Polycom Sets PACE in the Competitive UC&C Market
Jun 09, 2014
June 3 was the inaugural Polycom Analyst Collaboration Event held in the interesting, eclectic (or weird) city of Austin, TX. It was an intimate forum, during which Polycom’s executive team mapped out the company’s business and portfolio alignment, and made available a number of customers for interactive discussion.
Peter Leav, at the helm as Polycom CEO since December 2013, kicked off the event with a state of the business deep dive. I was impressed with Peter’s well framed and candid remarks. Subsequent Polycom executive presentations, demos at the Austin office, and roundtable discussions served to further detail and reinforce Peter’s statements about the state of the company and go forward plans.
State of the Business Highlights
Countering rumors of its demise, Peter Leav reminded us industry analysts that Polycom has stockpiled $600 million in cash on hand, delivered 64 consecutive positive quarters, and significantly reduced operational expenses over the last year. He characterized the company as the right size: small enough to be nimble, yet large enough to scale – a balance few of its competitors currently claim, whether stalwart, startup or other.
Mr. Leav also worked to rein in some of the hype Polycom in recent years has attempted to generate for itself in the challenging and transitioning collaboration market. Today’s stance is that Polycom is a solutions company, and not yet a software company. After all, the company still sells more hardware than software, meaning its solutions are still heavily hardware-based. Mr. Leav did acknowledge the need to ramp up software sales in order to find a better balance. This takes time and we got the clear sense that Polycom is ready. However, achieving better balance doesn’t necessarily require heavily sacrificing hardware-driven revenues.
My key takeaways from the go-forward plan
Commitment to the voice market: The voice endpoints business remains pivotal to Polycom’s success. However, company marketing in the last couple of years de-emphasized the voice endpoints portfolio in favor of flashier and presumably more lucrative collaboration segments, such as software-based video conferencing. Despite over-hyped industry perceptions about the imminent and swift death of the desktop phone, this tried and true technology remains a viable market today and one that will remain in play for years to come. Mr. Leav stated the voice endpoints space is an 18% growth market and Polycom is investing in it; the company has a good tie-in with Lync, overall good distribution for open SIP phones and cost of sales that are not too high. Polycom is retrenching to capitalize on its assets and success in this area. Mr. Leav wants Polycom’s telephony-focused staff to once again become more involved in the company’s growth plans.
Video conferencing endpoints:Hardware-basedvideo endpoints are enduring consistently declining average sales prices (ASP). Despite this, Polycom sees its business in this category as a continuing growth opportunity. Like the rest of the market, Polycom’s recent experience is that prices are slowly declining, but for the most part its video conferencing endpoints business is holding steady. There is an installed base of 300,000 HDX endpoints that are ripe for refresh with Polycom’s new, more robust and advanced Group Series. The company sees this as an opportunity, citing Cisco’s successful strategy to convert the legacy Tandberg installed base over the past few years. Polycom is dedicated to the end points business – being among the market leaders the company will tough it out and modify plans as market conditions dictate over time.
Video Conferencing Infrastructure: This is an absolutely changing market. The infrastructure conversation at PACE inter-mingled the implications of infrastructure on services. Competitor names such as Acano, Blue Jeans, Fuze, Pexip, Videxio, and Zoom repeatedly came up. Over time Polycom expects the hardware side of video conferencing infrastructure to decrease, but it has not yet done so at the rate anticipated. Another upside is the fact that the shift to software also drives services, which currently account for 26% of Polycom revenues. Still, the company has not rested on its laurels, having invested an impressive 15% of revenue on R&D over the past several years. A big part of Polycom’s forward plans revolve around strengthening its capabilities in video content management. There is a fast growing demand by customers to better manage their video work flows and to more fully leverage their video assets by reaping more value from their video content. Video content management is additive to what Polycom does, and is very sticky with the installed base when applied appropriately.
My Two Cents
In my opinion, Polycom is making the right moves to push forward with a more measured and concerted direction than it has in recent years. Leveraging existing assets for growth in core markets and to enter new ones is just about the safest bet at this time. The core markets of hardware-based infrastructure and endpoints are declining, yet a viable opportunity in the near term. The advancements Polycom has made and is making toward software, services and mobile cannot be discounted. RealPresence One is likely the biggest advancement in the video conferencing industry in the first half of 2014.
The positive surrounding the decision to retrench is tempered by both the declining hardware markets and potentially fueling criticisms from competitors. Polycom competitors of all stripes, will seize the opportunity to characterize the company’s stance as conservative, a marketing spin or even an admission that it is incapable of aggressive and successful expansion into the growth areas of software and services that they are all targeting.
However, reality is, as always, what customers think is much more important than what industry analysts or competitors think. At PACE, a number of customers participated in roundtables and informal conversations. These discussions were highlighted by the customers’ satisfaction in their Polycom partnerships. One after the other noted that Polycom listens, shares, and goes the extra mile to deliver on specific requirements, and is likewise building its roadmap in concert with customer plans. These customers believe Polycom is moving at the right pace, no matter what competitors are doing. In most circles, the customer is always right.
Sixteen + years of experience in enterprise communications markets. Particular expertise in: Competitive and market intelligence, Market trend analysis and forecasting, Solutions development, marketing, sales and service support strategies.