Avaya Is Poised to Capitalize on Market Transitions

Avaya Is Poised to Capitalize on Market Transitions July 2014 Prepared by: Zeus Kerravala

Avaya Is Poised to Capitalize on Market Transitions by Zeus Kerravala July 2014 º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º º Executive Summary ZK Research A Division of Kerravala Consulting Business agility is no longer optional for companies. Nimble organizations that can add new services and capture new market opportunities stand to break away from and eclipse their competitors. Those that cannot become flexible risk becoming irrelevant. A nimble business requires IT agility, which is why IT leaders have spent billions of dollars over the past decade on technologies that improve flexibility within the computing and application tiers. However, little has been done to date to simplify the communication and networking tiers of IT. This can significantly hamper organizations because a business can only be as agile as its least agile IT component. Legacy network and communications infrastructure currently inhibits business transformation because: Legacy networks are static and lack agility. The path to a private cloud is too complex for most businesses. Unified communications (UC) solutions are built on closed, proprietary protocols, slowing down adoption. Business video is not optimized for mobile and cloud computing. Contact centers are voice centric. Communications and network infrastructure have not leveraged virtualization. UC and application integration remains too difficult. Avaya -- one of the few communications and networking vendors that offer an end-to-end, integrated communications and network portfolio -- is in a position to capitalize on the shift away from complex, proprietary solutions and toward open, agile systems that are optimized for the cloud and mobile computing era. Many years ago, Avaya made a commitment to open, standards-based solutions that were optimized for the shift to cloud and mobile computing. Since then, Avaya has rebuilt its portfolio and integrated several acquisitions. It now has a product line that ensures interoperability, agility and customer success. The Avaya product portfolio now includes: zeus@zkresearch.com Cell: 301-775-7447 Office: 978-252-5314 Influence and insight through social media Avaya IP Office is a fully integrated UC and contact center solution optimized for the small and midmarket. Key differentiator: The solution enables ease of deployment and ongoing management. Avaya Aura is a full-featured, turnkey UC solution designed to enable businesses to build their own private clouds. Key differentiator: The turnkey solution leads to fast deployment time, and the open platform enables a broad ecosystem and best-in-class interoperability.

Avaya Is Poised to Capitalize on Market Transitions 3 Avaya Engagement Development Platform is an application development platform that enables customers and ISVs to build communications-enabled applications. Key differentiator: The platform uses modern programming languages so no CTI or telephony knowledge is required. Avaya Scopia Video Conferencing is a software-based video-conferencing solution designed to enable mobile and desktop video. Key differentiator: The solution delivers best-in-class video over low-bandwidth connections. Contact center solutions such as multi-modal tools enable Avaya customers to offer new methods of interacting with consumers, including mobile, video and chat. Key differentiator: Multi-modal and contextual information can change agent interactions. Fabric Connect networking solution consists of a standards-based network solution that allows customers to quickly build cloud-ready networks, including virtual overlay networks. Key differentiator: The solution is built on open technologies to reduce complexity and automate key management processes. More detailed information regarding the Avaya product portfolio can be found in Appendix A. In addition to implementing its product transition, Avaya has invested heavily in go-to-market activities, sales processes and operations services. The net result is a financially reengineered company that has significantly higher gross margins, operating income and EBITDA than it did in 2010. Avaya s ongoing transformation is well aligned with the trends in networking and communications. These markets sit on the precipice of the most significant changes in decades. Businesses require simple, agile and standardsbased solutions to take advantage of mobile and cloud computing. Avaya has the right product set and is well positioned to continue serving enterprise UC needs and capitalizing on the following new market opportunities: Fabric networking IP-based video surveillance Midmarket UC and contact center Application middleware Mobile video Cloud and managed services ZK Research studies show that each of these market opportunities is growing by more than 10 percent, creating the potential for Avaya to grow profits at a double-digit rate, well ahead of its industry peers.

