating, a lot of folks in the industry wondered what would happen to Polycom. They didn't see a clear strategy at the time. They do now. What is your message to Polycom partners looking to profit from video and the cloud?
Miller: We set out on this journey in the context of how can we make sure we augment and expand the partner opportunity to make money, and provide differentiation. We made it really clear that these cloud-based technologies we would not sell direct. We are partner- enabling all of these technologies and partners can sell CloudAxis much as they do other products today, through reseller and white-label agreements. So first and foremost, we did not change our philosophy about channel enablement.
Secondly, we brought solutions that allowed our partners to not only extend their product portfolios but have a clear differentiation vs. Cisco, LifeSize and others. We announced a lot at once -- there is some complexity there -- but we're now working hard with the channel on education and training. How do you sell next-generation, virtualized solutions? There's a lot there to absorb. But they're going to make good money and higher margins with what we're doing here.
CRN: Your savvier partners seem to understand now that video isn't so much about reselling endpoints and infrastructure as it is about having a greater capacity for services, managed and otherwise. How are you enabling that? How do you see them making money with video?
Miller: We have about 7,000 partners globally. We look at them in seven different areas, including application developers, integrators and service providers. There will be traditional [Polycom] partners that can move into this new world of software and clouds pretty easily. We will also be adding new partners, who are the app developers using our set of APIs, and public cloud providers, and integrators like Dimension Data who can cover a more complex solution. We hope that all of our partners make it over the chasm. Some will. Some will not, frankly. The ones who do will make the investments in education and understand that it's a very different market now.
NEXT: Polycom Lacked Vision, Miller Says
CRN: The other concern more traditional VAR and integrator partners keep bringing up is they see what service providers and telcos can do now with regard to delivery video at scale. It's not your job to manage competition between telcos and VARs, but will VARs enjoy the same opportunities with Polycom that the service providers do?
Miller: I think there's a place for everyone. The global guys offer solutions for customers who require a global reach. Others are more vertical-market-oriented, or satisfy niche opportunities. I do think each of them serve a different constituency. When we talk about cloud, we made it very clear that the tier-one service providers will be able to sell it but that VARs will also be able to leverage Polycom's branded resources. That will bring them opportunities, maybe even against the largest service providers. We want to give each partner constituency the opportunity to be successful.
CRN: When you came up as CEO there was concern about Polycom's direction. Two and a half years later it hasn't all been great on the earnings side but you've taken substantial market share in enterprise video from Cisco and the company is on a firm footing. What were the most important moves you made?
Miller: The first thing was hiring a great team. It all comes down to the team. Second, the strategy. No offense to the company when I came in, but this was a company focused on point products. 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. We saw software, and cloud, but we didn't say, 'How do we get there?'
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. We were getting punched by investors, by analysts, by press. It's not easy building in a challenging environment in a consolidating industry. You don't get revenues until the strategy is in place. 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.
CRN: From the partnering side, it seemed like you were able to exploit the problems Cisco had integrating Tandberg. And with the smaller guys, you saw some interesting moves from LifeSize, Vidyo and the other startups, but they don't have the global capacity or channel scale you do.
Miller: I wouldn't use the word 'exploit.' I think we outmaneuvered them. Nothing was a gift. We knew they'd be going through some challenges in terms of product, people and consolidation. At the same time, we did a good job of understanding the product road map and leveraging that through the channel. [Polycom global channel chief] Ron Myers has been with me for nine years. He ran channels at Tandberg. He's very intimate with and accountable for the relationship with partners.
We want our partners differentiating with Polycom. We want them going in and saying, we primarily distributed Polycom products, not, we carry Cisco, Polycom and LifeSize and take your pick. We want them to be loyal, and I think we've garnered a good amount of that in the last year or two. We are here to lead this market. Cloud and interoperability are [trends] to attack. The partners that stay in the pure endpoint and bridging game, over time, will be marginalized. Ron and his team are trying to get as many partners as they can to understand that.
NEXT: Polycom's Ecosystem Partners
CRN: How else do partners benefit from greater loyalty to Polycom?
Miller: Our Polycom TEAM conference this year, which takes place in early February, will focus on programs that explicitly reward for loyalty -- for leading with Polycom. The details are still being worked out, but that's what we want. That's for new partners coming into the market, that's for VARs, that's for the teams we're working with at places like CSC and Dimension Data and carriers like AT&T.
CRN: Worth noting, of course, that Dimension Data and AT&T and others you've mentioned are big Cisco video partners as well.
Miller: The landscape is changing. Two years ago, we talked a lot about our relationships with Microsoft and HP as partners. A lot of partners came to me and said, 'Andy, oh my god, you did this deal with Microsoft? How in the world are you going to minimize our risk and help us make money?' Fast forward two years, and the pull-through for our partners with Microsoft awareness has helped partners all over the world. And HP provided an opportunity for some partners to concentrate on new markets. The only thing that's constant is change. Partners have to exhibit an ability to embrace that.
CRN: How does that Microsoft relationship help Polycom partners?
Miller: When I look at Microsoft and how it enhances what a traditional partner can offer, I think the difference is in what we call influence revenue. The way Microsoft sells is very different than what a traditional Polycom partner is used to. It's a different go-to-market strategy, it's a process of sales through an enterprise licensing channel. For our partners -- especially for the smaller partners that don't invest in Microsoft already -- the win rate of Polycom against Cisco is 80 percent when we're aligned with Microsoft software.
CRN: Cisco's response to that would probably be, well, we can do everything. We can do the entire UC and video sale and you can get it all from us. So why is partnering instead of trying to do that whole UC play better for you?
