What factor is most critical to Avaya's success?
We hold out our strategy in four pieces: IP telephony, applications, appliances and services. Of those four things, the one that we have to win is IP telephony. Therefore that's the one that I'm most concerned about, and most inclined to go read market share data about and research the differentiators of one competitor over another. That's going to determine whether we win or lose.
Oh I think so. I think that there are a couple of cultures that have to change. In terms of the Avaya culture, we got out of the direct manufacturing business a couple years ago because we recognized that this was going to occur. I would guess at least 80 or 90% of our R&D now is dedicated to software as opposed to hardware, and the majority of it has been software for a decade.
For our customers, the adjustment is going to be complex, because the value in their mind is the box and phone. We are going to have to look like a software company in the sense of selling software with value attached to it, when the only manifestation of it may be a CD. There are plenty of cultural changes to go around here, but I see it as an unstoppable evolution and a series of changes that we simply have to go through. Wireless data services haven't been widely adopted by enterprises. Does that hurt voice over Wi-Fi's chances for long-term success?
No. I think in some ways it'll be more determined by cost. A dual-mode wireless phone is never going to be cheap, at least relative to other solutions. Corporations will be stepping up to fairly expensive handsets and they'll have to decide whether there's enough value there for them or not. Are you working with your partners to bring down the cost of those handsets?
The handsets are being designed by Motorola, and what they require from us is merely our software client to enable the handoff to the 802.11 network. So we enable the soft phone functionality. The handoff requires new radio techniques and coronation between Proxim and Motorola in terms of how that radio selection is made. So we're not going to have a lot of influence in that cost structure. What we're going to do is have many sources for the handsets, making sure we're not only available on Motorola. We want to be available on any cellular system and any handset provider. But it's taking some work.
I think it's going to be very popular for those employees who need to be in touch when they're away from the office, and find value in the simplicity of a single device. I think it's going to be a very important value proposition for a lot of people, and we're on track with our development, and you'll see some products from us this year. Do you envision a time when PBX sales will no longer be part of your business?
It depends on what you mean. I see a time when a physical product called the PBX no longer exists, but rather call management software is what is sold. And that, operating on your server, is what controls voice communications over the local area network. So I guess the answer is a conditioned yes. At the end of last year, Avaya debuted a VoIP offering that cost just under $2,000 for an office of 30 workers. What's your strategy for encouraging SMBs to invest in VoIP?
Actually, interestingly enough, the small-end market has been an early adopter of IP telephony, largely because they didn't want to make investments that would become obsolete. In addition, IP telephony in the small office doesn't run into many of the unknown network issues that come up when you get multiple locations working together.
Now, there are two kinds of small office applications. One is standalone, which we address with our IP Office product. It scales anywhere from five to as many as 300 users, with a sweet spot of about 100 users. The other small office is the branch office, and often that kind of implementation requires a higher degree of network sophistication. We're addressing that by moving our MultiVantage product line downstream into that space. Some say SIP-based technology is too expensive. What's your response?
There is a mistaken perspective that I think started with some of the early players. From a transport standpoint that may be correct, but there are 800 or more features in our Definity PBX and now our MultiVantage software. Those features have value.
Secondly, there's the cost of changing the network performance. The traditional data network, when it's overloaded, degrades in performance. That can't happen with voice; it's real-time and doesn't tolerate latency and jitter. A dirty little secret of the data vendors is that if you put voice on your data network, you probably have to upgrade your data network. So that part was never going to be free.
Certainly from a data player's view, the commitment to arrive at a leading-edge technology solution that doesn't leave behind existing technology is a key separator. Other telecom providers share a similar value proposition, but data companies like 3Com and Cisco don't have that interest. It's the combination of infrastructure with a strong application suite and underlying services support that distinguishes us. Nortel and Alcatel do not have direct service capabilities, and Siemens doesn't have the strength of our applications suite, and doesn't have the strength of our IP telephony offer either. Why does Avaya believe in Session Initiation Protocol-based VoIP technology?
SIP is one of those protocols that opens doors. SIP itself is a very simple protocol, and that's its strength. It doesn't, itself, do a whole lot other than establish communication, but on the other hand it establishes any communication link that you can think of. It's a universal connector, and it lets the things that are connected continue to work the way they want to work, and that's very powerful. It means the value of equipment you had before can be retained and brought forward, which in many ways is the value of the IP telephony promise.