Avaya Is Poised to Capitalize on Market Transitions 4 Introduction: Business Agility Is an Imperative Enterprise IT has undergone several major transformations since the introduction of computing as a corporate resource. The computing platform has evolved from mainframes to client/server, and then to Internet computing. The industry has entered the next major data center transition: the shift to the cloud (Exhibit 1). Each wave of computing led to dramatically reduced computing costs, increased network value and improved levels of IT agility. The shift to cloud computing is critically important today because it improves the level of business agility, which is a key to competitive advantage. Business agility is viewed as a business s ability to adapt rapidly and cost efficiently in response to changes in the business environment. Business agility is no longer optional for companies; it s a necessity. Organizations that become agile businesses can add new services and applications as soon as the competitive environment changes, and consistently beat the competition. Organizations that cannot transform into agile businesses will risk becoming irrelevant and will struggle to exist in five years. This is why business agility has become an imperative for every C-level executive today. Exhibit 1: The Cloud Computing Era Is Here Source: ZK Research, 2014 Business agility requires IT agility. The underlying legacy technology that s in place today was designed for an era when best effort services and a static workforce were the norm. Over time, though, much of IT has evolved. Although innovation has occurred at the application and computing tiers, advances in communications infrastructure have stalled over the past few decades. In order for businesses to maximize their return on the billions of dollars they spent improving the agility of compute and applications, it s time for communications infrastructure and networking to evolve to support the shift to cloud. This era of cloud will be dominated by private cloud build-outs because just 18 percent of organizations will leverage only public clouds (Exhibit 2). Let s take a look at the key trends driving the evolution to private clouds: IT is shifting to an as a service model. Legacy IT architectures maintained service quality by overprovisioning IT resources. According to ZK Research, the average utilization rate was less than 30 percent for legacy networks, 25 percent for storage and less than 20 percent for servers. Although virtualization has had an impact on utilization rates, the utilization

Avaya Is Poised to Capitalize on Market Transitions 5 Exhibit 2: Few Organizations Prefer Only Public Clouds Source: ZK Research, 2014 of other IT resources is not optimal. More and more business and IT leaders are shifting to an as a service (XaaS) model by building private clouds. Shifting business applications and communication services to an XaaS model allows businesses to better manage the consumption of IT resources and move to a more efficient delivery model. SIP economics are improving. There are many advantages to unified communications, and they can be most easily achieved by deploying SIPbased communications. SIP can significantly reduce costs by consolidating trunks and centralizing the infrastructure. The network infrastructure is evolving. Legacy networks are complex and require up to seven protocols overlaid on one another to support the business. This was sufficient when best effort networks were the norm. However, the complexity of legacy networks can impair the performance of private clouds. Today s leading network infrastructure leverages protocols such as Shortest Path Bridging (SPB) that can enable the path to cloud-based infrastructure without the traditional complexity and management overhead. The consumerization of IT is redefining the workplace. The rise of mobile devices as a business tool has forever changed the workplace. More and more workers are using their mobile endpoints for functions that are traditionally run on fixed devices. For example, mobile video conferencing is the most widely used type of video today (Exhibit 3). A private cloud is ideally suited to deliver applications in a highly mobilized environment. Security, privacy and compliance are moving into focus. The number of highly publicized security breaches over the past year has put a renewed focus on security and privacy. A private cloud gives IT leaders the benefits of a public cloud without the related risks. Ethernet is becoming ubiquitous. Historically, a number of protocols have competed with Ethernet. Over time, though, the ease of use and cost advantage of Ethernet have won out, and it is now widely available in all parts of the network. The standardization of Ethernet makes deploying a public cloud much easier because there are no network translations to hamper performance. Managed services are growing. Building a private cloud offers numerous benefits for companies. A private cloud can improve resource utilization, lower operational costs and provide pervasive access to corporate resources. Additionally, a private cloud gives businesses more control and better security than a public cloud service. However, building a private cloud can be a highly complicated undertaking because many different infrastructure components must be stitched together with custom software, scripts and manual processes. Managed services can be used as a stepping-stone or an on-ramp to a private cloud because they can make the implementation less risky.

Avaya Is Poised to Capitalize on Market Transitions 6 Exhibit 3: Mobile and Laptop Dominate Video Usage Section II: Avaya Leads in Communications and Collaboration Solutions The New Avaya Over the past few years, Avaya has undergone a significant product, financial and organizational transformation. Although the company s core philosophy of building best-of-breed products remains in place, it no longer builds technology for technology s sake. Rather, Avaya focuses on helping its customers solve business problems through an enhanced portfolio of communications and networking solutions. Avaya is a full stack networking and communications solution provider with a broad range of networking, unified communications, contact center and video-conferencing solutions. It delivers products that are optimized for customers of any size ranging from small businesses to the largest global enterprises. For more details on Avaya s best-in-class products in the areas of networking infrastructure and communications, see Appendix A. In addition, Avaya offers a broad range of services including professional, consulting, integration and managed services to help business and IT leaders better navigate an increasingly complicated technology landscape. Through its unique business outcome based approach, Avaya becomes a true partner to its customers. Appendix B highlights case studies of Avaya s work to closely integrate with customers. To address an even larger market opportunity than it historically has served, Avaya is transforming its goto-market approach. Evolving Go-to-Market Model Avaya has a unique go-to-market model compared to other vendors in the communications and network markets. It understands that the buying dynamics of IT purchases have changed, and that the sales model is geared toward selling business solutions and not technology products. Avaya helps customers reduce the complexity of technology deployments by delivering a combination of products that have been designed and optimized for the cloud computing era, and a robust set of lifecycle and managed services to ensure customer success. Source: 2013 ZK Research Video Usage Habits Survey Historically, Avaya served primarily large enterprise customers that consistently invested in