Miller: Our strategy has always been a best-of-breed interoperability, using open standards. Cisco's approach is single-stack. But when I go into a customer, I tell them, 'Polycom can run a Cisco network better than Cisco.' How can that be? Our open standards, our interoperability, the ability to link our system with IBM Sametime, with Microsoft Lync, with enterprise communication products all over. We natively integrate with Lync vs. Cisco's gateway approach -- that's very significant in terms of TCO, not to mention efficiency.
Where we lose is where they bring [Cisco CEO] John [Chambers] in, or if a buyer says, 'Well' I'm going Cisco no matter what.' But eight out of 10 times, we can win against Cisco. The challenge for our partners is making it appear to the end user that what we have and what we leverage from the partners we work with is so easy to procure so it looks like a one-stop shop. That can happen easily with systems integrators and carriers and we're trying to make more partners do that well.
CRN: Talk about HP. You acquired their video portfolio, including the higher-end Halo telepresence and also have that exclusive reseller agreement. Does that benefit you?
Miller: HP's been a great opportunity for us to acquire Fortune 500 logos. The resell side has gone a little slower than we would have anticipated, mainly because of the challenges HP is going through with its financials.
NEXT: Polycom's Acquisition Strategy
CRN: Two other partnerships I wanted to ask you about. Is Avaya, with Radvision, a Polycom competitor now?
Miller: Avaya is co-opetition. They resell many of our voice products and conferencing technologies, and we enjoy that. Avaya is also a distributor for our video products. We enjoy that. On the flip side, Avaya is a competitor with their acquisition of Radvision. It's co-opetition, and that's the way of the business world now.
CRN: Are you still aligned with Juniper?
Miller: We are absolutely aligned with Juniper, and have a great working relationship. They're strong in the carrier space and we're strong in the enterprise space. There are a lot of tremendous opportunities further into the carrier space to partner with Juniper. Our relationship with [Juniper CEO] Kevin Johnson is strong and they are important.
CRN: As Polycom moves deeper into software, has that yet become more of a revenue contributor? Is it very significant now?
Miller: People have to understand that when you transition a platform in a hardware-focused company to a software-focused company, it's a decade of work. This is a transitionary period. Infrastructure and endpoints are clearly here to stay. There's a myth that all this technology will go away -- that the hardware endpoints will disappear and that we'll be all cloud in a few years. Hardware and cloud will co-exist.
But clearly, with the software capabilities in virtualization, cloud and soft endpoints, more of our revenue, year-over-year, will become software. That's a great opportunity for our partners as well. We haven't talked 2013 guidance, but we do expect it to grow, and to be a 16 percent compound annual growth rate for us into 2015. It'll be a big piece of our business.
CRN: Talk about your acquisition strategy. We've seen some interesting smaller pickups, such as Accordent for video content management and ViVu for embedding HD video into Web applications. Will we see more of those?
Miller: Yes, and ViVu, you may not know, is the secret ingredient to CloudAxis -- a big contribution to that technology. You can expect to see the same cadence in that range of $15 million to $200 million M&A activity we've had. Most of it will be around software and cloud but also around services support.
CRN: Do you think there will be more consolidation among video vendors? There's a lot of VC money and attention going into the startups right now.
Miller: We want to own that space. In the cloud space, I won't name the companies, but they provide ad-hoc video as a service. In the midmarket, the small medium enterprise, there's a lot of attention on the managed soft MCU. These are markets we're going after hard. We'll compete and we will see how consolidation evolves.
NEXT: Polycom's Next Moves
CRN: Are there adjacent markets that you see as holes in Polycom's portfolio? New markets you need to enter you're not in now?
Miller: We're really focused on software, cloud and services support. Those are new areas for us not in terms of solutions but in terms of how we support them. Most of that growth will be in M&A for us, and so will cloud technologies.
CRN: At the same time, you're divesting the SpectraLink handset business. Are there other businesses you're getting rid of or de-emphasizing?
Miller: No. I love our device business, and it's on a great growth trajectory. And we have opportunities with hosted voice through carriers like Verizon and people who partner with BroadSoft. Some of those are really accelerating our personal device voice and video products, which hang off this hosted voice environment. We have no plans to divest anything other than what we've already done.
CRN: Jumping back real quick to your partnerships, most of the industry analysts who covered CloudAxis couldn't help but notice that Apple Facetime isn't a supported service. Will it be?
Miller: Apple's a great company. But when you think about Skype, Google, presence-based engines, all these things are very powerful in terms of B2B connections and B2C connections. We hope that Apple will follow and open up their technology to be part of a solution set.
CRN: When you talk to CIOs and enterprise buyers, are you hearing that investment in video and infrastructure is a priority for them? Do you still have to convince them or have they boarded the train?
Miller: Q1 this year was a tough quarter for everyone. We reported our earnings first, and after we reported, we were sitting around saying, 'Did we get stupid overnight, or is something else going on?' We did gain 8 points of market share against Cisco and other competitors, so it meant two things: there are macro-economic headwinds, and CIOs are taking a pause on buying. They're asking questions. Do they want to be closed video or open video systems? Are they buying video as an application?
I feel comfortable now that in my conversations with CIOs, we have the ability to answer all their questions. Our products are backward- and forward-compatible, and we can extend our platform and enable them to take advantage of their investments through technologies like SVC [Scalable Video Coding] and the H.264 standard. Now, we have to execute. We can deliver the products, deliver the messaging, do the education, and get partners to tell the story and savor their moment. For many companies right now, there is a once-in-a-generation opportunity to change the way communication works.
PUBLISHED DEC. 19, 2012