HP Hangs Up On 3Com VoIP VARs

Hewlett-Packard is putting the robust VCX IP voice and telephony product line it gained through its acquisition of 3Com last year into what it is calling "maintenance mode."

Not only that, but the $126 billion computer giant is advising longtime VCX reseller partners to start migrating customers to deeper unified communications platforms from Microsoft and Avaya, even as HP says it will continue to support VCX for the immediate future, CRN has learned.

Frustrated HP-3Com resellers that have sold millions of dollars in IP-PBX VCX voice products by promising their customers a strategic SMB voice platform that was part of HP's long term networking strategy said the shift has left them with mud on their faces and a credibility gap with their customers. Partners said "maintenance mode" effectively means that the product has no viable future as a platform for new accounts.

Some solution providers even fear that customers, particularly those that recently purchased VCX products, will seek refunds or deep discounts to migrate to competing platforms.

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’The basic thing is: my customer bought from me an HP VCX [system] and a full line of HP products,’ said an HP-3Com solution provider, who asked not to be identified. ’I need to take care of that customer. If I sold a customer a half-million dollar system and then I have to tell them it’s getting dumped, does that customer think he’s made a wise purchase? How about a customer who’s in the process of buying it?’

HP, for its part, says it is not killing off the product line. It will continue to sell, support and maintain the seven-year-old product family, whose last major comprehensive upgrade was three years ago, HP executives said.

"The status is changing," said Michael Banic, vice president, marketing for HP Networking. "The next major release, in the first half of the year, is going to kind of shift into maintenance mode to ensure the continued quality of the product."

Some solution providers said that the perceived degree of uncertainty surrounding the product line's longevity is a deal-killer.

Robert Betzel, president of Infinity Network Solutions, an Atlanta-based solution provider, said he had not been given an official answer on the long-term strategic future of VCX by HP. It’s frustrating, Betzel said, because he expected HP to have a clear unified communications roadmap for the next few years.

’We don’t have a very good long-term road map. I’ve been telling HP that over and over, and also that that’s making us and our end users nervous", Betzel said. "Look out there: other manufacturers are beating the war drums. My clients are asking me what’s going on, but they don’t know what to do because HP isn’t saying, ’Here’s our collective plan.’’

The VCX product family is not the first voice product to be impacted by HP's $2.97 billion acquisition of 3Com. Shortly following the closing of the 3Com deal last April, HP confirmed the end of life for the 3Com NBX family of VoIP systems. The final order date for that product was last July 30, and HP offered to migrate NBX customers to VCX Connect or VCXV7000 systems.

In the NBX end-of-sale announcement, HP had promised that "HP/3Com’s future investments in the voice arena will be centered around a standards-based solution, and as such will be focused on the development and marketing efforts of the award-winning VCX product line.’

NEXT: HP Pushes VCX Partners Toward Avaya, Microsoft

John Lalley, Spalding Communications Group, a Towson, Md.-based solution provider and longtime 3Com VAR, expressed disappointment on HP’s handling of the 3Com portfolio.

"HP has handled the acquisition and transition of 3Com and its products very poorly," Lalley said. "As a voice dealer, I was excited about gaining the strength of HP in support of our products and customers. However, to date, we have experienced nothing but disorganization, mind-boggling bureaucracy, slow product turnaround and lack of communication."

Banic said HP technology partners Avaya and Microsoft offer stronger UC and collaboration products and urged VCX partners to shift to those product lines.

"VCX is an IP telephony solution [while] the solution offering we have with Microsoft is a much richer UC and collaboration offering," Banic said. "That's why we look at it that way: the feature functionality difference."

HP's decision to push VCX into maintenance mode is a result "of us taking a strategic look at what is the best way to have a complete, rich portfolio in the market around UC and collaboration."

"We're trying to be very graceful about making the shift," Banic added. "After we made the acquisition of 3Com, we began more strategic-level conversations with a broader set of customers. That actually exposed us to make the right investment shifts. It may be that the partners you are hearing feedback from haven't been involved in those types of situations. We're just being responsive."

Key to the VCX voice product family is the VCX Connect IP PBX MIM, an all-in-one SMB IP telephony and messaging solution that is being deployed in SMB accounts because of its proven track record, scalable architecture and robust product functionality compared to higher-priced offerings. The product runs on OAPS blade fitted into HP-A-MSR30 Series Router with embedded PSTN gateway, wireless, WAN and LAN modules. The module and the router have traditionally been bundled for sale with necessary software licenses, and the base VCX Connect offer includes 25 phones and 25 mailbox licenses.

