Q&A: How Avaya CEO Kennedy Plans To Execute With Channel Partners

Two years after successfully acquiring Nortel's former enterprise unit and the technologies, channels and customer install base that went with it, Avaya is making progress. There's a revamped channel program, the strongest technology portfolio it's ever had, and a community of channel partners encouraged, if not always entirely convinced, that the idea of Avaya as a channel powerhouse is a real one.

Avaya is now in execution mode, urging partners to maximize profitability by selling the full Avaya portfolio -- unified communications, collaboration, contact center and data networking -- and also changing the ways it compensates partners to help catalyze growth through channel incentives.

From a technology perspective, Avaya's big bet is on Session Initiation Protocol (SIP) technologies and Avaya President and CEO Kevin Kennedy sees Avaya's investments in SIP and channel growth as two of its biggest differentiators as it goes to battle with Cisco, Microsoft and a legion of other competitors.

Kennedy sat down with CRN Senior Editor Chad Berndtson at Avaya's U.S. partner conference in Las Vegas this week to talk about channel profitability, Avaya's growth strategy and Avaya's competitive stance. Excerpts of the discussion follow.

During your keynote address, you mentioned that Avaya, in terms of progress, was ahead of where many of your peers thought you'd be but still shy of where you hoped Avaya would be. Where did you want Avaya to be by now? Can you qualify that comment a little more?

I think internally, you hope to drive more revenue. There are probably places like certain pieces of our product portfolio where I would have liked to have sold more. We gave you interesting stats on line-side SIP adoption [e.g. two thirds of communications carriers now have SIP trunking available], and that's been very vigorous in the last two quarters, but less so in the two before that. It took a little longer to make that happen, but it is starting to happen. If four quarters ago we had seen a bigger uptake, that would have been great. So there are two examples for you.

Avaya made a couple of acquisitions this year, including of Konftel and Sipera, and you said you'd continue to use Avaya's cash toward more acquisitions this coming year. What other segments will you be looking at for potential acquisition?

We did speakerphones with Konftel, we did a company called Persony, we did Aurix, for speech analytics, and Sipera gave us session border control. So all of those have the flavor of being technology tuck-ins. There's not a lot of people to digest, and the technology plugs in and fills gaps for us. That's probably going to be the pattern in the next year: tuck-ins as a way to accelerate our own organic plans.

But any particular segments? Sipera makes sense, obviously, because SBCs are a hot, growing market.

I have nothing more to reveal to you than whatever looks good at the time, or what speeds our ability to bring a solution to market.

Next: Expect More Avaya Channel M&A

Many of the Avaya partners I've spoken to are encouraged by this idea of becoming more strategic by selling more of the portfolio. Obviously, some partners are better equipped to do that than others, but will they need to make that leap to be considered strategic with Avaya? Is that inevitable?

Let me leave the word "strategic" as your word, and I'll refine your question in a way that I think I know how to answer it. Whether you're an account manager with Avaya or a partner with Avaya, you will make the most money and you will be the most likely to succeed if you sell an increasing amount of the portfolio. We know statistically that those partners selling more product in the portfolio and those account managers selling more of the portfolio are the people that make the most money -- we saw that his year in the numbers.

I do believe that transition is important, and patterns will mobilize toward that end. Some [partners] will consolidate amongst themselves so they have a greater ability to follow that pattern. Partners will decide what's right for each other. But the data exists that says that you will make more money if you sell more of the stack.

You mentioned consolidation, and we do see some of the big Avaya partners getting bigger, with acquirers like Carousel Industries and SPS being good examples. Do you expect this M&A we see in your channel to continue?

Sure I do. You met with Tom Mitchell [Avaya senior vice president and president, Go to Market] earlier, and he and I were there to look through the end of the mainframe era and the advancement of the networking era. At that time, the way partners joined the rolodex of the networking channels was doing so because there was no more money to be had in that computing world. That same thing is happening now in the move from the voice to the collaboration world. There are fewer companies that have [voice] products, and it's the end of an era around product sales although there is still maintenance, but there are new products around collaboration, around things like session border control, and many new companies. That transition is going to encourage consolidation, so that we can survive and evolve. That's what we're seeing. I expect it will continue for a number of years.

Among the VAR partners, you mean?

