Gartner Magic Quadrant for Unified Communications for Midsize Enterprises, North America May 2015

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1 Gartner Magic Quadrant fr Unified Cmmunicatins fr Midsize Enterprises, Nrth America May 2015 In May 2015, Gartner, Inc. published its first 2015 Magic Quadrant ( MQ ) fr Unified Cmmunicatins fr Midsize Enterprises, Nrth America. The reprt, which replaces the Midsize Enterprises MarketScpe, included ten vendrs. ShreTel was ne f fur vendrs that were ranked as a Leader. A cpy f the reprt can be dwnladed here: Understanding Gartner Magic Quadrants: Magic Quadrants have tw axes: Ability t Execute (Y-Axis): Summarizes factrs including prduct/service ffering, financial viability, sales executin/pricing, market respnsiveness, marketing executin, custmer experience and peratins. Cmpleteness f Visin (X-Axis): Summarizes factrs including market understanding, marketing strategy, sales strategy, ffering (prduct) strategy, vertical/industry strategy, innvatin and gegraphic strategy. The Magic Quadrant is divided int fur quadrants (left t right, tp dwn): Challengers, Leaders, Niche Players, Visinaries. Vendrs with abve average ratings fr bth Ability t Execute and Cmpleteness f Visin axes appear in the Leaders quadrant, while vendrs with belw-average ratings n bth axes appear in the Niche Players quadrant. Hw t use Gartner s Magic Quadrant: ShreTel s inclusin as a Leader in Gartner s Magic Quadrant fr Unified Cmmunicatins fr Midsize Enterprises, Nrth America prvides valuable validatin f ShreTel s prduct and market strategy (especially t the midmarket defined in this dcument as cmpanies with emplyees, ShreTel s sweet spt), as well as ShreTel s wrld-class partner prgram (unlike ther UC MQs, this ne fcuses attentin n the channel fr its unique rle with midmarket custmers). Hwever, it is imprtant t explain t prspective custmers that Gartner s rating n Ability t Execute and Cmpleteness f Visin axes shuld nt be the nly criteria that is used when making a purchasing decisin. The fllwing sectins prvide a summary f Gartner s Magic Quadrant reprt by vendr, alng with ShreTel Cmments that can be used t further cmmunicate the value f ShreTel slutins against ur cmpetitrs.

2 ShreTel Magic Quadrant Ranking: Gartner s evaluatin fcused n ShreTel Gartner s analysis did nt incrprate the new functinality that will be available in ShreTel Cnnect. ShreTel is ranked as a Leader. ShreTel s Ability t Execute rating is the furth-highest amng the ten vendrs included in the study. ShreTel s Cmpleteness f Visin rating is the fifth-highest amng the ten vendrs included in the study. Gartner ntes the fllwing Strengths fr ShreTel: ShreTel is cnsistently praised by clients fr being easy t use, easy t manage, and invlving a straightfrward implementatin prcess. ShreTel is expanding its integratin with third party prviders. ShreTel has a strng base f Nrth American channel partners with brad cverage acrss vertical industries. ShreTel has a slid channel partner prgram in place t supprt its partner base, including bth tw-tier and nn-tiered supprt. ShreTel partners reprt that the cmpany is easy t d business with. Gartner ntes the fllwing Cautins fr ShreTel: ShreTel has been slw t release its new multitenant platfrm fr clud, premises and hybrid deplyments with a cmmn client. The (current, lder) ShreTel slutin is nt as feature-rich as sme cmpetitrs. ShreTel has fewer resurces t leverage, cmpared t sme f its largest cmpetitrs. ShreTel Cmments: Gartner s Cautin abut the feature-richness f ShreTel slutins was directed at ShreTel With ShreTel Cnnect, we ffer a slutin that meets r exceeds the feature-richness f any cmpetitr included in this reprt. Gartner s Magic Quadrant validates ShreTel s fcus n prviding custmers with Brilliantly Simple unified cmmunicatins slutins. Gartner s bservatins abut the lw cst t deply and manage ShreTel slutins aligns with ther studies frm independent, industry analysts such as Nemertes Research. 1 Gartner s research underscres the wrk that ShreTel has dne t build a wrld-class partner prgram. ShreTel is n schedule t release ShreTel Cnnect in the September quarter f ShreTel has already intrduced ShreTel Cnnect t its partners in May 2015, and these partners are nw able t begin t develp pipeline fr the new platfrm. ShreTel Cnnect is the nly platfrm that supprts clud, premises and hybrid deplyment mdels, while prviding custmers with fur, simple mdels fr hybrid deplyments. The unprecedented flexibility f the ShreTel Cnnect platfrm is mre than enugh justificatin fr the time that it tk t develp the platfrm. Althugh ShreTel is smaller than many f its cmpetitrs, ShreTel is the nly cmpany included in the study that fcuses all f its resurces and develpment effrts n a single platfrm. ShreTel cmpetitrs ffer multiple platfrms and prducts, which dilute their fcus and resurces. ShreTel fcuses n the small t medium-sized business market. ShreTel has nearly tw decades f experience in this market, and ur custmers benefit frm this expertise. ShreTel custmers can be cnfident that we will cntinue t invest all f ur resurces t serving the small t medium-sized business market tday and tmrrw. Many f ShreTel s cmpetitrs fcus n a brad range f market segments. These cmpetitrs lack ShreTel s experience in the small t medium-sized business market, as well as ShreTel s visin f prviding its custmers with simplicity and flexibility. ShreTel generated recrd revenue in fiscal 2014, and last mnth ShreTel reprted its eighth cnsecutive quarter f psitive nn-gaap net incme. ShreTel achieved bth f these metrics withut a single cent f debt n its balance sheet. Additinally, ShreTel has a $100 millin line f credit, which 1

