SPR update : Highlights from the Enterprise Connect Conference (SONS, MSFT, PLT, AUDC, EGHT, SHOR, BSFT, RNG, IRI, PLCM, CSCO, SMT)

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1 SPR update : Highlights from the Enterprise Connect Conference (SONS, MSFT, PLT, AUDC, EGHT, SHOR, BSFT, RNG, IRI, PLCM, CSCO, SMT) Enterprise Connect: Vendors Fighting for Growth As Budgets Shrink Microsoft turns Lync into Skype for Business Unified Communications Becomes Even Less Unified Maturation of SBC Market We attended the Enterprise Connect conference in Orlando this past week. Public companies we checked in on included: 8X8, Broadsoft, Plantronics, Jive, Arista, Oracle / Acme, Sonus, Audiocodes, Microsoft, Polycom, Shortel, IR, Smart, IR (Integrated Limited (ASX:IRI), Adtran, Aruba, Ruckus, Meru, Aerohive. The conference was well attended, with attendance topping prior years. Highlights of the show: Vendors fighting for growth as budgets shrink - End users are trying to do more for less in all segments but in Unified Communications budgets are actually decreasing according to most surveys and anecdotal input we received. Because of the decline in the cost of telephony and video (circuits, PBXs, Video hardware, etc.) end users see UC&C as an area where they can not only get improve price / performance but actually reduce overall spend. This makes it tough on vendors. Avaya is the best example of vendor seeing erosion of high cost legacy hardware and struggling to find new revenue streams. Polycom and Cisco s video businesses have shrunk. In Polycom s case, industry contacts see them at least stabilizing their business and believe they can increase profitability. Microsoft turns Lync into Skype for Business - Many people in the industry expressed surprise that Microsoft would again rebrand an industry leading product (Lync). In rolling out Skype for Business Microsoft promises the best of both Lync and Skype. Some agreed that although Lync is top of mind within the UC&C market, Skype has even broader name recognition among consumers and business end users globally. Skype for Business was perhaps the biggest topic of the show. Lync/Skype has become even more dominant and Skype interoperability and customized products were highlighted even more than in past shows. Among vendors who are jumping on the Skype bandwagon, Polycom, AudioCodes, Sonus, Adtran, Plantronics and Smart among others highlighted Skype features. Even Cisco, who has products that are directly competitive with Skype, is working harder at coexisting and interoperating with Skype. Unified Communications Market becomes even less unified - or at least it seems that way as WebRTC opens up more options for communications. WebRTC was a hot topic at the conference. This emerging standard for browser based communications promises more flexibility and simplicity in adding voice and video communications to browser based apps. This year we heard less debate over whether WebRTC reduces the need for SBCs or if it will threaten other software and hardware infrastructure. Most vendors are incorporating WebRTC capabilities into their product offerings and most discussion was about how to leverage this facility for more effective interaction with customers / end users. Because it is still early in the rollout of WebRTC and nearly all vendors have a strategy outlined our view so far, is that the industry, especially end

2 users will benefit from WebRTC but it is difficult to see a specific vendor who is gaining an advantage from their implementation. Enterprise SBC market (SONS, ORCL, AUDC) - Input from vendors, VARs, integrators and end users indicates that the enterprise SBC market continues to grow, driven by SIP trunks and recognition of the need for security and management of signaling and communication quality. Sonus and AudioCodes were the vendors most often mentioned as gaining share in the enterprise market while Acme/Oracle s dominance of the market has loosened over the past 18 months. Contacts see Cisco Cube in some loyal Cisco accounts but they do not see Cisco as gaining share. They see continued growth in the UC market and for SBCs. At the low to mid range, much of the growth is coming from cloud based implementations (UCaaS). Sonus is doing well products from their NET acquisition in that part of the market, as is AudioCodes. - Acme and Sonus stand above all competitors at the high end but in the current market, there seems to be less perceived product differentiation between Sonus and Acme and decisions are made more on channels/partnerships. Both Sonus and Oracle have well established carrier partners that are supporting them well. - Sonus moved fairly quickly in offering virtual solutions. End users are not yet buying much virtualized product but they are all asking about it in RFPs. - There are some greenfield opportunities in the SBC market, mostly in the UCaaS segment. Otherwise, much of the growth is from add-on to existing networks including at large end users who have some SIP trunks deployed but many more TDM circuits to convert. Over the past few years, Tier 1 telcos have provided very aggressive pricing that has kept end users in legacy TDM networks and slowed the growth of SIP trunks and SBCs. The SIP trunking market is still very fragmented. Small providers have taken the lead with ATT and VZ moving relatively slowly in deployment and in pricing. That is coming to an end however, and we heard many end users and vendors talk about the fact that the large carriers are now accelerating their move to SIP, with ATT publicly stating end of life in 2020 for TDM. This is expected to give the market a boost. - A session that we attended on SIP/SBCs was full (about 200). When asked, about 70% said they had already started deploying SBCs. The end users that spoke in the Q& A or who we spoke with afterward indicated that they were still early in deployment and expect to continue to build out their networks. We also heard comments from medium sized end users (call centers) who had tried to do without SBCs but now see the benefit of this solution and are actively evaluating. - Since Acme s acquisition by Oracle we had heard of quite a bit of turnover. We have heard less of that lately and the organization seems to be stabilizing. - Telco SBC market -- EC is an enterprise focused conference, and we did not get much direct feedback regarding carrier SBC business except that the acceleration of rollout of SIP trunks that enterprise are anticipating infers that the carriers must be accelerating their deployments as well. We have heard of new management within Oracle who are more determined to leverage Oracle s extensive product suite to bundle their solution in an effort to gain share. Prior to this we have heard of Sonus benefitting in the telco market as some customers have pushed back on Oracle s rigid sales approach. Oracle s focus is to increase their share by leveraging Oracle applications, including WebRTC. Sonus stated position is to be Switzerland and focus on interoperability that is required in multi-vendor environments. Both positions have merit. Our industry contacts believe that Sonus' approach is being received well by most carriers and multi-vendor end user environments while Oracle will do well in loyal Oracle accounts. The only observation regarding share shift so far is that Sonus appears to be gaining some share in the enterprise market, as mentioned above, and both Sonus and Acme appear to

