ShoreTel Sheds Light On New Cloud Division Strategy

With ShoreTel's $146 million acquisition of M5 Networks closed and M5 now doing business as ShoreTel's Cloud Division, its top executives have begun the delicate business of creating an integrated channel strategy.

ShoreTel solution providers told CRN following the acquisition that it behooves ShoreTel to move quickly on firming up how it will sell cloud solutions through the broader ShoreTel channel. Several ShoreTel partners have asked about a potential white-label program, for example, and whether they'll be able to "hold the paper" when selling those services.

"For the moment, we haven't gotten there," Peter Blackmore, ShoreTel's CEO, told CRN at an event for analysts and channel partners in New York last week. "We want to get this right, and a lot of partners haven't got that much experience in cloud yet. There are many differences; your cash flow is different, for example. It's going to take us another three months before we go public on that."

Most partners and industry analysts have applauded the deal, which netted ShoreTel one of the more successful companies in the fractious world of hosted VoIP and hosted UC players. Blackmore said ShoreTel looked at 100 cloud networking companies beginning last summer and talked to 25 of them, with the field narrowed to a handful by the end of the year. ShoreTel decided on M5 in January, and the acquisition was revealed in early February.

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Among ShoreTel's criteria were that the company be growing and that it understand market segmentation, Blackmore said. ShoreTel was also especially attracted to M5 having its own intellectual property -- unlike many hosted VoIP providers, it does not run a Broadsoft or other third-party switch -- and its ability to maintain a relatively low acquisition cost for customers, with demonstrated low customer churn.

M5 generated approximately $48 million in revenue in its last fiscal year, and about 60 percent of its business was through indirect channel partners, said Dan Hoffman, former M5 CEO and now president and general manager of ShoreTel's Cloud Division. Blackmore and Hoffman both noted that M5's average revenue per seat of $65 to $68 was quite a bit higher than the industry average of $45 to $50.

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At last summer's ShoreTel Champion Partner conference in Chicago, Blackmore told partners that the cloud was part of ShoreTel's four-pronged growth strategy but that the model was still unproven. Many solution providers noted during that conference that ShoreTel was muted on the subject of cloud and hosted solutions following a lot of hype around a ShoreTel cloud offering a year earlier.

Last week in New York, however, Blackmore said it had become clear to him and ShoreTel's executive team that they would have to make a move in the cloud and that engineering comparable ShoreTel cloud services in-house would simply take too long.

"I believe there's a window when you enter a market when it's affordable, still a little bit early and regimented," Blackmore told CRN. "If you miss that window, it gets so expensive and so uncertain for you to enter that market later."

Portfoliowise, M5's technology will for the moment remain separate from ShoreTel's premise-based UC and contact center products. During last week's event, however, the company demonstrated a solution that combines the hosted communications services M5 provides with elements of its vendor-agnostic ShoreTel Mobility platform. The offering is currently in trials, ShoreTel said.

It'll still be some time before ShoreTel rolls out cloud services to the broad ShoreTel channel, but it is now recruiting select partners to pilot those sales. Hoffman said the company is currently working with 10 partners.

Other big questions raised by channel partners include how quickly the cloud service will expand to international markets, something M5 had already planned to do. That's definitely in the works, Blackmore and Hoffman said, and it's a matter of aligning ShoreTel's international resources to get there.

"The pressure was getting ear-splitting for us to do that," Hoffman said.

Both Blackmore and Hoffman made frequent reference to the fact that no one dedicated cloud UC provider dominates the market. There's a real opportunity to take it over, Blackmore said, especially with ShoreTel's Goliath competitors, Cisco and Avaya, still fine-tuning their cloud strategies.

"It's open season," Blackmore said. "We could become the clear leader."