Avaya Is Poised to Capitalize on Market Transitions 7 communications infrastructure. These customers were served via a direct sales approach. Avaya is developing a broadened go-to-market customer segmentation that preserves its heritage with large enterprises, but enhances that heritage by cultivating opportunities to serve smaller, midmarket organizations. To facilitate this part of the company transformation, Avaya has made substantial changes in sales leadership, starting at the top and working throughout the organization. Key personnel have been added, with emphasis on networking, software and applications skill sets. Almost 25 percent of sales personnel in account management roles are new to Avaya in the past year and have extensive experience in new targeted channels. This includes the addition of a sales specialist team to provide deeper solution knowledge. Avaya is deploying new customer segmentations and enhanced geographic emphasis while leveraging existing and new channel partners. The enterprise go-to-market approach focuses on a services-led strategy, acquiring new customers and increasing wallet share. The midmarket go-to-market approach focuses on delivering simplicity, ease of doing business and channel enablement. Avaya s go-to-market strategy provides customers the choice to work either directly with Avaya or through its indirect sales channel, which consists of a global network of alliance partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators. Avaya offers public, private and hybrid cloud deployment options with a variety of management, support and purchasing choices to enable seamless service deployment. The company has also established a Global SP/SI sales theater to accelerate availability of its partner-hosted solutions for UC, CC and video. The midmarket segment provides a tremendous growth opportunity for Avaya because the vendor landscape is highly fragmented and has no de facto market leader. These smaller enterprises, typically 2,000 seats or less, need many of the capabilities that large enterprises require, at a scale that fits their organization. Avaya can penetrate this market with its existing product portfolio. Avaya has also changed its approach to all customers so that it leads with services and not infrastructure. Pre-sales analysis and consulting at the front end of engagements and post-sales support and maintenance at the back end are standard processes for Avaya that reduce risks for customers. Although the sales cycle can be slightly longer, the model has been very successful, with an estimated 80 percent to 85 percent of customers leveraging Avaya Professional Services. This number is remarkable considering these services did not exist two years ago. The following points provide additional proof of the success of Avaya s new engagement model: For every hardware endpoint sold, Avaya sells five to eight software clients. Only 20 percent of Avaya s customers buy hardware-only solutions. All contact center deployments start with network design evaluation. According to customer feedback, the architect is the individual who adds the most value in the deal. Historically, Avaya s deal size in the midmarket has been about $15,000 for small businesses. Given the best-in-class products in that segment and the lack of a de facto leader, ZK Research believes Avaya could double or even triple this amount based on its broader solution offering. Global customers have stabilized after years of regressing. The company is now investing in sales to take advantage of new products. Right now, Asia- Pacific accounts for only 10 percent of its revenue, and this is one area where Avaya is likely to bolster its sales presence. In 2013, Avaya s midmarket revenue constituted approximately $900 million of the company s $4.7 billion total revenue. ZK Research estimates that an increase in deal size combined with even a small market share gain could potentially double the size of this business unit. Fiscal year 2013 revenue for Avaya totaled $4.7 billion. ZK Research expects the new Avaya to outpace the industry and return to double-digit growth by FY 2015 based on share gains in networking and midmarket expansion. In this world of rapid changes, software evolution and virtual platforms, the services-led model that Avaya has adopted will create sustainable competitive advantage for its customers and channel partners. Services focused on business outcomes are the future of IT engagements, and Avaya has an early start on this transition. Avaya Now Leads with Services Business and technology leaders are under tremendous pressure as budgets continue to

