ShoreTel Bets the Farm on Cloud UC but Will Fail Without This Key Component

As a unified communications wonk, I recently attended the ShoreTel conference excited to glean some intel about trends in UC, and especially cloud UC.

As the ShoreTel conference was reconvening for the first time in almost 30 months, I was also expecting some huge announcements or product unveiling. Unfortunately, from that perspective the conference was underwhelming.

That said, I was particularly interested in the comments by ShoreTel President and CEO Don Joos, who clearly stated in his keynote that the target market for ShoreTel is the SMB market—specifically 5,000 seat deployments and below. But the other clear message from the conference was that ShoreTel is betting its R&D and partner strategy squarely on cloud UC and ShoreTel’s hosted offering.

This matches with many of the same points we consistently talk about in our Lunch and Learn Technology Innovation Conference partner recruitment events, and at our partner conference VXMadness. But there was one key place where ShoreTel’s strategy missed the mark. And they missed it by such a wide margin that it might be the downfall of their cloud and hybrid strategy.

Recurring Revenue is Where It’s AtRecurring Revenue Cloud UC

One session in particular caught my eye in the program guide: “Making Money From Recurring Revenue.” VXSuite is all about the concept of helping our partners make money from recurring revenue, so I simply had to attend. I was really excited to find out my session’s speaker was Mike Healy, Senior Vice President and CFO of ShoreTel.

Mike had some interesting bullets in his presentation:

  • The shift to cloud is inevitable. Market forces are moving to the cloud, customers are moving to the cloud, company valuations for cloud UC companies are more than double for premise based UC companies.
  • ShoreTel is moving to the cloud and the partners need to get on board.
  • Currently, 54% of ShoreTel revenue is from their cloud-based offering.
  • ShoreTel plans to be #1 in the unified communications as a service (also known as UCaaS) market.
  • Cloud commissions for the ShoreTel partner is about three times as much as premise revenue for the ShoreTel partner.
  • Churn (which Mike defined as customers leaving the service) is the enemy of a recurring revenue model. Everyone has outages, so how ShoreTel deals with communication to the customer when these outages and other issues occur is the key

My Take on Cloud UC

I would like to comment on each of these points.

  1. The shift to cloud is absolutely inevitable. 90 percent of the Fortune 100 and 70 percent of the Fortune 500 are already using Microsoft Lync/Skype for Business and millions more use Skype and voice-enabled Skype for Business. The now announced voice-enabled O365 will be another game changer. If you add in cloud-only products like Star2Star and Jive, plus the 175,000 seats of ShoreTel’s cloud product, this truly a trend and not a fad. The market forces are clearly moving toward cloud-based UC solutions.
  2. ShoreTel partners need to get on the cloud train. For ShoreTel the train has already left the station and their development and R&D seems clearly focused on their cloud offering.
  3. It was surprising to hear that more than half of ShoreTel revenue is cloud-based. The cloud installed base is vastly smaller than the premise installed base, which shows how much more margin there is in cloud-based seats for ShoreTel than there is in a premise based seat. The leverage from the hosted infrastructure instead of the premise based hardware is significant. In the sessions I attended I did not hear a single reference to a premise-based handset, server, or switch. There was a time when the ShoreTel sales pitch was all about the handsets, servers, and switches. Quite a powerful and deliberate shift.
  4. ShoreTel plans to be #1 in the UCaaS market. This will be a tall order, as there are some strong competitors in the UCaaS market. I attended cloud sessions all week and didn’t hear meaningful references to Lync, Jive, or Star2Star. The only cloud offerings that were mentioned in the sessions I attended were Ring Central and 8×8. It is telling that ShoreTel’s target market is the SMB market, so naturally they don’t recognize some of the real competitors in the SMB UCaaS market. When Microsoft creates a voice-enabled O365 offering, ShoreTel will be forced to recognize that Lync is a significant and possibly insurmountable competitor.
  5. Cloud commissions are three times higher for ShoreTel partners than premise commissions. This is a significant point. LVM has always believed that you have to compensate sales teams and partners correctly to get the outcomes you want. By paying three times the commissions on cloud over premise, ShoreTel is incentivizing the partner channel to deliver cloud seats over premise seats.
  6. Churn is definitely the enemy of a cloud offering. Once you have a customer signed up on a cloud offering, you need to make the product so sticky that you keep as many of them as possible. But how do you make sure that the customers know when the issues are not your cloud offering but some other factor? There are so many possible issues when you have a cloud offering that might lead to a poor customer experience, and many that might not be the hosting company’s fault. Issues our partners have solved in the past few months include:
    1. The customer’s bandwidth being undersized or inconsistent performance
    2. Customer premise equipment that is inadequate or improperly configured
    3. Soft-phones running on a user’s computer that is under-powered or has a lack of available resources
    4. Inadequate or poorly performing headsets

So What’s the Answer?

So how could ShoreTel ensure that these issues don’t destroy their hosted customer’s experience?

VXSuite is the perfect answer. If ShoreTel partners deploy a product like VXPulse they could easily avoid the churn that is so destructive to revenue.

VXPulse allows you to test a customer network before a new cloud UC system is deployed to ensure that the customer premise equipment is configured correctly and that the bandwidth is sized correctly. Imagine being able to know the solution will work before you deploy!

Post deployment, VXSuite can continue to monitor the customer experience to ensure that call quality is protected and that if issues do arise, the service provider can be proactive with alerts, alarms, and reports based on ShoreTel and customer based thresholds for bandwidth utilization, packet loss, packet delay, jitter, and MOS score.

I didn’t hear a single mention at the ShoreTel conference of any tools that were designed and deployed to help protect the customer experience. ShoreTel will face the issues that all other hosted providers face that aren’t part of the VX-enabled ecosystem: Churn, finger-pointing, frustrated customers, and ultimately, customer defection.

To find out more about how VXSuite can help you win and keep more customers for your hosted and on-premise solutions check out our website at www.vxsuite.com and see a demo of VXSuite today.

Doug Tolley (15 Blog Posts)

Doug Tolley is the Business Development Director for LVM, Inc. He has 20 years of experience in Business Development, Sales and Consulting, and Project Management in a wide variety of businesses with a primary emphasis on IT.

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