3 be generally maintaining share in the telco market. Additional Vendor Comments: CSCO: - Cisco had a large presence at the conference as usual. We spoke with some large financial institutions and other loyal Cisco customers and we were reminded of just how loyal these large shops are to Cisco and why Cisco maintains such dominant market share. Still, all end large end users we spoke with were using Lync / Skype and encouraging Cisco to integrate more closely with Microsoft. PLCM: - Polycom received attention by joining Microsoft on stage during keynote. End users we spoke took note and thought it was a strong endorsement. Integrators and other contacts we spoke with believe that Polycom, despite continuing to suffer from falling hardware revenue is still making steady progress as a software company and is now seeing more benefit from their association with Microsoft and integrated support for Lync / Skype. SHOR / EGHT / RNG / BSFT: - We heard evidence from multiple channels of continued growth of cloud based UC, to the benefit of 8X8, Ring Central, Shortel, Broadsoft and to a growing number of others who are now providing UCaaS services. Although input was supportive of growth throughout this market, the examples that got our attention were anecdotes of growing installation sizes for hosted UC services. In the case of 8X8, we heard examples of installation sizes above 2,000 and evidence of 5,000+ installations in the pipeline. This is a dramatic change in this market from our past discussions. - Although they did not make a major announcement, Shortel promoted the fact that they will be making a major announcement at their partner conference in Orlando next month. They made it known that this announcement is the long anticipate offering of a hybrid premise / cloud solution that they have promised since their acquisition of M5 two+ years ago. Although over a year late, we believe this capability will still be unique and will be attractive to a signficant segment of the market - medium sized organizations who have Shortel premise solutions as well as remote officers. Shortel s solution received strong recognition in a study by Nemertes that highlighted cost of ownership and easy of installation and operation. Overall input from VARs, Integrators and competitors we spoke with was that PBX revenue remained in decline and that Shortel, although executing well in the SMB market, was not seeing significant expansion beyond their traditional niche. - As compared to prior years, Broadsoft was recognized more frequently for their progress as the established platform in the market for hosted UCaaS. Competitors are quick to try to make an issue out of the competition that Broadsoft s Broadcloud offering may provide to Broadsoft s own Broadworks customers. Although this may be true in some cases, the primary message we noted was of increased recognition and success of both of Broadsoft s UC solutions (platform and cloud).

4 MSFT: As part of their announcement of Skype for Business, Microsoft announced toll grade PSTN connectivity. They said that voice and conferencing capabilities will be available in the U.S. later this year and then globally, supported from Microsoft data centers around the world. Microsoft strategic carrier partners, will provide direct connections to Office 365 Skype for Business customers. Microsoft also announced that partners will offer Skype for Business support for their video room systems. In their keynote, they included Polycom s CEO on stage to called out an expanded relationship with to introduce the company's purpose-built video solutions for Skype for Business. PLT: - Although we do not have input on Plantronics consumer business, we spoke with channels in the contact center and enterprise headset market who see continued growth for their segment and for Plantronics. Last year the story was that Jabra was hiring aggressively and making a strong push to take share in the US market. Jabra had a much smaller presence at the show this year and feedback indicates that they may have backed off somewhat. Perhaps they are not getting the progress they expected? We are investigating further. Let us know of any specific interest. ADTN: - Adtran announced enhancements to their ProCloud family of switches. Adtran touts their switch/routers as providing the highest quality and performance for UC applications. Based upon our view and feedback we believe that Adtran is making steady progress in this market with cost effective, high quality products and their well established channel that is built, in part, upon their strong telco relationships. Although Adtran s enterprise business represents a smaller part of their business we believe it is a positive, stable and growing contributor. GOOG: - Adam Swidler, Technology Evangelist for Google for Work gave a keynote describing the ability / need for organizations to take advantage of universal access to information, instant communication and collaboration to change the separate processes of strategizing and then executing, to integrating strategy with execution for more dynamic, flexible and responsive operations. There was quite a bit of speculation on when and how Google was going to take a bigger role in this market, as a UCaaaS provider? telecom provider, or some other role. SMT: - It has been ~2 1/2 years since Smart formed a division to focus specifically on the enterprise. At last year s show they demonstrated their commitment to Microsoft Lync. They showed off more Skype / Lync enhancements this year. Their new Smart app white board (kapp) also received quite a bit of attention. We do not follow Smart closely. Based upon checking in on them at the conference and feedback from industry contacts our view is that their efforts in the business market are showing signs of maturity and they have gained more visibility as part of the Microsoft ecosystem.

5 Integrated (IRI.AX): - We always ask our industry contacts if there any notable companies that are making significant progress (or seeing accelerated decline). As a result of positive recommendations, we spoke with a small Australian company that provides network management solutions for unified communications and for payment networks. Integrated has a solution (Prognosis) that provides unique and helpful views of complex infrastructures based upon the work they have done to pull data from many network devices and applications. The company has a very impressive list of customers in both the UC market and among financial services companies. We believe they are well positioned to continue their growth based upon the strength of their solution and the continued growth of their markets. For anyone who has interest we can provide more details and we are also happy to provide an intro to CEO Darc Rasmussen. As always, happy to discuss, Copyright 2015, Sales Pulse, LLC All rights reserved.

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