Q What’s ShoreTel’s differentiator in the unified communications market?
A Our appeal is that rather than have an application bolted onto legacy systems, the integration has already been done by our team. To me there are two key aspects to unified communications: first is to bring together simple client end-user access to all communications tools. ShoreTel has one communications portal or dashboard where I can do instant messaging, telephony and so on. The second aspect is I can do that wherever I am. So if I’m driving to London I can do that on the dashboard on my mobile. It may not be as complete as my desktop but it has the unified piece. And I can assign any phone in the world to be my desktop phone. So if I’m in a hotel room I can use my mobile and at home it could be my home phone.
Q Your competitors are industry heavyweights such as Cisco, Avaya/Nortel. How do you compete against these bigger players?
A First there’s the reliability of our systems. Second, there’s scalability. Every other manufacturer has small, medium and large systems. When a customer grows, they’ll pull out the small system and put in a larger one. We scale from 10 phones to 10,000 phones.
Third, there’s what we call ‘easibility’, which is the ability for end users to access communications that are easy to use and intuitive. For most companies that provide unified communications each individual application is an independent system or application that has to be managed. With ShoreTel there’s one point of maintenance for the whole system. The fourth area is total cost of ownership. ShoreTel costs as much as any other product to buy, but the cost of maintenance is usually 70% of total cost and we keep those costs down. Finally there’s customer satisfaction.
We’re marking significant investments in branding. Our biggest competitor is not getting to the table. When we get in front of a customer we make well over 50% of those sales. So we are making a substantial investment in the sales team and may add up to 50% more sales people. We’re also much more financially stable than Avaya and Nortel. Today, Avaya has $6bn in debt and that’s $600m a year they have to pay in interest and that’s a deafening amount. We have north of $100m in cash and have zero long-term debt, so our balance sheet is strong and that means we can make investments in areas like sales and engineers.
Q What was your strategy for weathering the recession and what are the plans for 2010?
A When we started 2009 we wanted to grow at least 5% and at the end of the year we did grow 5% and that was a significant accomplishment. As we went into 2009, the first thing we did was begin work on a strategy to come out fast and strong and decided to make investments in three areas. First, was to increase the headcount in sales, as I mentioned. Second was branding. We invest $500m a quarter in lead generation, but we are upping that by $1m a quarter. Third, we are significantly adding to our engineering team and we have an exciting product roadmap.
Q What is the product roadmap?
A The key deliverable for the recently announced ShoreTel 10 is the ability to increase distributed capacity of systems and capacity at the edge of the system and strengthen the capabilities for large customers. The IBM Foundations announcement, however, is designed to give small and medium businesses all the applications they need to run their businesses. We have integrated our software into the IBM Foundations solution and that enables IBM to offer customers unified communications. Third, there’s the ShoreTel 360.We’ve been able to integrate with Nortel, Avaya, Cisco and legacy systems for years. While Avaya builds comms systems on top of other systems and requires a substantial investment to make legacy work with it, we have a much better solution for integration. We thought it was about time we formerly announced it.
Q Do you see demand for managed services growing in the unified communication space?
A I think that has potential for small and enterprise customers who want basic communications services. The weakest link is the server that has mechanical disks in it which do fail. With cloud, the phones are with the customer but the switching is not. That system will probably go down for about four hours a year, but if that’s a Friday at the end of a quarter, businesses can’t afford to live with that. At ShoreTel, we put switching at customers’ sites and then the voicemail is in the cloud. When the wide area network goes down, a call may not necessarily be answered by someone in that branch, but by someone else and voicemail will work. So the company’s service may be impaired, but not dead.
Q What are your plans for the UK market?
A There are a number of key European markets we’ve invested in: Germany, France, Spain, Italy and Benelux. We needed to be across the continent and get the coverage first and then go deeper and that’s what we’ll be doing in the UK. We’re concentrating efforts on expanding in Canada, the UK, Australia and New Zealand.