3 prvides the flexibility t make investments, if and when they are needed. Many f ShreTel s cmpetitrs are unable t ffer the financial stability f ShreTel. Avaya Magic Quadrant Ranking: Avaya is ranked as a Leader. Avaya s Ability t Execute rating is slightly higher than ShreTel s Avaya s Cmpleteness f Visin rating is nearly identical t ShreTel s. Gartner s analysis f Avaya fcuses nly n IP Office and IP Office Select platfrms. Gartner ntes the fllwing Strengths fr Avaya: Cmprehensive UC and cntact center prtfli. Brand recgnitin and lng perating histry in Nrth America. Simplificatin f the IP Office suite. Gartner ntes the fllwing Cautins fr Avaya: Cst f custmizatin and integratin int third party applicatins. Declining revenue. A need t maintain cnsistency with its midmarket prgram. ShreTel Cmments: Avaya lacks fcus. The cmpany targets a brad range f markets, frm SMBs t carriers, and ffers prducts that range frm telephny t netwrking prducts. Avaya has tw verlapping slutins in the midmarket, with Aura and IP Office. Custmers cannt be cnfident that Avaya will be able t maintain its fcus n any ne f these slutins. Avaya relies n third party server hardware fr IP Office, and IP Office Primary and Secndary Servers must be deplyed n identical server hardware. Avaya des nt cntrl the nging develpment f third party server hardware, and ver the last tw years Avaya has issued End f Sale/Life ntices fr sme f its server hardware. Custmers that invested in discntinued hardware face a cstly migratin path. The scalability f IP Office is limited t 2,500 users. Custmers that utgrw IP Office will face a cstly migratin path t ther Avaya slutins. Avaya lacks financial stability. Avaya has nearly $6 billin in debt, with nly $328 millin in cash and cash equivalents. 2 $2 billin f Avaya s debt will cme due in Avaya s lming debt payments may frce the cmpany t make decisins in the interest f its creditrs, nt its custmers. Avaya s latest rund f debt received a Caa1 rating frm Mdy s 3, a leading prvider f credit ratings fr debt. The Caa1 rating indicates that Avaya s debt is high risk and speculative in nature. In the past, Mdy s has assigned the Caa1 rating t debt frm Pakistan (2012) 4 and Greece (2015) https://www.mdys.cm/research/mdys-rates-avaya-exchange-ntes-caa1--pr_ https://www.mdys.cm/research/mdys-affirms-pakistans-caa1-rating-changes-utlk-t-psitive--pr_ https://www.mdys.cm/research/mdys-places-greeces-caa1-gvernment-bnd-rating-n-review-fr--pr_317662

