Impact of Mitel’s Acquisition of Polycom on the Asia-Pacific Market
Apr 18, 2016
On April 15, 2016, Mitel Networks announced the acquisition of Polycom Inc with the transaction expected to be completed in the third quarter of 2016. The acquisition follows Cisco’s purchase of Tandberg and Acano, as well as Avaya’s acquisition of Radvision, exemplifying the trend of video conferencing vendors being acquired by telephony vendors.
Polycom is a leader in the Asia-Pacific video conferencing solutions and open standard SIP phone markets. The acquisition announcement is anticipated to impact the market landscape and competitive dynamics.
Polycom’s competitive positioning in the Asia-Pacific video conferencing market
• Polycom retained its leadership position with a 26.2% share in the Asia-Pacific video conferencing market in 2015, followed by Cisco and Huawei.
• Given the bleak economic environment, mainly driven by the slowdown in China, Polycom’s video conferencing business has continued to decline year-on-year by 7.8% in the Asia-Pacific, leading to an erosion in market share.
• China continued to be the largest contributor, making up more than 60% in total revenue. However, Polycom faced intense competition from Chinese vendors such as Huawei, losing its market share leadership in 2015.
Polycom’s competitive positioning in the Asia-Pacific open SIP phone market
• Polycom led the Asia-Pacific open SIP Phone market with a 23.2% share in 2014.
• The company’s market share in the Asia-Pacific has declined in recent years as it faces competition from rivals such as Yealink, Grandstream, and Snom.
• The company’s new product launches have not been as frequent as some of its competitors, indicating a need to increase the focus on innovation to justify its premium pricing strategy and reinforce its thought leadership position.
• The company launched its new IP conferencing phone – Trio – in early 2016 featuring improved sound quality with multiple voice/video connections.
Impact on the Asia-Pacific video conferencing market
Mitel does not have a product line in the video conferencing space, and the announcement indicates that the Polycom branding is likely to remain for a given period. Moreover, Mitel does not have an extensive direct presence in the Asia-Pacific (only six offices located in Australia, India, China and Hong Kong.) While the acquisition itself may not spur a disruptive influence in the video conferencing market, it could pose some threat to Polycom in the following areas.
• Customer confidence and loyalty. The first question that comes to mind is envisioning the future direction of the combined company, and if it plans to continue its focus on the innovation of the video conferencing product line.
• Channel partner concern. The channel partner policy is unclear in the early stage. Given the staggering growth of most channel partners in recent years, the acquisition may weaken channel partner confidence on the Polycom branding and products. Channel movement is expected in the medium term.
• Competitive threat. Polycom’s competitors are likely to capitalize on both points mentioned above. Campaigns targeting Polycom’s installed base can be expected in the market, especially customers looking for a technology refresh. This could be viewed as a real addressable market for Polycom’s competitors in the immediate term. For example, coupled with the procurement policy the heavily favors domestic vendors in China, local competitors may gain a further competitive advantage in the government sector.
Impact on the Asia-Pacific enterprise telephony market
• Increasing brand awareness and geographical coverage for Mitel in the Asia-Pacific. The acquisition will undoubtedly help Mitel accelerate business growth and market penetration in international markets including the Asia-Pacific region. Mitel’s presence in the Asia-Pacific is relatively small, and its branding is not entirely established. In the Asia-Pacific Open SIP phone market sub-segment, Mitel (including Aastra) accounted for approximately 3% out of the total Asia-Pacific market. Polycom, however, has a strong voice business in the region and established distribution network in most key markets in the Asia-Pacific. With the acquisition, Mitel can leverage the strong distribution network of Polycom’s voice business in the Asia-Pacific region and improve its competitive positioning against Avaya and Cisco.
• Growth opportunities for Mitel solutions. Polycom’s extensive customer base in the Asia-Pacific region opens up new avenues for Mitel in two dimensions: 1) potential replacement opportunities with total telephony solutions; 2) migration towards hosted and cloud telephony services.
• Strategic play in the cloud space. Mitel has established a formidable position in the cloud voice services with 1.9 million installed bases residing in the North American market. The Asia-Pacific is the fastest growing region in terms of cloud adoption. The combined company is likely to strengthen cloud offerings by providing voice and video integrated UCaaS platform, enhancing Polycom-Mitel’s competitive edge in the cloud space.
• Enrich the product portfolio for channel partners. The acquisition seeks to bring a broad range of UC solutions to existing Polycom and Mitel channel partners in the Asia-Pacific region, potentially helping channel partners to extend customer reach into the mid-market.
• Shape the competitive landscape in the open standard SIP phone market. The combined company is expected to give Polycom access to call control technology. However, what is the subsequent influence on the leadership position of Polycom in the open SIP phone market? In the short term, we anticipate key market participants like Yealink and Grandstream potentially gaining market share.
The challenge here involves tackling the uncertainties surrounding the future of the company, as well as protecting its installed bases and channels. An aggressive communications initiative is required to address customer concerns and channel vulnerabilities. There should also be regular technology roadmap and product release announcements to rebuild customer confidence. Restructuring plans and the financial state of the company should also be shared at the soonest to convince the market that Polycom is progressing towards a strong financial foundation.
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