I don't think anyone's going to be immune from it. We have an industry in transition. If the suppliers consolidate, ultimately the channels will go through some consolidation. They have to.

Turning to tech trends, session border control is often seen as a hot technology growing on the back of SIP adoption. What other technologies are like that? Partners looking at SBCs see Avaya acquiring a company like Sipera as an indication that that's somewhere to look, so what else is adjacent to this interest in SIP?

Speech analytics and contact centers are going to go through a vibrant period. During the recession, the consumer industry shrank, agents were let go, and call center technologies began to sweat their assets. As the consumer industry has come back, the technology is more vibrant, and more people will communicate with social, mobile, web and video, so you're going to see a vibrancy around the call center market. Speech analytics will be one example of that, and that's one reason that drove our acquisition of Aurix. Video, whether it's codecs for suppliers, there are going to be many aspects of video and many applications around video, video streaming and so forth. You can bundle services around them.

Talk about about that vibrancy specific to contact center. How do you maintain Avaya's lead against competitors like Cisco and Genesys?

Well, one advantage of being the market leader is you tend to interact with more customers on good and bad things on any day of the week, so we are listening to them and responding to requests, and in theory, building a book shelf of relevance to them. One thing is to be paranoid and focused, and the other is to focus on the next architecture. Our AACC [Avaya Aura Contact Center] is being quickly adopted, so that's good. We have new routing mechanisms out there, too, so it's just a vibrant roadmap. We're listening to customers first, and trying to plot where they need to go next.

Next: Avaya Versus Cisco, Microsoft, ShoreTel, and the IPO

Sticking with the competitive piece, I asked you last year about Microsoft as a key competitor in the UC space. We've had a year now since they launched Lync, and we're seeing some growth there for them. How do you now view Microsoft as a competitor?

I think there are architectural choices for customers, including Microsoft, Cisco, cloud, and that all of us need to be paranoid. We have accounts that use us as middleware for Google Docs -- they're saving money, for example, by not using Microsoft anymore. And then iPads come in, and guess what, Lync doesn't help you so much with that.

The reality is there is a lot of fragmentation. I think people are conscious that they have all these choices. Cisco is an intense competitor, and Microsoft has done a great job placing Lync in lab trials in so forth, and cannot be underestimated. At some level, that was my message to our team: the people who win will be the ones who execute and tend to details. So with that humility, no one can discount the other guy right now.

I think this is also the first year that we've seen Avaya very explicitly mention ShoreTel from the stage. Are they making inroads against you?

First, you have to let results be one indicator, and I think they have grown. I think they've done a good job. They've worked at places where ourselves and others may have taken their eye off the ball. We did the integration with Nortel and we left a hole, and I think ShoreTel sees that. The other side of it, however, is realizing that for us, one good quarter is more than what they would grow in a year. So we're pleased with what we're doing. But to your point they have done a great job, and I think they have executed well.

Another thing you and your team have brought up is upping Avaya's consideration rate among customers. But given your market share, isn't it fair to say Avaya is already considered frequently? "Consideration rate" is usually something we hear from smaller competitors trying to break in because they don't have the brand equity.

I think you're right in that, but let me go back to…well, one of the challenges the company had is we felt we needed more coverage, and that's why we did the acquisition of Nortel. At some level, the reason we did that was coverage, and therefore, consideration rate. It wasn't lack of brand awareness, you just needed people to show up and say, this is what's in our portfolio.

The second piece of that is both Avaya and Nortel had a lot of legacy product and a lot of legacy maintenance. Having that, you tend to be less virtuous about talking up the new products because you're afraid that a customer might ask you to discount your past. So part of the emphasis on getting a lot of the new product out there is to say we're a product company now, and hey, product growth is very important to us. The percentage of product revenue is a significant number I threw out [Avaya derives 55 percent of its revenue from products versus 48 percent two years ago]. A seven-point move in a couple of years is a big deal. We are having success moving up our consideration rate, but we're going to do it more. Is there growth for us? There is, absolutely.

Your presentation didn't mention Avaya's IPO at all. Is there any update you can provide?

At the end of the day, the event of an IPO is really the decision of the owners. As you know, since probably August, it's been closed to us. Going forward, the owners will decide if and when. My whole job is to make the numbers so that they have that alternative.

So that decision is entirely in their hands?

Pretty much, yes.