Transcript for UCStrategies Experts Discuss ShoreTel
Jim Burton: Welcome to UCStrategies Industry Buzz. This is Jim Burton and I’m here with UCStrategies expert team as usual. Today’s topic is about ShoreTel. A number of us last week were fortunate enough to attend ShoreTel’s analyst briefing. It was also part of their dealer meetings and we learned a lot. There were some very important announcements made. One of the important announcements is that their CEO, John Combs, who’s helped them grow from a small company to a pretty successful company, will be leaving. They’re looking for his successor. John helped build the company from, I believe, $6 million a year to $41 million in this last quarter, which is extremely impressive. He’ll be missed, but I think that they’ve recognized that it is time to find new leadership to take them to the next level.
John, in his opening remarks, made a comment that they planned last July, coming out of this recession very strong. So they told Wall Street that they were going to invest and that they would try to do what they needed to do so that they would be one of the big players at the end of this recession. They implemented that program in August and I think this last quarter’s results would indicate that they certainly had success with that. There are probably a number of other reasons as well. They also had in the discussion the fact that they’re supporting the IBM Foundations product. Again, a very impressive solution that goes from five people to 500 people and it is an all-in-one box that with the ShoreTel component has the telephony feature. So it has all the things that a small business needs from back-up services to security, firewalls, spam filters—a very, very impressive solution. And it’s a platform for vertical market application. So there’s a summary of the highlights that I observed. Jon Arnold was also at the event. Jon, why don’t you give us some of your thoughts.
Jon Arnold: Sure, Jim. You and I sat front center next to each other so we saw exactly the same things for most of this thing. But I’ll just add a few different takes on it. Just to build on what you said, that was John Combs going out, it’s not that often that we see public companies in this space, coming on strong like they are. The established guys are all public but the smaller guys tend not to be, and its really great to be around these companies when they’re willing to kind of open up and tell us their plans and share it, not just with the investment community, but us. I don’t think there were any financial analysts there, so I think it was just us as industry analysts getting the invite alongside the resellers. And that’s important, too, because they haven’t done much in the past to include the analyst community in these events. So I think that’s an important step in moving forward for them to kind of get their confidence up that the analysts are interested in talking to them, and getting their story out. And we all know—that was the clear message from this event I think—that they do have a good story to tell and even though they are public, they’re just not that well known.
It’s kind of interesting because we’ve seen Mitel’s IPO not go that well. A step to the right, BroadSoft had a recent IPO and that’s kind of been on the quiet side and they’re standing pretty strong. Financially, compared to these other players, they’re in a good position and they’ve made it clear, they’re taking a run at Cisco. One of the big things you mentioned earlier, Jim, was this whole TCO story and, you can spin that number a lot of different ways, but they’re clearly coming to market saying we can beat you on price and they’re getting the results. I think that’s important because they recognize it’s a tough market, and they’ve got to take their wins where they can get them, and they’re just building that customer base. I think they’re doing a great job. They talked about this—John talked about that perfect storm—and trying to kind of, as you said earlier Jim, the stars are lining up, and I think that’s true. I think they’re just benefiting from a good combination of the economy coming up out of recession; companies looking for better technologies and building on the strengths of their product offering compared to their competitors, this whole theme of simplicity and I’ll leave that to others to talk about. I think it’s pretty important. Any time you talk to the resellers, whether it’s here or whether it’s at other events, it’s a pretty important theme, that a lot of these products are complicated. We didn’t hear that much about unified communications per se at this event and I think it’s because it’s more complicated to deploy than just straight up telephony. We didn’t hear a lot of talk about video for the same reason, but I think if they stand on their strong suits of voice and basic feature set, there’s still a lot of market growth to be had, and I think they’re in a good spot there. I think what we have to look for, though, for them to continue to grow competitively is, how well they do advancing into those new spaces. And they talked about the cloud and they talked about iPhone and all these other things, but that’s still probably a couple of steps ahead. But all told I think it’s a great story; they gave us a nice roadmap that was under NDA, but it was good to be part of that. I think for a lot of us it was a good experience to learn a lot more about a company that we probably haven’t given that much attention to in the past. So I’ll stop there, and let’s keep the conversation going.
Jim Burton: Jon, let me make a comment. You brought up the TCO portion. That was one thing that I thought was pretty interesting. They had a whole discussion on how they come up with the whole TCO model and they believe, if they can get in front of a customer and compare what that total cost of ownership is to the competition, they’ll win every time, at least on the numbers - they will win every time. Because there’s is an easier-to-maintain support solution because it’s all tightly integrated into one box, and we’ll put a link as part of this to their TCO tool that’s online. Blair you were there as well, what did you take away?
Blair Pleasant: I thought it was a great conference. The weather could have been a little better, but we had lots of access to the executives and the products people. They were very open and forthcoming with the analysts. John Combs sat in, or participated in one of the analyst sessions where we got to ask him questions. And it was also really nice having it as part of the reseller partner conference because we were able to chat with the resellers and get their perspectives. It really was clear that the resellers are very, very happy with ShoreTel and they love the company and the product, especially the simplicity. And they like the fact that the product is an all-in-one solution that makes it easier for them to sell. And also, as we talked about, the customer satisfaction rates are extremely high.