4 Cisc Magic Quadrant Ranking: Cisc is ranked as a Leader. Cisc s Ability t Execute rating is substantially higher than ShreTel s, and the highest amng all vendrs included in the Magic Quadrant. Cisc s Cmpleteness f Visin ranking is slightly higher than ShreTel s. Gartner s Magic Quadrant analysis fcuses n Cisc s Business Editin 6000 (BE6000) slutin. Gartner ntes the fllwing Strengths fr Cisc: Success with bundling hardware, licenses and a full suite f UC capabilities with the BE6000. Significant base f Cisc channel partners. Hybrid n-prem and clud ptins with HCS. Gartner ntes the fllwing Cautins fr Cisc: Cmplex cnfiguratin f advanced BE6000 capabilities, custmizatin, and third-party systems integratin. Reduced negtiating leverage when using Cisc as a single prvider fr UC and data netwrk. Higher price than ther midmarket cmpetitrs. ShreTel Cmments Cisc s strng Ability t Execute ranking can be attributed t its vast financial resurces. Hwever, Cisc s resurces are diluted acrss a brad prtfli f telephny, cllabratin and netwrking prducts targeted at a wide range f custmers, frm SMBs t carriers. Cisc s vast resurces als allw the cmpany t easily exit markets r discntinue prducts, as it did with UC300, UC500, BE3000 and BE5000 slutins. Cisc has a histry f abandning prducts in the SMB space. In 2011, Cisc ffered six slutins fr the SMB t mid-market. Tday, nly ne f thse platfrms (BE6000) is still ffered. Custmers that invested in the ther five platfrms face a cmplete lss f their investment. Cisc has five platfrms fr the SMB t mid-market with the BE6000 (S/M/H) and BE7000 (M/H). Each platfrm supprts a different capacity f users, and custmers that utgrw ne platfrm may face a frklift upgrade t a higher capacity, mre expensive platfrm with features they may nt want r need. BE6000 is nt a single UC platfrm it is a cllectin f multiple, individual telephny and cllabratin cmpnents. Telephny and cllabratin tls are deplyed n the BE6000 as separate virtual servers (e.g. Cisc Unified CM, Cisc Unity Cnnect, Cisc Jabber, Cisc Unified CCX, etc.), which in sme cases are managed separately and have separate interfaces fr end users, putting the nus n the custmer t integrate a cmplicated slutin and making it difficult t identify the surce f prblems when they ccur. Redundancy n the BE6000 requires a secnd, identical server. This dubles the hardware cst f the slutin. Gartner mentins Cisc s hybrid strategy as a strength. Hwever, Cisc des nt ffer a clear path t hybrid deplyments with HCS. Cisc s HCS slutin is a service prvider platfrm, which frces premises custmers t wrk with a third party service prvider. Many f these third party service prvider partners are small firms with nn-public financials, and relying n these cmpanies can be risky. Micrsft Magic Quadrant Ranking: Micrsft is ranked as a Visinary. Micrsft s Ability t Execute ranking is substantially lwer than ShreTel s. Micrsft s Cmpleteness f Visin ranking is slightly mre cmplete than ShreTel s. Gartner s analysis is fcused n Skype fr Business Server, which was previusly knwn as Lync Server. Gartner als mentined the service-based versin f the slutin called Skype fr Business Online. Gartner ntes the fllwing Strengths fr Micrsft: Integratin between Skype fr Business and the cnsumer-targeted Skype service. Integratin between Exchange and Skype fr Business. Strng brand recgnitin and grwing base f certified channel partners.