The extended VCX portfolio includes the VCX Connect 100, targeted at customers with 100 to 600 users, while the VCX Connect 200 IP-PBX system is targeted at customers with 600 uses to 3,000 users. The product family can be outfitted for enterprise-level deployments, too, numbering 7,500 users or devices all the way up to 60,000 users by deploying the VCX V7005 Classic, V7205 Classic, V7005 Expand and V7205 Expand systems, which have 2- and 3-server configurations.

Version 9.5 of the VCX software became available in October 2010 and included support for VCX running on HP servers, as well as tweaks to various VCX capabilities such as IP messaging, and other functions such as file transfer and forward typing to the VCX Desktop Communicator softphone. The next update, version 9.8, is due in the first half of 2011, according to HP and will be available as a free download to existing VCX customers.

HP declined to provide details on what will be in version 9.8, but Banic described forthcoming software updates to VCX as being more about upkeep than product expansion.

NEXT: HP Takes Its Cues From Customers

The decision to make only maintenance updates to VCX going forward and not use some of HP's hefty $2.9 billion annual research and development budget to make major additions or upgrades to the platform came from HP's top product development executives, including HP Networking Senior Vice President and General Manager Marius Haas, according to HP executives.

As far as how long VCX will be available for partners to resell, that decision will ultimately be based on customer feedback and continued sales of the VCX product family, said Mark Hilton, director of product marketing for HP Networking.

"The signal will come to us based on volume -- the signal to make a decision on an end-of-sale," said Hilton. "When the market basically tells us to stop selling that product and it gets to be too expensive for inventory or supply chain. We don't have a fixed date at all. We see what the demand is as we move more into this maintenance mode. It could be years. It just depends on the kind of volume."

HP-3Com partners, however, say they feel the demise of the product is a foregone conclusion. In fact, several VARs say they had been told privately by HP insiders to expect an "end of life" notice on VCX sometime in the spring.

HP executives interviewed by CRN vehemently denied that is the case.

"We have been told that the VCX is going to be discontinued very soon," said a solution provider, who did not want to be identified. "We feel that they are casting aside a major product. And I get that we're not major financially or more than a tiny piece of HP's networking revenue. But just the sheer lunacy of giving your competitor any type of wedge. You're not an end-to-end-provider anymore."

Indeed, HP 3Com partners contend that HP is making a strategic networking misstep with the VCX changes that gives rival Cisco an opening even as HP mounts a massive networking battle with Cisco. ’This is a marketing dream for Cisco,’ complained one top HP 3Com VCX voice solution provider. ’Don’t think they won’t go crazy with it!’

’I really, really don’t think HP understands the ramifications of this,’ said another solution provider, who did not want to be identified. He said the IP PBX voice change effectively signals HP's reluctance to be an "end to end" voice/data networking provider. "Cisco is going to come in and mop up every single deal that HP’s in here," he said.

Banic said solution providers should not get "too wound up" about the VCX shift.

"We’re not taking the product away from you,’ he said. ’If you feel concerned about not wanting to continue to go to market with us, with some of these partner-based solutions, you are missing an opportunity.’

UC offerings made by HP strategic partners, such as Microsoft's Lync suite, are simply more advanced, according to HP.

Hilton says that "interoperating with best of breed [products] is the underpinnings" of HP's long-standing strategic alliance program, now known as AllianceOne. "We don't necessarily pursue an end-to-end solution as a value proposition," he said. "We want to be a preferred supplier of infrastructure, and that suggests we need to work with application vendors to fill out that solution. Maybe others have taken a different approach to say, 'We want to offer soup-to-nuts.' But this is consistent with our strategy, that we've been touting for years.’

NEXT: Taking Economics Into Account

HP partners say that is not the case. They say that since the 3Com acquisition and other big deals including the acquisitions of Electronic Data Systems and Palm, HP has been touting its ability to be the single end-to-end IT provider for customers and partners and even promote itself as the elite networking alternative to Cisco.

The HP VCX shift may simply be a matter of economics for a company comparing its meager market share position in the voice market beside the heavy costs of developing major adds on and upgrades for a small but loyal group of partners. 3Com first began offering VCX products through North American channel partners in January 2004, along with a then-new channel program for its IP products.