I got a lot out of talking to their partners and they really did resonate with ShoreTel’s new tagline “Brilliantly Simple,” because they do feel that the product is very easy for them to purchase and for them to implement and for customers to use. But it’s still very full featured and well designed. And the consensus as we talked about was definitely the biggest challenge is, ShoreTel’s not always brought to the table for customer deals and that’s what’s frustrating for the reseller partners who many times the sale is made on the partner’s relationship with the customer, not based on ShoreTel’s name recognition. So the partners have a lot more to do as far educating and convincing the customers, that yes, this is the right product.
The partners were also very excited about the IBM Foundations product which they look at as “UC in a Box” solution, and they had a lot of questions about it, but all the resellers who I spoke to, thought yes, this is something that my customers are going to get a lot out of and I think can be very successful. But they did have a lot of questions. There’s going to be a three-tiered distribution model using ScanSource as the distributors, though the resellers had questions about how that’s all going to work. I would have liked to have heard more about UC as John mentioned. A little bit more about collaboration and there was pretty much nothing about social networking; in fact, there was just a small handful of us who were there even using Twitter. So I think that’s something that they need to get on board with a little bit more. But as far as what I heard, I think ShoreTel has a good story to tell and looking forward to hearing more down the road.
Jim Burton: Thanks, Blair. I was fortunate enough to travel to Boulder this last week and my colleague Dave Michels lives in Boulder, so we had a chance to sit down and talk about a few things and we did talk a little bit about ShoreTel. Dave, take it away.
Dave Michels: I think ShoreTel’s doing an excellent job right now—probably the best—of benefiting from Nortel’s demise. Although I’m not really sure that’s going to be maintainable now that the low-hanging fruit of customers that were really anxious to move, are getting out of the way. I think that one of the things that they’ve done very well is they’ve picked up a lot of the larger Nortel dealers in the channel specifically some of the service providers like Quest, Verizon and AT&T—are now reselling ShoreTel. But that is the Nortel old channel and they’re going to have a lot of adapting to do to the UC space and I’m not sure any of them will be able to benefit from the IBM Foundations product which is a pretty strong key point for ShoreTel right now. I’ve also seen that the service providers are getting some pretty attractive pricing and I’m assuming that’s coming out of ShoreTel’s pockets, but I’m not 100% certain. It will be interesting to see what happens to their margins as they work with these big service providers that they haven’t work within the past.
Their “Brilliantly Simple” campaign is really a kind of contradiction to almost what everybody else is doing in the industry who’s still living with “with complexity comes power.” I’m not sure if they’re as simple as they are unique. They seem to be doing a lot of things very differently, I think they’re one of the only vendors still using MGCP for their phones. They don’t have really a cloud, a virtualization strategy to my knowledge. They seem like a very marketing driven company which is certainly working well for them right now except for even that’s got its limits because they have a very low consideration rate. But they seem to be overall doing things very differently than the status quo in the industry which seems to be working for them right now and that’s just interesting to see how that’s coming out.
I think it’s also interesting and more evidence that they’re marketing driven, is they have their sights set so much on Cisco, Avaya, and Microsoft. I can’t imagine any of those companies really are terribly threatened or concerned by ShoreTel because they’re so much larger. And the real competitors in my mind, kind of on the market share side are Mitel and NEC which are both bigger, and much more international and have cloud strategies and virtualizations. So this is a lot of ShoreTel’s gorilla marketing tactics which has been working for them in the past. You can’t argue with their results. I mean they’re growing market share in a tough time, so, it’ll just be interesting to see how well they can maintain it.
Jim Burton: Thanks, Dave. Steve Leaden and I had a conversation about their relationship with the consultant community prior to this call. You want to share with us some of your thoughts, Steve?
