Avaya CEO Jim Chirico on cloud growth and how partners are doing ‘quite well’ with subscriptions

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Avaya CEO Jim Chirico on cloud growth and how partners are doing ‘quite well’ with subscriptions

No Slowing Down 

Unified communications powerhouse Avaya announced that it beat its own records around software, cloud and subscription sales this week during its Q3 2020 earnings call. That‘s because the COVID-19 pandemic, which forced most companies and millions of employees globally to work from home, has put pressure on businesses to quickly transform their IT and communications strategies. These businesses don’t have years to make those changes anymore, Avaya's CEO Jim Chirico told CRN.

Avaya‘s software and services accounted for 89 percent of the company’s third-quarter revenue. About 60 percent to 70 percent of that revenue was driven by partners, Chirico said. Recurring revenue also climbed 5 percent year over year, adding up to 64 percent of the company’s overall revenue.

Chirico talked to CRN about how the pandemic impacted the company‘s third quarter, Avaya’s unprecedented growth in subscriptions this year, and how partners can keep making money on video and collaboration tools.

Here are excerpts from the conversation.

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How did COVID-19 impact Q3 2020? 

We‘re now seeing a lot of proof points that indeed COVID-19 is accelerating our customers’ digital transformation by at least two to three years. These customers are continuing to put a lot of money on the table for work-from-home initiatives. Last quarter we saw a bit of a thrust in the fact that [businesses] wanted to move their employees to a safe environment, so we saw a nice surge in [Avaya] Spaces and in remote agent licenses. We deployed 2.5 million in a matter of weeks. Now, we’re starting to see that monetize in three ways. One is we’ve been converting some of that into perpetual licenses. But most of what we are seeing is a conversion to subscription, which is great for us because it provides [customers] an opex model, which they need, repositions the number of licenses they have with us, which is great for them and good for us because it‘s three-plus years of firm contracts and it’s a vehicle for us to move new, innovative technologies in with these subscription bundles. The last piece is, we are working with a number of our larger enterprise customers and moving them now to a private cloud solution. That will take a year a or two, but we are building nice backlog.

We‘re starting now to see the CFO spending money on automating and driving productivity and efficiencies for their work-from-home agents to try to get the same capabilities they would have if they were in office. There is a nice pipeline of activity associated with that next step along the journey with work from home. We’re seeing it all come together whereas last quarter we were wondering if this was the new normal. We are seeing further opportunities for our technologies, especially software and services, which continue to be a bigger and bigger part of our revenue.

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How much of Avaya's subscriptions and recurring revenues in Q3 was partner-led?  

About 60 to 70 percent was partner-led. We also started to see our direct business start to take hold on subscriptions. One of the reasons there was global, multinational companies that were already our customers started to move to subscription. The reason we saw more in Q3 than in Q2 was the simple fact that it takes a little longer because it‘s much more complicated when you’re talking about multinational locations versus a single location that many of our partners have as part of their customer bases. It’s a healthy mix. We’re also starting to see subscription revenue outside of the U.S. whereas the second quarter was predominantly in the U.S., we saw a fair amount of revenue coming from international, such as Latin America, which is nice.

Recurring revenue was up 64 percent, which is a really nice book of business there, up 5 points from where we were last year. As far as channel versus direct, I would say it‘s probably the same mix as subscriptions [about 60-70 percent] because … the channel is a big play there. Our largest VARs are doing quite well with subscriptions.

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Is Avaya's relatively new subscription-based model giving businesses and channel partners a reason to consider Avaya?  

I think that‘s right. We were by far not the first to be out there with subscription. In fact, some out there would say we came in towards the end. But‘s it’s important for our customers because it resets the number of licenses they have. Many of our customers have bought licenses and through years of transition, they no longer have employees using those licenses, so this pretty much draws them a new baseline, which provides them with cost benefits. They don’t always have to buy for the peak -- they can buy for the medium amount and we can flex them up and down. We can also introduce new technologies without having to do a complete refresh. We can even bundle in device-as-a-service or CPaaS [communication platform as a service] opportunities. We can bundle in a lot of technologies they wouldn’t have had access to before. It’s a win-win for all of us.

There is a large install base. We have 5 million contact center seats our there, 100 million UC seats, so it‘s a really nice opportunity to help our customers get the latest and greatest technology. The average contract to these deals is 40 months because it’s three to five years. They are firm contracts, which is better than maintenance contracts, which is an annual renewal. It really makes us much more predictable.

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Video collaboration platform Avaya Spaces grew by 2,000 percent in Q2. Are you starting to see growth for video fall off this quarter as many companies have already selected their preferred platforms?  

We saw growth of about 550 percent in Q3. It‘s still significant and mostly in large enterprise, government, and still a fair amount in education. But yes, a lot of our customers have a lot of different choices even though Spaces is more than video. It’s collaboration, messaging and a number of other applications. But with Microsoft Teams, Webex, and Zoom, [Avaya Spaces growth] has pretty much been within our existing install base and really bringing those folks on to the platform. Everyone who uses it loves it. It’s cheaper and functionality-wise, equal to, if not better than the competitors out there. But [video] is a pretty populated space right now and the collaboration piece is just starting to take hold. The majority of our users still use it as more of a video tool.

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Where is the opportunity for partners to keep making money on UC and collaboration offerings?  

There‘s a couple of different ways. One is for Spaces, [partners] will get a wholesale type of offer as a part of what they sell, so there’s an opportunity there to continue to make a revenue stream off of that wholesale offer. On the subscription deal, partners can make money, again, based on the time and duration of the contract, so sort of a wholesale deal. They also make a fair amount of money based on channel incentives, so they can make really good money on the conversion from maintenance contracts to subscriptions. It’s a different value proposition than most, and [partners] won’t need as many people to deploy and service these subscriptions offers either, so it helps them from an overall market perspective and on gross profit.

I think there‘s still a huge opportunity for our partners to sell ACO [Avaya Cloud Office] on the UC side. On the contact center side, we just announced in July that we are continuing to build out our CCaaS [contact center-as-a-service] offer. Now we have digital channels. This quarter we’ll bring edge-based routing and analytics. We‘re working with partners now to get them up to speed to sell our CCaaS solution. Now you won’t need to go with ACO and someone else, it’s one package. We think that’s a huge opportunity for channel partners.

 

This article originally appeared at crn.com

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