The Lippis Report

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In Lippis Report Issues 52, 54 and 56 I discussed the growing market for hosted IP services. I explored hosted IP contact centers, the hybrid public/private IP telephony model and the favorable economics behind hosted IP telephony for the small to medium and multi-national firm. On May 2nd in a small conference room full of industry analysts in Las Vegas and streamed to hundreds of other analysts around the globe, Avaya announced its ?¬¢‚Äö√ᬮ?√¨Avaya On Demand?¬¢‚Äö√ᬮ¬¨√π solutions at Interop. This was one of the most significant announcements in the hosted marketplace, and is important for three reasons: first, Avaya is the only equipment supplier to offer two physical hosted arrangements with equipment being in an Avaya or a partner´s data center; second, Avaya´s go to market strategy, or channel strategy, is unique and compelling since it enables margin starved VARs who previously only supplied equipment to customers to now offer residual based hosted services; third, pricing is set at attractive rates. In this Lippis Report we review the ?¬¢‚Äö√ᬮ?√¨Avaya On Demand?¬¢‚Äö√ᬮ¬¨√π (AOD) service, its potential implications and discuss which market segments are best served by it.

The Avaya on Demand solution enables their intelligent communications to be offered as a service versus a capital acquisition. Applications are hosted in an Avaya-operated data center which offers 24×7 monitoring and management by certified experts plus security and redundancy at both application and infrastructure levels. Three IP services are offered: 1) modular IP telephony; 2) messaging; and 3) contact center. All three services are priced on a pay-as-you-go per user/per month basis. AOD is based upon Avaya´s Communications Manager call processing and applications which make them enterprise-class with modular functionality. AOD is thus scalable from 100 employees to hundreds of thousands.

Customers will gain a new dimension of flexibility and risk mitigation which we have reviewed in detail in Lippis Report Issue 52. Some of the key customer benefits are economic as capital cost is traded-off against operational spend. In short, AOD allows customers to avoid large capital spend on an IP telephony solution and its associated operational management. AOD cost is based upon per user/per month with Avaya or its channel partners supplying all equipment and end-points. As AOD is a hosted service, new users or applications can be added expeditiously based upon business demands with the main constraint being wide area bandwidth availability to support increased load. AOD allows enterprises to scale their communication needs up and down, whether they be new applications, sites, seasonality, etc. For highly distributed organizations AOD can deliver a consistent user experience and brand image independent upon site location.

AOD presents new design options that best fit an organization´s requirements and constraints. For example, some enterprises may elect to implement a fully hosted model serving all sites. Others may choose the hybrid model (Lippis Report Issue 54) where headquarters has implemented a private IP telephony solution while remote locations are served by hosted services. In another twist to the hybrid model, for some corporations who have a PBX installed at headquarters, remote locations could be served by a hosted solution combining TDM with IP telephony across public and private facilities, thanks to Q-sig integration providing feature transparency between hosted and on premises solutions. Yet some corporations may choose to use a hosted solution for seasonality overflow or disaster recovery, particularly popular in contact center installations.

IP telephony On Demand

AOD offers three IP hosted services: IP telephony, contact centers and messaging. The IP telephony on demand service is based upon Avaya´s Communication Manager supporting it, full 700+ feature package and integrated messaging. Each end-user has its own configurable instance of communication manager allowing customization and personalization of their functionality and hard or soft IP phone end-points. Mobility, one number accessibility, IP softphone, easy phone, follow-me, etc., can be added as an option. Avaya provided an average list pricing of $25/user/month which includes platform, hardware, software, services, phones and gateways. See Lippis Report Issue 56 to compare Avaya´s pricing to a private IP telephony implementation.

Contact Center On Demand

The Contact Center On Demand service is a modular solution with a range of options starting with a value-priced ?¢‚ǨÀúmidsize business edition with basic inbound call center capabilities, reporting and CTI programming. But, from there, the solution is highly scalable in terms of number of agents and advanced applications supported. Customers can access the full enterprise class functionality of an Avaya contact center in a hosted model. Additional options are Interaction Center, Operational Analyst, Self Service Interactive Response or Voice Portal, Proactive Contact, Witness Call Recording and Advanced Routing. The average list price range is between $50-$150/agent/month which includes IP telephony, platform hardware, applications, services, IP agent, phones and gateways. Pricing varies based upon the number of applications included in the package and number of agents deployed.

Messaging On Demand

The Messaging On Demand service offers basic messaging and simple voicemail features. This service can be enhanced with advanced features such as find-me and follow-me. The messaging service can be added to IP telephony On Demand as they are well integrated. This solution can scale from a handful to millions of mailboxes. Average list pricing for the enhanced messaging solution is $5/mailbox/month which includes platform hardware, software and services. While this solution can be integrated with IP telephony or contact center, enterprises can also implement messaging on demand to replace an old end-of-life messaging solution.

