Last week, I had the opportunity to meet with Tony Shen, Aastra’s co-CEO, President and COO. Since I won’t be able to make it to Aastra’s analyst event in Stockholm this fall, this meeting was intended to provide me with an update on Aastra’s performance and a perspective on Aastra’s strategy for the communications marketplace.
This was my first meeting with Tony Shen and I was really impressed by his practical, down-to-Earth approach to business matters. His answers and comments were straight to the point and appeared unembellished and sincere.
Some of the issues I raised included Aastra’s continued portfolio consolidation and adjustment since the multiple acquisitions including the most recent one of Ericsson’s enterprise business, Aastra’s vision for its position in the unified communications technology paradigm, and its strategy for an increasingly consolidating marketplace. Here follow some of the takeaways from the discussion with Aastra’s co-CEO (please note this is myinterpretation of the messages conveyed by Tony Shen):
- Portfolio consolidation: Tony Shen believes that, even as they stand today, the merged portfolios are more complementary than redundant. While, overall, the perception that Ericsson’s enterprise portfolio acquisition helped enhance Aastra’s large-business portfolio is fairly accurate, the major advantage from the acquisition was Aastra’s ability to rapidly (though inorganically) expand in several new markets including the Nordics and the U.S.A.Also, the different products in Aastra’s portfolio have different strengths and positioning in the different countries. For example, Aastra seems to have a strong #2 position in France(according to Shen), including the large business market, whereas Ericsson has been more successful among French SMBs. Ericsson is, however, strong among U.S. very large businesses including university campuses (note: Aastra is in this space with the Intecom acquisition as well). The former Ericsson large systems are also dominant in Sweden, Australia, New Zealand and Spain. Nevertheless, Aastra intends to further consolidate its portfolio to ensure maximum efficiency and will most likely share its vision and the details of a 3-year portfolio evolution plan at the analyst event later this year.
- Localization: In Tony Shen’s opinion, a key element of Aastra’s strategy and a major differentiator is its focus on localization, rather than globalization. He firmly believes that in Europe(where Aastra has the strongest presence), each country has different requirements with regard to communications infrastructure and one size does not fit all. He also pointed out some peculiarities of European business practices vis-à-vis American practices such as the general preference to avoid leaving messages in favor of communicating directly or through receptionists and secretaries. Going forward, Tony Shen believes the company will continue to develop local strategies and individual approaches for the more than 20 countries in which it operates.
- Unified Communications positioning: It seems that Aastra does not aspire to become a one-stop-shop vendor for the various UC applications. It is developing partnerships with others (e.g. Microsoft) in order to be able to provide certain components of the UC stack (telephony platforms, endpoints, etc.) where it has a competitive advantage.
- Growth strategy: Aastra’s focus seems to be on rejuvenating its existing installed base. Tony Shen sees a large opportunity in upgrading and modernizing the multiple legacy (Ericsson, DAMOVO, etc.) systems deployed around the world. It also intends to focus on maintaining and growing its market share in the countries where it has presence today. Aastra is looking at some emerging markets such as Brazil, Asia Pacific and Russia for new growth opportunities.
- Financial prudence: A key element of Tony Shen’s leadership approach seems to be his focus on financial prudence. He stressed the fact that Aastra has weathered the economic recession better than most other market participants due to its more conservative business practices. Aastra’s recent financial results seem to indicate that its leadership has a strategy in place that makes it more resilient in a tough economy. It reported record revenue for the year ended in December 2008, and Q2 2009 marked its 45th consecutive profitable quarter.
- Innovative business models through partnerships: Tony Shen pointed out that Aastra’s performance in Spain, one of the most hardly hit economies, actually improved over the past year due to the success of Telefonica’s “rental” go-to-market model, which helped drive sales in an unfavorable economic climate.
According to our most recent World Enterprise Telephony Platform Market study, Aastra held close to 9% market share in EMEA and ranked 6th in terms of revenues generated in the region in 2008. It ranked 7th in terms of global enterprise telephony revenues with close to 5% market share in the same year.
Given Aastra’s recent financial performance and Tony Shen’s focus on financial prudence, I have no doubt the company is likely to remain a viable competitor in the near term. However, with the massive technology evolution, market consolidation and considerable vendor repositioning in the enterprise communications marketplace, I have some concerns about its growth strategy for the long term. If Avaya’s acquisition of Nortel’s Enterprise Solutions business is successfully completed by the end of this year, market concentration will increase with the top four vendors (Avaya+Nortel, Cisco, Siemens, ALU) holding over 60% market share of world enterprise telephony revenues.
While customers are still likely to appreciate having more choices and to continue to purchase products from multiple vendors, growing market concentration is likely to effectively create a barrier to growth and entry to smaller players unless they have some very distinct competitive advantages. Those advantages may revolve around technology or specific geographic markets or both. Aastra’s country-by-country approach may, therefore, give it a certain advantage in the countries where it has presence. However, I do believe that it will be necessary for it to also seek to expand in new ones in order to be successful in the long term.
During my conversation with Tony Shen, I got the sense that Aastra does not have a strong plan in place for organic growth in North America(other than in terminals). While I agree with Tony Shen that this is a mature, fairly concentrated market with several very powerful participants and, therefore, a difficult place for Aastra to grow organically, I believe it needs to find a competitive spot in this market that offers some growth opportunities even if that involves yet another acquisition. In fact, the SMB vendor market in the U.S.may be due for some further consolidation with the large vendors (Avaya, Cisco, etc.) making a concerted push in this market segment, Mitel facing some credit issues, NEC and Toshiba having limited presence, open-source telephony vendors gaining traction, ShoreTel growing, yet being very small to be able to successfully compete against the established vendors, etc. If the SMB market remains so fragmented, it will be increasingly more vulnerable as the technology paradigm shifts and the market consolidates at the top.
Aastra may need to grow its indirect sales in order to expand its reach both geographically and across customer segments. Its localization strategy seems to warrant a more indirect approach to help gain efficiencies and economies of scale. Further, channel partnerships are becoming critical as the complexity of communications infrastructures increases, on one hand, and vendors compete for market share in a maturing marketplace, on the other.
Aastra will also need to send a more compelling message to the market about its vision for UC. The trend in the SMB market seems to be around the introduction of single-box solutions comprising all or most of the UC applications and offering an economical option for budget-constrained customers. IBM’s Lotus Foundations Reach with an integrated ShoreTel PBX functionality represents a recent example of how vendors are approaching the SMB space. While I believe that customers will continue to deploy best-of-breed technologies (versus all-in-one solutions) on many occasions, Aastra may need to develop some go-to-market partnerships for more effective marketing and implementation of complex, integrated UC environments.
There is a good chance my concerns will be addressed at the analyst event later this year. I look forward to updates from Aastra.