Avaya Is Poised to Capitalize on Market Transitions 8 decline, causing companies to look for new ways to do more with less. The 2013 ZK Research Network Purchasing Study revealed that 83 percent of IT budgets are used to maintain the status quo. This is a significant jump from 75 percent five years earlier. If this trend continues, almost all of a company s budget will be used to maintain the current operating environment, leaving few resources to dedicate to new projects. To remain competitive, businesses must make the most of IT projects while protecting their investments. Additionally, they must keep business applications running on resilient communications and network infrastructure. However, the tasks required to manage the networks and applications can be overwhelming and can drive up the total cost of ownership when exactly the opposite is required. Businesses must make migrating to the cloud an imperative. However, the path to the cloud can be complicated and too daunting for organizations to navigate. Avaya Private Cloud Services (APCS) can be used as a stepping-stone to a cloud solution, enabling organizations to get the benefits of the cloud without the associated risk. APCS delivers comprehensive business solutions that address these challenges and provide measurable business results. APCS utilizes the strength of Avaya s partner organizations to offer operational support through a large team of experts, proven processes and best-in-class tools. APCS can be thought of as an extension of its customers IT teams, and not a replacement or an outsourced arrangement. APCS is a cloud computing solution that includes a managed service wrapper. The solution includes expertise for every operational aspect of a business s communications infrastructure and network environments. APCS pricing is utility based regardless of whether the infrastructure is hosted with Avaya or, more likely, implemented on the customer premises. APCS offers fully managed or co-managed services to run the infrastructure, allowing its customers to focus on top business priorities. APCS can support and manage the entire communications infrastructure and network environments including voice, data and converged networks consisting of systems and software from Avaya as well as other providers. The multivendor approach enables Avaya to support even the most diverse and complex environments. Avaya s APCS portfolio is composed of services that monitor, operate and optimize the infrastructure, while also notifying Avaya support and resolving any incidents that could impact the operation of: Unified communications: APCS can help customers lower communication costs and increase productivity by leveraging UC. This includes IP telephony, traditional telephony, voice messaging, unified messaging, mobility, presence and collaboration. Customer experience management: By leveraging APCS, businesses can improve the overall contact center experience with tools such as routing, self-service, reporting, CTI integration, recording, workflow management and proactive contact services. Enterprise networks: The services provided by APCS manage the entirety of an enterprise network including the WAN, wireless network, VPN and VoIP infrastructure. The services monitor the network, resolve issues and keep multivendor environments operating at optimal performance levels. Compelling Financial Ascent Avaya has re-engineered its financial structure to focus and simplify the company. It has invested in the right areas and is positioned to grow revenue and profits. Through the combination of a compelling solution set and the expansion of its total addressable market to include small and midmarket companies, Avaya has transformed into a solidly performing software and services company. Consider the following proof points: Software and services currently account for about two-thirds of Avaya s revenue, with approximately half of the company revenue derived from services. Avaya has focused on improving cash generation. The company has restructured its debt maturities and refinanced to access lower interest rates; reduced business restructuring expenses; and spent capital more efficiently. Its annual cash requirements have declined from over $1 billion per year and are now expected to be below $925 million per year by 2015. Consequently, the company has the opportunity to increase cash balances or further reduce debt. Avaya has remained committed to innovation. Its R&D expense as a percentage of product revenue has been as high as 22 percent while

Avaya Is Poised to Capitalize on Market Transitions 9 the company overinvested to drive its product transitions. This exceeds the historical industry average of 15 percent, but has enabled Avaya to release many technology-leading products ahead of its competition. Over the past four years, Avaya has invested in R&D at the following levels: 2010: 15.6 percent with a peak of 16.9 percent 2011: 15.4 percent with a peak of 15.9 percent 2012: 17 percent with a peak of 18.4 percent 2013: 19 percent with a peak of 21.4 percent The company has increased the rate of new product releases or upgrades to existing products. In FY 2012, Avaya released 51 new or upgraded products. In FY 2013, this number jumped to 101; and in the first half of FY 2014, the company released 51 new or upgraded products. Avaya has reduced expenses by consolidating facilities and reducing overhead, which has resulted in lower R&D costs. However, as evidenced by the new product statistics, Avaya has not reduced its R&D effort. In fact, streamlining R&D has actually accelerated product rollouts. Exhibit 4 shows a number of financial metrics that highlight the financial ascent of Avaya since 2010. It s important to note that the Q4 FY 2013 adjusted EBITDA was $292 million on $1.17 billion in revenue, or 25 percent. This extrapolates to an annualized run rate of approximately $1.2 billion. Compared to the annual cash requirements, this level of profitability provides the company with the flexibility to consider capital structure options. Exhibit 4: Improved Financial Performance Source: Avaya Financial Reports

