Avaya sets its sights on firms with converged networks

Six months after being spun off from Lucent, Avaya has made several moves to shore up product lines where it lacked technologies. Still some nagging questions still remain for Avaya's top executives, such as whether Cisco will run roughshod over the IP telephony and customer relationship management markets -- key areas for Avaya -- and if the company can boost its LAN switch business and its Ethernet switch port market share. While Avaya CEO Don Peterson is aware of those issues, he is taking the firm in some new directions.

First, Peterson sees CRM as a key area where his firm can gain ground on its two largest enterprise foes: Cisco and Nortel Networks. Avaya has been strong in the call center market for years with its industry-standard Definity PBX and telephone handsets. (Almost one-third of Fortune 500 companies use Avaya's circuit-switched telephony gear.) In February, Avaya snapped up CRM firm Quintus for $30 million. Quintus makes software for managing customer orders, order inquiries and service requests with one application that ties together phone and e-mail systems along with Web technology.

The Quintus acquisition drew high marks from analysts, with a report from Current Analysis stating, "Avaya may be on the inside track to build a strong presence if it can exploit Quintus' previous partnerships and installed base."

According to Lawrence Byrd, CRM evangelist at Avaya and a former Quintus executive, previous partnerships between Avaya and Quintus will allow for an extremely short learning curve for integrating the technology from the two firms.

"What the acquisition of Quintus is doing is accelerating Avaya's already existing investment in this area of what we call CRM interaction management," which involves how businesses handle customer calls, e-mails and Web inquiries on a case-by-case basis, Byrd says. What Quintus gives Avaya, he adds, is a finely honed level of CRM capabilities to run on top of its hardware infrastructures.

"CRM is the level that says, 'I care more about the customer ... and less about how the bits and bytes move around on the bottom of the communications infrastructure,'" Byrd says.

Realizing those infrastructure changes are coming, Peterson made one of his first objectives to augment Avaya's IP product business.

"We've made changes in our sales organization to put much deeper data skills in senior management positions," Peterson says. "We then worked down the organization to integrate more data skills ... We're going to be better equipped to help data [salespeople] deal with voice, than we've been successful to get voice people to be data salesmen."

The result of these changes, Peterson says, was a 100% boost in sales for data and IP convergence products from the fourth quarter of fiscal year 2000 (which ended in September 2000) to the first quarter of fiscal year 2001, going from $67 million to $125 million in one quarter. These products include Avaya's IP telephony gear and Cajun LAN switches. The company showed it could sustain the success last week when it announced that its data sales continued to grow in the second quarter of 2001, with revenue of $135 million.

In addition to debuting a line of IP telephony servers, handsets and software - dubbed ECLIPS (Enterprise Class IP Solutions) - in the fall, the company also made some moves to fill holes in other IP network prodduct lines.

In January, the company spent $120 million on VPNet, a start-up that makes equipment for creating secure site-to-site private networks and remote user network connections over the Internet. In March, the company shelled out an undisclosed amount for the rights to three products from CyberIQ Systems: two encryption acceleration products and a Layer 7 URL switching appliance. Up until the time of these purchases, Avaya resold VPN products from Lucent, and Web switching technology from Alteon WebSystems (which is now owned by rival Nortel Networks).

Another product area where Peterson hints at expansion is wireless.

"We're a pure reseller in the wireless arena," Peterson says, adding that while Avaya gets good business from reselling Lucent's Orinoco line of 802.11b wireless LAN (WLAN) products, "We would like to have more intellectual property in that space." He says the company is developing its own WLAN products. He also did not rule out the possibility of an acquisition in the near future to make WLAN a wholly owned product offering for Avaya.

As for the competition, Cisco has been working full steam on developing and marketing its voice-over-IP products, which are part of its AVVID (architecture for voice, video and integrated data) product strategy. Cisco has also strengthened its CRM and unified messaging technologies with the purchases of WebLine Communications and Active Voice during the past two years.

During the same time period, Nortel has been active in beefing up its own CRM presence by making partnerships with industry leaders such as SAP and acquiring its own technology from its purchase of Clarify.

Cisco and Nortel present formidable challenges for Avaya, Peterson admits. The two companies are No. 1 and No. 2, respectively, in the enterprise switch market, while Avaya still has not cracked the top 10. While Cisco is using its considerable power in datacom market share to work its voice and CRM products into companies, Nortel, like Avaya, is looking to tap its large PBX (Meridian) installed base for selling converged telephony and CRM systems.

While Cisco and Nortel remain strong in market share, both companies have suffered financial difficulties with layoffs coming as a result. Avaya's recent fortunes have been a bit better. Cisco and Nortel have seen their revenues drop by as much as 20% during the last quarter, while Avaya recently reported a 1% gain in revenue between its first and second fiscal quarter (which ended March 31). Although the increase wasn't huge, Peterson says, growth is growth. He attributes Avaya's focus on enterprise as one reason his company has avoided problems, where as his competitors have been hurt by slowdowns in carrier spending - a market in which Avaya does not have a huge stake.

If Avaya can slowly but steadily turn its legacy PBX installed base into a gold mine of revenue for converged network gear and CRM platforms, Peterson's predictions will be on the money.

This story, "Avaya sets its sights on firms with converged networks" was originally published by Network World.

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