The move will further consolidate the legacy unified communications market.
Today, Mitel announced it has entered exclusive negotiations to acquire the Unify Unified Communications and Collaboration (UCC) and Communications and Collaboration Services (CCS) businesses from France-based system integrator Atos.
The wording (“entered exclusive negotiations”) may seem strange but that’s consistent with the terminology typically used in French business announcements. If Atos had been a US company, it would have been stated “entered a definitive agreement…”, which is what people in the US are more accustomed to. The deal is expected to close in the second half of 2023 following the customary closing conditions and regulatory approvals.
The addition of Unify continues Mitel’s long history of consolidation that includes acquisitions of ShoreTel, Toshiba and Aastra. While Unify has faded in the US over the last decade, it still has a massive installed base across the globe. The combined entity will have over 75 million users in over 100 countries. Using the generally accepted figure of 400 million business desktops as the global base, Mitel-Unify would hold a shade under 20% of the total installed base. This combined market share would make Avaya and the new Mitel 1 and 1A as far as the leader in installed base. I’m sure some analyst firms will have Avaya leading while others will have Mitel, but it should be very close. This also expands Mitel’s channel community to over 5,500 partners globally, giving the company reach into almost every country.
The acquisition marks the end of an era for the company formerly known as Siemens Enterprise Communications. In retrospect, the demise of the one-time powerhouse is a bit of surprise. Most legacy vendors get caught asleep at the wheel and miss market transitions. That wasn’t the case with Siemens Enterprise Communications. They were the first IP PBX vendor to roll out a pure software system with the release of its HiPath 8000. They were also the first to unveil a unified communications client with its OpenScape product, later rebranded to the current Circuit product. Siemens was also the first vendor to jump on the Microsoft train when, in 2003 it announced integration with Microsoft Live Communication Server (LCS).
With all these firsts, it’s hard to believe they suffered the rapid decline they did. Much of the failure of the company was due to an inability to market effectively in an industry that had Cisco come on strong and later Microsoft. The Atos acquisition certainly didn’t help things as Unify never seemed to fit quite right in that portfolio. Atos is a massive, global services company and every time I met with management, the Unify business didn’t seem a high priority.
For Mitel, this deal makes sense given the company’s current strategy of being dedicated to driving innovation in on-premises systems. While one might chortle and guffaw at this, as cloud has been all the rage for the past half decade, it’s important to understand how large the on-premises base is. If one takes all the UCaaS providers at face value regarding the number of cloud seats–and one can certainly debate them–the cloud installed base is only about 20 – 25M total seats, meaning most businesses still have an on-prem system. The on-prem market certainly is declining but it will be at least another 5-10 years before cloud seats outnumber on-premises.
This also should put to rest any speculation regarding the Mitel strategy. When the company cut its partnership deal with RingCentral, many felt it was Mitel waving the white flag and selling its installed base to Ring. Au contraire. The deal was put in place to allow Mitel to drive innovation into its on-premises UC systems while not being distracted with playing catch up with UCaaS.
It’s important to understand that “legacy” or “on-premises” does not necessarily mean bad. In fact, a legacy hardware business can be very profitable if managed correctly. The poster child for this is Dell. In 2016, the company ponied up a whopping $67 billion for EMC, and effectively cornered the market on legacy compute, with HPE becoming a distant number two. Since then, the combined Dell-EMC has churned out cash, despite its primary markets of PCs, servers and storage systems being in decline. There is no reason Mitel can’t do the same, and this is why the company chose to partner with RingCentral for cloud. The partnership with RingCentral enables Mitel to focus all its R&D efforts on driving innovation into the on-premises business.
Counter to what one might think, Mitel and Unify are highly complementary to one another. Mitel is a product-led company that augments with its services business, while Unify is a services company that supports with product. The combined entity has strength in both areas. Also, Mitel’s core base is in the US and the company has been trying to expand globally for years. Unify has its base built in Europe, particularly Germany as well as in Latin America. Lastly, Mitel’s strength is in mid-market where Unify, particularly under Atos ownership, was focused on large enterprise.
One of the other interesting aspects of this move is the managed services business and vertical expertise that Unify brings. Mitel has oriented its go-to-market around the concept of customer lifecycle management and could address most aspects of this except a customer that wants to leverage a managed service. Unify has strength in public sector, healthcare and financial services, where Mitel is widely adopted in hospitality, retail and credit unions. The managed services business could cause some overlap with its existing channel, but Mitel has very few large partners capable of delivering services to global companies. I discussed this with Mitel’s Chief Sales Officer, Graham Bevington and he’s keenly aware of the rub it could cause. “The managed services business we are getting is not intended to compete with our partners. This expands the number of options that our customers will have, but we will do right by our partners,” he told me.
This is a good move for Mitel as it gives the vendor a larger base to monetize. There are some questions that need to be answered. The first is what happens to Circuit, the Unify cloud UCC platform? Will Mitel keep both? Bevington told me Mitel will be looking at that down the road, but I suspect the Unify product will be put to rest and Mitel will be the go-forward product. Also, the Mitel – RingCentral partnership was to reference-sell RingCentral MVP, whereas Unify took the “cloud office” approach. Bevington told me the plan right now is to continue with both strategies, but I believe the cleanest approach for Mitel is to go the MVP route across the board.
Looking ahead, I’d like to see Mitel continue to be aggressive with growing its legacy base. The most obvious target would be the UC business at Alcatel-Lucent Enterprise (ALE), currently owned by China Huaxin. ALE currently sells both networking and UC products and while neither is “market leading”, the network products are more competitive than UC. It would make sense for ALE to sell off the UC base and focus on networking where it has some large public sector customers that it can build on.
In closing, I asked Bevington what excited him most about the deal with Unify and he told me it was the managed services business and the opportunity it opens up. He stated, “The analysts have told me the UC market is currently $50B but that’s not just product. It’s also software assurance, services and other things managed services drives. We have only been able to address the tip of iceberg, but the Unify deal makes much more of the iceberg available and that’s what excites us.”