Avaya Is Poised to Capitalize on Market Transitions 10 Section III: Conclusion The network and communications industries have been in a state of transition for several years. Complex solutions built on closed, proprietary solutions must give way to products that are built on open standards, are easy to deploy and are simple to manage. The market leaders in these industries have business models that are tied to legacy technologies, and they cannot afford to disrupt the status quo. This means that a new solution provider must emerge to lead these industries through the necessary evolutionary process in order to enable real customer value and business agility. While the competitive landscape has been making small, incremental changes to their product portfolios, Avaya has reinvented itself and opened up a number of growing market opportunities that include the following: to be used with very little knowledge of telephony or CTI integration. Mobile video: The market leaders in video are saddled with large share positions in expensive hardware-based platforms, and have been slow to develop mobile solutions. Avaya Scopia video has a best-in-class mobile client that provides high-quality video over erratic or lowbandwidth connections. Cloud and managed services: As businesses shift to the cloud, the first step in the journey for most will be to build a private cloud. Aura and Fabric Connect are excellent building blocks for companies that have the technical acumen to build their own clouds. For those that do not, Avaya s Private Cloud Services can provide an excellent start on the road to a private cloud. Fabric networking: Virtualization has enabled IT departments to shift to a software-defined data center (SDDC) strategy. The SDDC requires an agile network fabric that reduces management complexity and can adapt to any business climate change. The network fabric can be thought of as the foundation of an SDDC. Avaya s Fabric Connect Network solution is built on open standards and ensures interoperability with a broad ecosystem of application or compute solution providers. IP video surveillance: The video surveillance market has been held back by complexity and proprietary systems. Recently, though, the solutions have shifted to IP-based platforms and have created new demands on the network that legacy solutions cannot meet. The robust network fabric enabled by Fabric Connect is ideal for the demanding requirements of IP video surveillance. Midmarket UC and CC solutions: UC in the midmarket is highly fragmented, with no vendor having more than a few percentage points of share. With its proven IP Office Platform, increased scalability, and complete collaboration solution, Avaya is posed to capture share in the midmarket and move the revenue needle significantly. Application middleware: Avaya s Engagement Development Platform provides companies with the ability to develop communications-enabled business applications. The solution is uniquely positioned because unlike competitive products, Engagement Development Platform is designed

Avaya Is Poised to Capitalize on Market Transitions 11 Appendix A: Avaya Product Portfolio The networking and communications markets are composed primarily of small vendors that offer only partial solutions. However, Avaya offers customers an integrated, end-to-end portfolio that can address all of a business s communications and networking needs. Avaya is unique in the industry in that the company has built its products on open standards for maximum interoperability. Most vendors build products on proprietary protocols that lock customers into the products. Additionally, all of Avaya s products have been optimized for the cloud and mobile computing eras. Avaya s product portfolio now includes: Unified communications Customer experience management Networking Unified Communications Most vendors in the UC industry have focused on increasing the number of proprietary features in their solutions and trying to lock out the rest of the industry. New features often come from acquisitions, creating interoperability problems within a single vendor s solution set. For example, one of the leading share vendors has a conferencing platform, a video communications suite of products and a voice portfolio, with almost no interoperability between them. Avaya has followed the principle of openness to build a rich suite of UC-related products that address the needs of companies of all sizes. The portfolio includes the following solutions. Avaya IP Office Platform The Avaya IP Office Platform is the core of a complete unified communications and collaboration solution for small and midsize businesses. This proven, single UC software platform easily scales to support 2,000 users in as many as 32 locations to deliver a seamless experience for voice, video, IM, presence, mobility, unified messaging, conferencing and collaboration, along with third-party desktop application integration. IP Office software can run inside a virtual machine, on a dedicated server, on an appliance or in a mixed deployment. The Avaya IP Office platform may be surrounded by Avaya s contact center, video, networking, security and support as part of a complete collaboration solution for midsize businesses with reduced integration risk and faster return on investment. Avaya Aura The Avaya Aura platform is designed for enterprise customers, and is built on the principle of being open and standards based. Unlike most UC solutions that are large, monolithic platforms and require a tremendous amount of manual integration, Avaya Aura was built for the era of cloud and mobility. When dealing with transformation, businesses must consider not only today s needs but also tomorrow s requirements. The flexible and extensible architecture offered by Avaya Aura is designed for constant change at the communications layer. Most UC competitors take a walled garden approach to UC. Avaya Aura, on the other hand, is designed for interoperability. Avaya Aura can address all of a business s UC needs including VoIP, video, presence, chat, conferencing (audio, web and video), unified messaging and centralized management, but it also includes industry-leading mobile integration to ensure all user endpoints can attach to an Avaya Aura session. In fact, this is why 80 percent of the UC clients Avaya sells are software endpoints. Avaya Aura embodies many form factors including a pure software solution and a virtual edition. Avaya also offers a collaboration pod, which is a turnkey rack of infrastructure that enables large enterprises or service providers to rapidly deploy cloud-based UC. New features and capabilities can be appealing. But if the IT department can t get them out of the lab because they don t measure up to enterprise-grade characteristics, they have limited or no value. This is where the platform must be highly scalable, reliable and manageable, and minimize the impact on underlying networks in terms of bandwidth and security. Another consideration is how easy it is to provision these capabilities to users, guests and customers. An enterprise platform must address a wide variety of user needs in a contextually relevant manner given the variety of devices, networks, geographies and time zones that may be involved, including: Addressing the needs of knowledge workers, task workers and contact center agents. Connecting front-office workers with the back office.