Steve Leaden: Sure, Jim. So, a couple of thoughts...you know we’ve implemented as a consulting firm, ShoreTel, and I can attest to the fact that the simplicity aspects absolutely. The other thing that we’ve seen when we have looked at them for our clients is that most of their VARs have on-site demo kits which they can bring to the site and if you give them 15 to 20 minutes, they can set up a live demo as to exactly how their system works. And it’s quite different from all the competitors. So I would definitely chime in on those points. But, I think there is something that they can do in terms of expanding their market awareness and that is through the consulting and analysts community. So obviously they’ve invited the UCStrategies team last week on the analyst side so that’s really good. But I think they’re going to be challenged quite a bit by the Avayas, Ciscos, NECs, Siemens, MyTels, Aastras, Interactive Intelligence and Microsoft who all have incumbent and established consultant relations programs. So, we’re finding, for example, that some facts that have been provided to me in the past that in the medium-to-large space consultants are involved in up to 75% of all the bid processes and the solutions for the customer. And, in fact, in the Fortune 1,000 space, consultants are involved in a full 80% of all of the clients. So, you can see just by those raw statistics, the consultant community at large, influences quite a bit. I think the latest stat is we’re in excess of $17 billion in influence per year. So with those stats, and the fact that the competition, that they’re definitely targeting such as Cisco and Avaya-Nortel, they have established programs, I think it’s time that...ShoreTel I guess about 18 months ago did have an established individual internally, that person left the company and they have yet to refocus in terms of getting someone in-house now. They do have some outside help on a part time (basis), but I think they can do a lot in terms of getting the name out there of the company in front of the consultant community more and more. So I would in a friendly way challenge our colleagues over at ShoreTel to put some marketing dollars into an investment on the consultant side to bring them into that market awareness with the consulting community. So in most respects, most of the competitors are actually tracking deals in terms of...when we’re doing our own analysis with vendors, all the consultant managers want to know what’s going on in our firm and how much we’re influencing. So, again, I would challenge ShoreTel that using a consultant outreach you can get copies of the request for proposals, you can get copies of the analysis that we’re doing at least on the ShoreTel side and seeing where they stack from strictly the ShoreTel point of view. But if the ShoreTel wins are this strong as you’ve been sharing a little earlier Jim...three out of four wins once they get in front, then I think that they have to get the branding out to the consulting community some more. We’re big influencers, we influence a lot of money. Our firm alone is influencing millions and millions this year going into next year, and I think it’s a huge opportunity for ShoreTel to gain market share.
Jim Burton: Great, thanks a lot Steve. Anyone else have any comments they’d like to make?
Samantha Kane: I would just reiterate both Steve’s comments from the consultant point of view and also some of the others. I would suggest to you that a lot of ShoreTel’s current success is as what they call “bottom feeder,” and taking perhaps BCM and Cisco smaller sales away, but our experience has shown that in the deals that perhaps aren’t large in size, but virtual or multi-site, they are not necessarily weighing those types of businesses yet nor have they convinced the consultant liaison program that they belong there. So they need to put some more work into that.
Jim Burton: One of the things that was interesting is that they talked about where they’re starting to see more successes and they are moving up in line size and in multi-location. But it’s interesting they clearly aren’t feeding that information out to the consultant community for you to be fully aware and appreciative of that. So it kind of goes back to what Steve said: they probably need to take a look at how they can get more education out there. Art, did I hear you chiming in a little bit ago saying you’d like to make a comment?
Art Rosenberg: Yes, I wasn’t at the presentation so I have a question in terms of what their emphasis is, because it sounds to me like what they’re saying is step one in the migration to UC and everything else. They have an inexpensive, simplified step one for IC telephony. Just wondered if kind of where they’re coming from is hey, “we want to get you at that first step and then we’ll talk to you about all the other things you want to do after that.”
Jim Burton: Well they do have some components of unified communication that they’ve developed on their own. But they also are tightly integrated with Microsoft’s OCS, and they’re working with IBM on SameTime. So they do have the ability to deliver all of those. Their preference on almost anything that they do is to have it tightly integrated inside their box because that’s what makes it brilliantly simple. When you have to do the integration outside the box, that’s when it becomes painfully difficult. So, I would say that they do have some unified communications capabilities. As Blair pointed out, they didn’t talk about that a lot, but clearly they recognize that that’s an important piece; I’m sure that’s why I was invited, for example.
Art Rosenberg: Did they talk much about—because that’s one of the big areas that’s getting integrated—is the contact center applications?
Jim Burton: Yes, in fact they made a big announcement, I think we even commented on it last week, of some significant upgrades and changes they’ve made to their contact center and again it’s all still tightly integrated inside the box. Blair you might have comments on that.
Blair Pleasant: Yes, again that’s one of the real benefits of the solution, is that it is all tied in together, and part of the all-in-one solution though they did introduce a new contact center offering.
Samantha Kane: Do you know what the size is, Blair?
Blair Pleasant: I don’t recall off hand, it might be up to 300 agents. (see Blair’s follow-up to this below)
Jim Burton: Yeah, it’s good sized. I had a couple of interesting comments when I was there. They were a client of mine a long time ago, when they first got started I worked with them. I had two recommendations that I suggested that they consider actually, more than consider that I thought they needed to do. One is to not sell direct and one is to have their own end point. They did that and I think that helped them grow quite a bit. But one of the other comments, someone that I had known from back at that time said, did you ever think you’d see an event this size? And I thought about it and the answer is yes, because I knew if they were successful they would go to a point where they would have a large event like they had last week with all the partners and the various other constituencies that they invited. So I think it’s a natural evolution for a company that finally gets it together, makes the right progress and can be successful.
Blair Pleasant: I was wrong, the number of agents they now support is 1,000. So it’s definitely a pretty decent sized call center solution.
Jim Burton: Thank you, all, and I look forward to talking to you again next week. Take care, everybody.