You mentioned a few traditional competitors on the premise side, but you didn't mention Microsoft or Google. Do you see the competition changing? What do you make of Microsoft/Skype and Google going forward? Will they be more of a threat?
Well, Google has the capability, but they're not going to market on a unified communications approach. Microsoft is. They have Lync, which is quite good, but it's targeted at larger enterprises. It's also quite expensive if you do a fully loaded installation. And voice is not it's strength, the strength is UC. I'm sure they'll evolve that. I hear they're doing a lot of work on Skype. And we do, if you'll excuse the pun, link to Lync, so we can have a Lync/ShoreTel installation.
We don't lose business there, so it's either they go all ShoreTel or they have some sort of combo. But Microsoft could develop to be more effective in the small/medium market, but for the moment it's very enterprise focused. Enterprise being 10,000 seats and above. And Google, I can't comment on them because we don't see them as a competitor yet.
Last question: ShoreTel has posted losses for the last four years. What do you attribute that to and where do you go from there?
When I joined the company just under two years ago the company was growing at 30% quarter over quarter and the board said to the street, "We've got a product which has a 50% win rate, why don't we expand sales and marketing and capture market share." It was a great decision, the right thing to do, but clearly that limits your profitability.
Premise was profitable in quarter four last year, which just ended in June. We could deliver quite a lot of premise profit for this financial year, but we just bought this cloud company and it's growing much faster than we thought it would (I thought it was going to grow at about 30% bookings every quarter and it's already up to 43%), so I said to the investors, "Please just be patient because there's a land grab going on in cloud and I need a little bit of investment in the salesforce, and installations need to keep up with bookings so we need more provisioning capability. Not a big investment, but you need to do it."
And the investors are understanding that. So premise is now profitable and we don't need to increase R&D much there. The R&D spend is on hybrid and porting apps to the cloud, and then our cost is more or less increasing the ability to scale cloud. So the cloud will be very profitable because the recurring revenue stream model is inherently a very profitable model -- long-term more profitable than premise -- so that's why I think the investors are a little bit patient.
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This story, "ShorTel goes big in hosted VoIP: A Q&A with CEO Blackmore" was originally published by Network World.