Avaya Is Poised to Capitalize on Market Transitions 12 Avaya Engagement Development Platform Providing enterprise-wide access to UC including the distributed workforce, from headquarters to regional centers, branch offices, remote workers and road warriors. Avaya s vision of is unique in the industry. Over time, UC and contact center (CC) attributes will become a set of capabilities that can be snapped into other applications. For example, a high-end retailer may want to arm its salesforce with tablets and a mobile application that includes a real-time look at inventory, but also video and chat capabilities for access to remote experts. In this case, the retailer would want to build the application and rapidly add click-to-video capabilities. Facilitating collaboration not just across the workforce, but between the enterprise and the upstream supply chain and service providers, as well as the downstream channels, customers and prospects. Key differentiator: The turnkey solution leads to fast deployment time. The open platform enables a broad ecosystem and best-in-class interoperability. Avaya s Engagement Development Platform is the company s latest developer environment (Exhibit 5) that focuses on enabling customers and ISVs to quickly build communications-enabled applications. Exhibit 5: Avaya Engagement Development Platform Source: ZK Research, 2014 Engagement Development Platform is a breakthrough in UC application development that is designed with several key principles in mind including: Cloud and mobile ready. Multichannel capabilities. Secure and manageable environment. Single developer interface. Uses modern programming languages. Key differentiator: Engagement Development Platform uses modern programming languages so no CTI or telephony knowledge is required. No CTI or telephony knowledge required. Reusability of code.

Avaya Is Poised to Capitalize on Market Transitions 13 Avaya Scopia Video Conferencing The video industry has been plagued with high-cost, complex hardware solutions for decades. This limits the use of video to high-level executives and highend conference rooms. Avaya Scopia Video Conferencing was a product of Avaya s acquisition of Radvision. It offers customers the easiest-to-use, highest quality video on the market today. Avaya Scopia provides a full range of endpoint options including telepresence systems, conference room systems and executive desktop systems, in addition to Avaya s marketleading software desktop and mobile solution. The combination of Avaya Scopia Mobile and Avaya Scopia Desktop enables personal video conferencing from anywhere on any device. Software-based video is becoming increasingly important. According to the 2013 ZK Research Video Survey, 52 percent of respondents find software-based video easier to use than traditional hardware-based platforms, and 44 percent find it better for ad hoc meetings. The Avaya Scopia solution can be integrated easily into business applications with just a few lines of code, making it ideal for today s mobile workforce. While Avaya Scopia is among the easiest-to-use video solutions, it also offers best-in-class quality video that requires low bandwidth compared to larger room-based systems. Key differentiator: Avaya Scopia provides best-inclass desktop and mobile solutions and high-quality video over low-bandwidth connections. Customer Experience Management In just a few years, the realm of customer service and support has changed dramatically for many businesses. With the growth of the Web, mobile and social media, organizations increasingly need to ensure they can respond whenever, wherever and however their end customers want. Avaya s customer experience management solutions aim to help its customers leapfrog the competition. The solutions provide a fully multimodal contact center environment that leverages contextual information to shorten hold times and improve overall customer service. They also include a number of self-service tools that enable customers to look up more information faster. When a call, video or chat session is invoked, the agent can be armed with the right information to help the customer solve any issues quickly. Avaya s solutions facilitate a highly personalized experience that can change the way businesses support, sell to and manage customers. Recognizing the trend, Avaya launched a major new shift in vision and approach from contact center to customer experience management. It leveraged its more than 20 years of expertise and innovations in mission-critical communications to help companies improve their Web, mobile and contact center customer experience. Exceptional customer experience starts with knowing the customer and delivering a highly personalized experience every time. As the primary hub for real-time customer interactions, the contact center is the heart of the customer experience strategy. Avaya s solutions transform customer service from one-off customer transactions to rich, informed, sustainable customer relationships. Avaya s solutions enable companies to monitor and understand each of their customer s unique needs and preferences, and dynamically manage their experience by bringing the right resources to each interaction. Let s look at a few of the capabilities that enable this. Omni-Channel Contact In the past, companies provided customer support by phone. Today, people interact through a variety of media, and communication between businesses and customers isn t any different. Companies benefit from being available to their customers by phone, as well as text, email, Web chat, social media and video. Avaya Aura multichannel solutions make it easy to transfer a customer who enters the customer support environment through social media to a live agent in a call center, and then to video with an expert to solve the problem on the spot -- all without losing the context of the customer s previous conversations. In a customer support situation, nothing is more frustrating than being passed from one agent to another and having to explain the situation all over again. Avaya s Customer Experience Management solutions preserve context at each step of the way. If a customer begins his/her customer support journey at a company website with an automated assistant and then gets transferred to a live agent, the transcript of the Web conversation is forwarded. The agent already knows about the problem from the beginning of the call and can get right to work providing a solution. Depending on where the conversation was initiated and what information and keywords have been shared already, the agent