5 Gartner ntes the fllwing Cautins fr Micrsft: Cst and cmplexity f implementing Skype fr Business Server. Reliance n third party slutins. Vice feature set that is nt yet n par with legacy telephny slutins. Subpar vice reliability, quality reprted by users. Micrsft s main fcus in the midmarket is n the Skype fr Business service, nt the Skype fr Business Server slutin. ShreTel Cmments: Gartner s analysis underscres the cst and cmplexity f deplying Skype fr Business Server, as well as Micrsft s subpar vice feature set and reliability. Micrsft s fcus is divided between Skype fr Business Online, and Skype fr Business Server. T date, Micrsft has nt yet fully annunced the enterprise vice capabilities f Skype fr Business Online. In the past, Micrsft has failed t deliver enterprise vice capabilities with Lync Online. Micrsft has nt annunced hybrid capabilities with Skype fr Business Online and Skype fr Business Server. In the past, Micrsft annunced hybrid capabilities between Lync Online and Lync Server, but quickly discntinued this functinality. Micrsft s inability t execute its hybrid plans with Lync Online and Lync Server shuld be cncerning fr any custmer that may require the flexibility f a hybrid slutin. Skype fr Business Server requires servers t be deplyed at multiple pints in the netwrk (Edge, Directr, Frnt End, Back End). Each ne f these servers creates a ptential pint f failure. Redundancy requires server pls t be deplyed at each pint in the netwrk, and with a recmmended minimum f three servers in a pl redundancy with Skype fr Business Server can result in a 3x increase in hardware csts. Skype fr Business Server relies n Exchange fr Unified Messaging features and Outlk fr sme UC features such as meetings. Cmpanies withut Exchange and/r Outlk will have an incmplete cmmunicatins platfrm. Mitel Magic Quadrant Ranking: Mitel is ranked as a Leader. Mitel s Ability t Execute ranking is higher than ShreTel s. Mitel s Cmpleteness f Visin ranking is higher than ShreTel s. Gartner s analysis fcused n Mitel s MiVice Business, MiVice Business Express, and MiCllab slutins. Gartner ntes the fllwing Strengths fr Mitel: MiVice and MiCllab prvide a mature and cmprehensive sftware suite with a cmmn architecture that can be distributed r centralized. Integratin flexibility with Micrsft, Ggle r Salesfrce, r t SIP trunking services. Successful channel and rebranding initiatives. Gartner ntes the fllwing Cautins fr Mitel: Sme Mitel partners lack experience selling the full UC slutin set. Mitel s UC licensing bundles can change regularly. Mitel s strategy f grwth thrugh acquisitin can create integratin challenges and can dilute the cmpany s resurces. ShreTel Cmments: Mitel s strng Ability t Execute rating reflects the UC features prvided by mature MiVice Business and MiCllab slutins. Hwever, Gartner s rating des nt reflect the cmplexity f deplying and managing MiVice Business and MiCllab. MiVice Business and MiCllab slutins are deplyed as separate slutins which must be integrated with each ther using synchrnizatin tls.

6 MiVice Business and MiCllab have separate databases, and cmpnents f each slutin must be managed and maintained separately. End users access cllabratin tls thrugh separate interfaces, including multiple web prtals and desktp clients. The apparent simplicity f MiVice Business and MiCllab slutins is due primary t a rebranding effrt by Mitel, which unified eleven separate platfrms and applicatins under MiVice and MiCllab brands. Hwever this effrt was largely csmetic. Many MiVice and MiCllab applicatins have separate administratin and end user cnsles, and sme must be deplyed individually. A cmplete MiVice unified cmmunicatins deplyment requires five virtual servers in additin t MiVice Business. Mitel s strng Cmpleteness f Visin rating reflects its willingness t use debt t increase market share and market cverage. Hwever, this strategy is unsustainable, and has saddled Mitel with nearly $800 millin in debt and pensin bligatins. While Mitel s Cmpleteness f Visin has resulted in increased market share, Mitel custmers will suffer frm the cmpany s lack f fcus and a dilutin f resurces acrss a crwded, incngruus prduct prtfli. Mitel has shifted its fcus away frm the midmarket and UC with the $560 millin acquisitin f Mavenir Systems and fcus n 4G LTE telephny services. Mitel s midmarket custmers shuld be cncerned that Mitel is investing s heavily in the service prvider market, while imprvements t MiVice Business and MiCllab slutins have been limited. Fllwing its merger with Aastra, Mitel s prduct prtfli includes fifteen separate platfrms. Fr the freseeable future, Mitel s fcus will be n cnslidating this prtfli, rather than imprving the experience f its custmers. The financial stability f Mitel is uncertain. Fllwing its acquisitin f Mavenir Systems, Mitel has nearly $800 millin in lng term debt and pensin bligatins, cmpared t just $70 millin in cash and cash equivalents. 6, 7 Mitel s latest rund f debt, which was used t fund the Mavenir acquisitin, was given a Ba3 rating by Mdy s. 8 Mdy s Ba3 rating is used fr nn-investment grade debt that is cnsidered t be speculative in nature. Cuntries including Nigeria 9 and the Republic f the Cng 10 have als received a Ba3 rating frm Mdy s. Put anther way, Mitel has a market capitalizatin f rughly $800 millin and just paid ver $500 millin in cash fr Mavenir, significantly impacting the value f the cmpany. Mitel has struggled fllwing its merger with Aastra. In Q1 2015, Mitel s pr-frma revenue declined by 11% cmpared t the previus year https://www.sec.gv/archives/edgar/data/ / /d898635dex991.htm 9 https://www.mdys.cm/research/mdys-assigns-ba3-ratings-t-nigeria-stable-utlk--pr_ https://www.mdys.cm/research/mdys-assigns-first-time-ba3-rating-t-the-republic-f--pr_

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