Avaya has announced that its Q3 revenues have declined by more than 21 percent year-over-year.
Indeed, the prominent CX vendor reported revenues of $732 million at this point last year. Yet, 12 months later, this figure has slipped to $577 million.
Moreover, the company achieved $716 million in the previous quarter, underpinning the sharp nature of the decline.
Wary of this increasing revenue slump, Avaya appointed Alan Masarek as its new CEO less than two weeks ago.
Joining his first earnings call, Masarek urged for calm, stating:
I think it would be a mistake to look at the Q3 results and extrapolate that out and say, this is the future of the company. I don’t believe that at all.
Indeed, before the turn of the year, Avaya was a company on the up, enjoying some of the most profitable times in its history. Outgoing CEO Jim Chirico even spun two successive quarters of growth, something his predecessors had never achieved.
Prior to that, Chirico led Avaya out of bankruptcy, changed its revenue model, and pivoted the company to the cloud while establishing partnerships with the likes of Microsoft.
So, where did it all go wrong? Of course, the macro-environment for enterprise technology vendors likely played its part in its revenue slump. Still, Avaya’s late shift to the cloud may have also had a long-lasting impact.
In addition, much of the growth Avaya had experienced in the two years prior seems to have stemmed from migrating willing members of its existing customer base to the cloud. Having run through that, its momentum slowed.
Perhaps where Chirico’s luck changed is in failing to drum up a desire for the more prominent players within Avaya’s customer base to migrate to the public cloud – derailing Avaya’s go-forward strategy.
Building on this point in a conversation with UC Today, Zeus Kerravala, Founder and Principal Analyst at ZK Research, stated:
Avaya does have a very interesting customer base. They tend to serve a lot of very large enterprises. Think of the who’s who of healthcare, banking, and airlines, many use Avaya, and those companies tend to be a little more cautious.
“I’ve talked to some of the customers who went through RFPs (Request for Proposals) to move to the cloud but invariably went back to private cloud. That has a much longer deployment cycle than public cloud.”
As such, Avaya may have become so entrenched in the world of global enterprises that it distanced itself from the SMBs that now drive the UCaaS and CCaaS industries.
If so, Avaya must rely less on its historical customer base for the long-term and reimagine parts of its go-to-market strategy.
How Can Avaya Bounce Back?
Many of the building blocks are already there for Avaya to bounce back. For example, its OneCloud suite is a fully-fledged cloud communications platform.
Meanwhile, its Experience Builders program is highly innovative, offering multiple software partners and businesses the platform to build experiences within a single application.
Such examples will support Avaya in its efforts for a resurgence. Kerravala added:
Chirico has the company pointed in the right direction. Now, it’s time to bring a new leader in to accelerate the growth for the foundations that are in place.
Alan Masarek is the man that will do so and may be experiencing a sense of Déjà vu. After all, he took over Vonage at a similar point in its history, with stock prices rapidly declining.
In Vonage’s case, its slump aligned with a – in hindsight – bizarre series of television adverts. Here is a prime example.
But, to get Vonage back on track, Masarek masterminded a series of acquisitions – including CPaaS vendor Nexmo and CCaaS provider NewVoiceMedia – which ultimately led to a $6.2BN takeover by Ericsson.
A similar path is perhaps unlikely in a much more consolidated market. Yet, Masarek may aim to build on Avaya’s CPaaS capabilities, as he did at Vonage, helping it become a market leader – as recent Omdia research highlights.
Moreover, Avaya could push this strategy even further. For instance, it may take the OneCloud CPaaS suite to the back end and allow clients to build differentiated experiences that will accelerate growth in critical industries.
In addition to CPaaS, Masarek is likely to funnel funds into marketing. Gaining a reputation for this at Vonage, he seems to consider the CX technology space highly brand-driven, which will undoubtedly please Avaya’s marketing teams.
However, while he may extend these business areas, layoffs are likely, as Avaya must rightsize the company down to where the revenue is. Cutbacks across various programmes are also a possibility.
These are just some of the tricky considerations Masarek must make to turn Avaya’s fortunes around. Thankfully, he appeared to be bullish about Avaya’s chances of success, stating:
I fundamentally believe that we can fundamentally improve the performance going forward. If I didn’t believe that, I wouldn’t have come here as CEO.
“We got lots of work to do. Make no mistake. But I think the way in which transformations happen — and obviously, I’ve got very specific experience about this, is you got to be very resolute about it. And that’s what I intend to do. That’s what I intend to be.”
How Masarek intends to do so remains to be seen. Nevertheless, a strong focus on CPaaS, growing its Experience Builders program, and increasing its marketing spend are all likely courses of action.
Gain more expert insights from Zeus Kerravala by checking out our recent video interview with him: Assessing the Microsoft, Google, Zoom, and Cisco CCaaS solutions.