Avaya Is Poised to Capitalize on Market Transitions 14 might automatically receive suggested solutions based on those interactions. Key differentiator: Multimode and contextual information can change call center agent interactions. Self-Service Solutions The best customer experience is the one that enables customers to solve their problems quickly and easily. Avaya self-service solutions improve the customer s experience by allowing them to get the information they need from a company, when and how they need it. Automation can enhance every interaction. For example, customers can: Check an account balance online or through an automated voice menu or on a mobile app. Receive text reminders of upcoming appointments, payments or delivery alerts. Make payments using their smart phones. Chat with an agent over the Web. Get an automated callback instead of waiting in queue for an agent. By automating simple tasks, managing spikes in call volume and managing enterprise-wide resources more effectively, companies save money while making their customer service experience a key part of their competitive advantage. Key differentiator: Avaya provides comprehensive multimedia inbound/outbound strategies with a platform that serves as a single coordination point for customer interactions. Performance Management Avaya s Performance Management solutions improve effectiveness by focusing on business performance, leveraging big data and analytics. Performance management collects, consolidates and analyzes data and information to gain insight into the customer and agent experience, and drive optimal operational performance across customer relationships and the workforce. The Avaya Performance Management suite provides the information and tools required to analyze the full customer contact experience, determine whether that experience is meeting predefined business goals and gain insight into any changes required to optimize the customer experience. Avaya Performance Management solutions are split into three main areas: Information Reporting and Management, Predictive and Strategic Analysis and Workforce Optimization. Key differentiator: This high-performance, big data platform enables the consolidation of contact center and enterprise data with the ability to visualize call flows, providing key insights into call treatment and work behaviors. Contact Center Solutions for Avaya IP Office Contact Center Solutions for Avaya IP Office extend Avaya s innovation in customer experience management to midsize businesses, with the simplicity and value they require. These solutions, which are optimized for use with IP Office software, enable blended multichannel capabilities that support great customer experiences to increase revenue and customer lifetime value, while improving agent efficiency to reduce cost. Midsize businesses can now take advantage of Avaya s leadership and innovation in customer experience management in a solution that is built for them -- powerful, simple and affordable -- optimized for use with the Avaya IP Office platform. Key differentiator: Avaya s Contact Center Solutions for Avaya IP Office provide powerful, simple and affordable blended multichannel capabilities. Networking Network evolution has been at a standstill for the better part of two decades. Most businesses utilize network technology that was designed in an era when best effort and static environments were the norm. Avaya s Fabric Connect solution was built on the principles of leveraging open standards and enabling its customers to build networks quickly and easily. Fabric Connect also leverages virtualization technology to decouple network workloads from the underlying hardware, similar to server virtualization (Exhibit 6). Building a simple-to-manage network is very difficult to do. Avaya s path to simplicity is based on the following: Enable automation where possible by incorporating other tools that can automate service creation and delivery through interaction with the application layer.

Avaya Is Poised to Capitalize on Market Transitions 15 Provide API access to an orchestration interface that allows customized interactions with Fabric Connect. Use Fabric Connect to link virtual and physical infrastructure, and enable scalable network services. Exhibit 6: Server Virtualization vs. Network Virtualization Source: ZK Research, 2014 Leverage open technologies to enable rapid service creation via a common interface, and to eliminate legacy protocols such as Spanning Tree Protocol (STP) and Protocol-Independent Multicast (PIM). Leverage Fabric Connect to deliver end-to-end service creation from the edge of the network to the other edge, requiring no changes to be made at the core. Introduce the crucial application-aware capability to wireless networking that enables IT to deliver genuine business-class service support for pervasive mobility and BYOD. branch, to wired/wireless edge, to campus core and then data center -- and is ideally suited for uses such as pervasive wireless and BYOD, video surveillance and network partitioning. Key differentiator: The network infrastructure is built on open, next-generation technologies that reduce complexity and enhance service agility, with tight integration of advanced access management techniques that automate key provisioning activities. Avaya s networking solution eliminates overlays, has fewer touch points, automates provisioning and embraces open source to deliver the most sophisticated and simplified network. The tangible benefits are significant: By revolutionizing the design, construction and operational management of the foundational network, businesses can realize up to a 27x reduction in time-to-service. Crucially, Fabric Connect spans the entire network -- from

