Partners ‘Not Wholly Optimistic’ About Avaya’s Future

Avaya executives have spent the last two weeks facing a growing chorus of concerns about the viability of their company, some coming from channel partners.

Third-quarter revenue for the organization was down 20% year over year to $577 million, according to its earnings report. Avaya’s audit committee of the company’s board of directors began an internal investigation, reviewing the third quarter results. The committee is also examining a whistleblower letter.

Possibly of equal concern is the debt Avaya carries — the company borrowed $600 million in June alone. Avaya says it has taken cost-cutting measures, though the company still has a sizable amount of convertible debt maturing in less than a year.

Partner Reaction

StratusDial’s Bill McClain

Bill McClain is founder and CEO of StratusDial. McClain said the partner community is concerned about Avaya’s ability to survive. Although McClain is not an Avaya partner, he said he has friends who are. They’re looking to take their business elsewhere — sooner than later, he said.

“The partners worry that there might not be a future for Avaya. Do you want to wait for the Avaya system to shut down?” McClain asked.

Eric Asquino is president of Los Angeles-based ACS Cloud Partners. He said he didn’t have much confidence in Avaya going forward, adding that the company’s financial troubles were “another sign they don’t have the product set or ability to compete with the increasingly crowded field of larger well-funded cloud-based UCaaS providers.”

Asquino is concerned that Avaya gear has limited compatibility with other UCaaS providers.

ACS Cloud Partners’ Eric Asquino

“If a customer were to make a change away from Avaya, they would need to purchase all new equipment. This could lead to some customers taking a wait-and-see approach to avoid the potential additional cost,” he said.

Avaya Response

Avaya is not waiting to respond to its partner base, especially since partners account for most of the company’s global revenue. In a statement to Channel Futures, an Avaya spokesperson discussed the company’s relationship with its partners.

“We remain in regular communication with them, guided by our focus on transparency, and continue to work collaboratively with them to best serve our collective customers. Avaya is taking action to implement our recently announced savings initiatives and expects to identify additional areas as our work continues. We fully expect to …

… mitigate any impact to customers and partners with respect to sales and support. Importantly, we believe the steps we are taking will ultimately make us an even stronger partner.”

The company continued: “Avaya maintains relationships with 90,000 customers in 190 countries, and during the recent quarter, we signed 92 new customers worth over $1 million in total contract value. Furthermore, we continue to make good progress in our transformation to subscription and cloud-delivered services. For example, during the recent quarter, our cloud annual recurring revenue metric, OneCloud ARR, continued its climb, growing 97% year over year and 12% sequentially, to $838 million. Recurring revenue made up 70% of Avaya’s revenue, up from 64% a year ago.”

Past Plaguing the Present

However, Ryan Rowland, co-owner of Adaptiv Advisors, said he isn’t convinced Avaya is doing enough to appeal to this segment.

Adaptiv Advisors’ Ryan Rowland

“Why do I want to entrust my customers to a company clinging to the past when the market is saturated with innovators and forward-thinking competition who started in the cloud and aren’t encumbered with decades of legacy hardware, code and business practices? There is precedence for enterprises reinventing themselves and coming out stronger than ever, but the actions of Avaya speak louder than their words and I’m not wholly optimistic on their future,” Rowland said.

“Clinging to the past” is a topic that comes up when discussing some companies in the channel. It can describe those firms slow to pivot from selling premises-based PBX platforms to cloud services. Even if they’ve moved some of their business to the cloud, these firms have the higher cost of doing business, because the companies still have legacy bases to support. Also, there’s the competition from subscription models offered by cloud-native businesses.

“These legacy hardware manufacturers have to shoot themselves in the foot to move to the cloud,” McClain said. “They have to take a massive revenue hit. Many are not willing to do that, so they try to dabble in the cloud.”

McClain said these firms “aren’t going to be as generous with [partner] commissions. They can’t be.”

J Arnold & Associates’ Jon Arnold

Jon Arnold, principal at J Arnold & Associates, said that no one disputes the quality of Avaya’s cloud-based products.

Rather, Arnold said the problem is “the [company] hasn’t innovated fast enough. And that is causing a lot of the bleeding, both in loss of customers and, of course, revenues.”

What Avaya can do is buy some time, Arnold said.

“First of all, you have to keep the bankers happy, because the answer to the question, ‘Will they fold?’ is only possible if the bankers pull the plug. What gives the bankers faith is strong management and a plan. They need to see that there’s the right person in charge who will know where to take the company.”

Alan Masarek became Avaya’s CEO at the end of July. Arnold said Masarek was able to turn Vonage around from financial mishaps when he led that company. Ericsson completed its acquisition of Vonage in July.

And being acquired may be one road to travel for Avaya.

“I have a hard time seeing how they’re going to overcome this financial situation,” said Arnold. “That doesn’t mean that I think they’re not going to survive. The business still has value. But there are financial potholes; they’re everywhere.”