There are only about 50 solution providers actively carrying VCX products, and 400 who carried the former 3Com NBX IP networking lineup through its end-of-life announcement last year, according to a source with knowledge of the 3Com community. Partners tell CRN that average VCX deal size varies given the VCX product line's versatility, but deals in the $100,000 to $250,000 range for midmarket deployments (250 to 1,000 users) aren't unusual.

HP’s share of the voice market, based on the assets it acquired with 3Com, is quite small, and continuing to decline, according to market researcher the Dell’Oro Group, based in Redwood City, Calif. Alan Weckel, Dell'Oro's director, enterprise telephony and Ethernet switch market research, said the 3Com voice/IP networking portfolio was responsible for about $69 million in revenue in 2007, and will likely show about $32 million for 2010 – not exactly insignificant, but miniscule in the context of the $126 billion in sales HP reported for its fiscal 2010.

’This is not a large chunk of revenue to HP," Weckel said.

Weckel did not provide exact figures, and cautioned that metrics aren't the fairest way to judge market performance, but said that if the total PBX market is taken into account, HP’s market share is probably south of 1 percent, and in IP-PBX specifically, including vendors that are hybrid, it’s about 1.1 to 1.2 percent. By contrast, Avaya's acquisition of Nortel's enterprise unit in 2009 boosted its share to about 25 percent, and Cisco, in second place, commands about 16 percent, according to Dell'Oro.

It's a crowded market, with little-to-no wiggle room, Weckel noted.

"There are over 40 vendors in the the voice space and the top seven now account for about 80 percent of the revenue," Weckel said. "So there are more than 30 vendors trying to fight it out for 20 percent of the revenue. We're going to see a lot of consolidation and a lot of exits."

Weckel declined to speculate on whether HP would exit the voice market altogether – either by an end-of-life for VCX or sale of the portfolio – but admitted that the move wouldn’t surprise him.

’The voice piece has been in decline for years,’ Weckel said. ’I feel bad for the VARs, because they’re the ones who are getting squeezed. But the writing was on the wall before HP bought 3Com. The investment just wasn’t there. Remember that Cisco and 3Com got into VoIP right about the same time. Really, there’s just a different execution between where Cisco is now in VoIP and where 3Com is.’

NEXT: The Toll On VCX Partners

Partners say they want to see HP come to the table with guarantees on how long they will be able to sell and support the VCX product.

’Our major clients look to us for advice,’ said one solution provider who has been selling VCX since it was first made available to the channel. ’Manufacturers change their minds on products. I get that. But I’m not a fish at the end of a pole. You’ve got to ethically give me some kind of transition process. You’re killing it? Fine. Are you killing it, and does that mean you’re not supporting it? Are you supporting it for five years? Ten years?’

According to HP’s Hilton, it behooves partners to look at the Avaya and Microsoft offerings. But several VARs said that changing voice products from the legacy 3Com products they know well would be a long, costly and difficult process.

Not only that, it is going to take a major toll on the bottom line of those partners hit by the change. Several VCX solution providers said the product family constitutes at least half, and sometimes as high as two-thirds of their annual profits.

’It is not a trivial exercise to pick up a voice line,’ said one HP 3Com partner. ’You can sell a different switch or router, and it’s really not a big deal. But to figure out how to sell, install and support a voice product takes two to three years of solid study, certifications, and demo equipment. You have to know your stuff. Clients don’t like you coming up the curve on their time and their dime. Repeat: it is not a trivial exercise to switch products.’

With SMB spending starting to pick up again, VARs also fear that both they and HP will miss out on a golden opportunity. One VAR said he had closed about $400,000 in VCX business in the fourth quarter of 2010, and had pipeline activity well into the millions of dollars. Many of those opportunities are overseas, noted several VARs, where VCX products are more popular than in the United States.

’The market is ready to explode,’ said the fourth solution provider. ’It’s taking off again because people have put off purchases for so long. Since the beginning of September [2010] it’s started to take off again. We’ve seen more business on this line in the last two months than we have in the last two years."

Partners say HP is making a mistake putting VCX into maintenance mode. They hope that HP's top brass will see fit to make research and development investments to significantly enhance and expand the VCX product family. "We are hoping we can get HP to rethink this and put some more money into the product," said one partner.

"I’m still hoping someone’s going to see the light over there at HP," said another longtime VCX partner. "They’re going to destroy my most profitable business. This is going to create a lot of ill will.’