Avaya Is Poised to Capitalize on Market Transitions 16 Appendix B: Case Studies The following case studies highlight the technology leadership and simplicity that Avaya brings to its customers. Case Study 1: Sochi Winter Olympics Becomes the First Fabric Games Avaya was the official networking and communications vendor for the 2014 Winter Olympics in Sochi, Russia. The company was tasked with building a massive network to connect 11 competition venues, two data centers, two operation centers, three Olympic villages, two media centers and two celebration centers, for a total of 22 locations. The venue had to support about 50,000 dedicated users (not including fans), which included 25,000 volunteers, 14,000 members of the media and 5,500 athletes. This year s games posed several new challenges for the organizing committee including: BYOD and guest access for hundreds of thousands of mobile devices. Efficiently supporting moves, adds and change requests. Supporting high-quality and secure IP video. Strict demands for capacity, scale, reliability and security. Support for 36 HD video channels, 1,500 IP TV screens and 6,500 VoIP phones. The goal of the network design was to provide a flawless game experience. This would mean a network that had redundancy at every level, massive scale and capacity, the use of network virtualization for simplicity and agility and the ability to separate virtualized networks. To address this challenge, Avaya developed an endto-end solution that included the following network products: Avaya VSP 9000s and 7000s, ERS 8800, 5000 and 4000 network switches, Wireless LAN 8100 and identity engines. The deployment also included the following communications platforms: Avaya Aura, Contact Center Elite, 9600 IP handsets, G450 gateways and Avaya Aura Conferencing. These were all deployed using Avaya Professional and Client Services. Avaya s Fabric Connect was the network foundation, making Sochi the first fabric-enabled Olympics. The network design was based on Avaya s VENA architecture, which promoted the concept of virtual services before SDNs became all the rage. The hub of the network was a dynamic data center, which consisted of two geographically redundant physical data centers that leveraged a high-performance core and a distributed, low-latency top-of-rack layer for a flat network design. The virtual services fabric that connected to the data center leveraged Avaya s Fabric Connect technology based on the IEEE standard protocol SPB instead of the aging STP. This part of the network was effectively a cloud infrastructure that has 20ms recovery rates for minimal downtime. Lastly, an intelligent edge was created to connect the various Olympic venues. The Fabric Connect technology was extended to each location, enabling any service to be delivered to every point in the network for scalable access over the wireless network. On top of the physical network, seven virtual networks were created to isolate the different types of traffic (Exhibit 7). The Fabric Connect implementation greatly simplified operations because the network required only a single protocol (IS-IS) to support it instead of the multiple protocols (STP, MSTP, OSPF, BGP and PIM-SM) used by legacy networks. This year s Olympics marked a number of firsts: the first fabric Olympics, the first virtualized data center design and the first use of service networks. The success of the network and communications infrastructure exemplifies the power and flexibility of the Avaya communications and networking suite of products. Case Study 2: Avaya Transforms Customer Service About two years ago, Avaya embarked on a mission to improve its customer service. It accomplished this by implementing its own technology, improving processes and focusing on building agents skills, and passing for the new support vision. The legacy customer service processes that were in place were similar to those of almost every other business. Reports are issued via the phone through a toll-free number. When the customer calls in, he/she sits in a hold queue until someone picks up the call. The customer must enter a serial or other identifying number, and then finally gets assigned a case number. The customer is likely transferred one or more times and often must enter the same information at every step before the issue can be resolved. This is a truly frustrating experience

Avaya Is Poised to Capitalize on Market Transitions 17 Exhibit 7: Seven Virtual Networks over a Converged Core Source: Avaya and ZK Research, 2014 that most people have encountered at some time in their lives. Improving this experience was a critical initiative for Avaya. The company made significant investments in the tools used to diagnose issues and provide access to support including the Avaya Diagnostic Server, Avaya Support Website and Avaya Diagnostic Portal. This combination of tools has innovated the way Avaya resolves customer issues, resulting in problem resolution that is faster and better than ever before. With the Avaya Diagnostic Server and Avaya Diagnostic Portal, Avaya has secure self-service tools to remotely diagnose and resolve issues in half of the time. These tools are housed on the Avaya Support Website, which provides a single place for support and tool access. Avaya also has a virtual agent called Ava that is powered by automatic chat. Avaya one-touch video enables Web talk and Web video sessions that allow technical support staff to interact with customers in a more personalized manner than just audio alone. The result is a transformation support system where customers can experience technologies from today s more modern world and utilize the web. Customers can conduct an Ava search, have a quick Web chat and then interact with two agents to resolve the issue. If customers are not satisfied with the support they are receiving, they can escalate the issue quickly through the appropriate process. It s important to understand that every time an agent finds a solution to an issue, he/she immediately publishes that solution to the Avaya Knowledgebase. This provides customers with transparency into the issues agents have already solved. Now, the customer rapidly has the same information Avaya s engineers have so the problem is only solved once. After 18 months, the results of the multimodal call center transformation were significant and were measured as follows: 12.9 percent improvement in customer satisfaction.