A New Channel Strategy for Hosted IP Services

Apart from the IP services offering of AOD, one of its major differentiators is Avaya´s go to market strategy. Avaya has developed three channels for AOD. The first channel, which Avaya has used for a few years, is a traditional model where service providers host and resell the solution bundled with their network. Avaya´s equipment will be hosted in a partner´s data center and that service provider will offer hosted IP services under their own brand with a ?¬¢‚Äö√ᬮ?√¨powered by Avaya?¬¢‚Äö√ᬮ¬¨√π tag line. Sprint is an excellent example of this partner relationship. The next two channels are unique, different and exciting. In addition to the traditional model, Avaya will host their equipment in their data center where Avaya will sell direct to their strategic and named accounts, which are large global accounts where the above hosted IP services will be Avaya branded. This channel model is only available to customers that are already direct Avaya customers. The third channel allows Avaya´s authorized business partners to white label the on demand IP services which are hosted by Avaya. This third channel is a wholesale model focused on delivering hosted IP services to the mid market and provides these VARs with a new business model and value added solution for their customers.

The last two channels represent an evolution in or change to the existing service provider delivery model. Avaya says it has based AOD from its largest customers and key business partners. I´m bullish on the indirect channel as it offers new revenue and customer relationship opportunities for Avaya´s business partners, system integrators and service providers. This should be good news for existing integrators and VARs that service the mid market as their relationship with customers were transactional, selling equipment then in many cases never to be seen again. Equipping them with a service that significantly lowers the barrier of entry for an IP telephony solution which is backed by training and support should provide them a warm reception. Perhaps most importantly, this provides these channel partners with a continuous revenue stream and an on-going relationship with their customers.

Avaya will inject quality in the channel by requiring an ?¢‚Ǩ?ìOn Demand?¢‚Ǩ¬ù reseller agreement, defining an enterprise certified partner, and providing knowledge transfer for selling services to assure consistency across the three channels, and most importantly, training and support.

First Round of Fifteen Partners

Avaya presented fifteen partners which represented all three hosted IP services in the three channels providing a global foot print. The traditional channel service provider hosted partners which sell AOD under their own brand are: Telus in Canada offering IP telephony On Demand, Sprint in North America offering the entire on demand portfolio, Teletech offering the contact center on demand service on a global basis, Equant offering IP telephony and contact center on demand on a global basis, Colt offering IP telephony on demand in the EMEA, NA and CALA geographies, Telecom Italia offering the contact center on demand service in Italy, and PLDT offering the contact center on demand service in APAC.

For the indirect channel built upon Avaya hosting its own equipment in its own data center there were six business partners announced. Relational, Carousel, SPS, Cross Telecom, DTSI and Netversant all are offering the IP telephony and messaging on demand services in North America. It´s an impressive list and foot print, especially knowing that this is just the beginning of the roll-out with many more service providers and business partners to come.

XM Radio goes AOD

XM Radio is an AOD customer. It´s the leader in satellite radio services and is in a high growth mode which is always accompanied by changing requirements. As many of you would expect, the holiday season is big for satellite radio providers. One month out of the year XM´s contact center resources more than double to handle holiday call volume. Their agent requirements balloon from 1600 agents to more than 3000. Rather than design for peak traffic and pay the high operational and capital cost to accommodate the demand, XM decided to invest in AOD to support their seasonality overflow. They required rich contact center applications and an IP/hybrid solution as we discussed in Lippis Report Issue 54. They also utilize AOD as a backup disaster recovery solution. The bottom line, XM avoided over building their contact center, they were able to integrate their existing contact center with AOD to support remote agents and the additional 1400 agents required during the holiday season.

Analysis: Open Questions For Avaya

Avaya is off to a great start in their hosted IP services offering. They say that AOD will initially be available only in North America, with plans to globalize over the next 12 months. AOD is available now in NA, but only through the specially authorized partners listed above and Avaya direct sales. There will be additional fees for network assessment, custom design, or application integration.

The two main AOD questions for Avaya are how to make custom applications work across hybrid models of private Avaya implementations and AOD, and how much wide area bandwidth is required. It´s anticipated that many Avaya customers will choose AOD for remote sites while building their own contact centers and IP telephony implementations in larger facilities. As Avaya and others open up interfaces to call control through SIP and web services, IT developers will write custom applications that inject communications into business process. The question is how does Avaya support those customers and assure that their custom applications transcend public and private implementations?

The second question is wide area bandwidth requirements. AOD provides all equipment needed, but what remains on customers sites are IP phones and gateways requiring call signaling to travel over the wide area to the service provider or Avaya´s data center, depending on provider. What is needed is a model to determine wide area bandwidth requirements in the new design.

There will be differences between service providers and the offerings from the AOD business partners. Some may bundle long distance and other services such as transport while others will offer only AOD. This is good news and represents choice. I like the design of buying bandwidth from one supplier and AOD from another as bandwidth is a commodity and should be purchased as such. Channel conflict is another question as well since Avaya may find it self competing with its larger service provider partners in deals with Avaya´s large customers which it services directly.

AOD represents a new paradigm in channel strategy and design options for a wide range of medium to large customers. It also represents the re-entry of Avaya into the service provider market at the same time that Lucent, its onetime parent, is gobbled up by Alcatel. Hindsight is always 20/20, but the executives at Lucent must be kicking themselves for letting Avaya go.