ShoreTel Boosts its Cloud Portfolio with Corvisa Acquisition
Jan 06, 2016
The last thing one expects to hear right before the Christmas holidays is an acquisition. It is hard enough to reach anyone for a serious conversation as we all deal with end-of-year deadlines and personal distractions, let alone imagine completing a major corporate financial transaction. That’s why ShoreTel caught me by surprise with its December 21 announcement to acquire Corvisa, a small, but innovative competitor in the cloud communications space.
A Brief Recap of ShoreTel’s Position in the Cloud Communications Market
ShoreTel has founded its growth strategy on the value proposition of delivering “brilliantly simple” communications solutions to the business market. This proposition resonates well with customers of all sizes, but it has particularly strong appeal in the small and mid-size business (SMB) segment, where skilled in-house IT resources are scarcer. ShoreTel’s unique distributed architecture provides a flexible, resilient, scalable and cost-effective alternative to businesses with multiple, geographically dispersed sites. More recently the company has also targeted larger accounts through rack and stack scalability.
In line with the industry’s move to cloud communications, in 2012, ShoreTel acquired hosted IP communications provider M5, which became the ShoreTel Sky Hosted Cloud Phone System with Unified Communications (UC). The ShoreTel Sky multi-tenant infrastructure enables cost-effective services delivery and is designed to eliminate a single point of failure. It uses redundant, highly available and load-balanced system hardware as well as a blend of Session Initiation Protocol (SIP) and traditional Time Division Multiplexing (TDM) to maximize completion of calls.
In 2015, ShoreTel launched the ShoreTel Connect solution portfolio, which uses a single software code base to provide business customers with flexible deployment options: on the premises (ShoreTel Connect ONSITE), in the cloud (ShoreTel Connect CLOUD) or in a hybrid architecture (ShoreTel Connect HYBRID). The common underlying technology enables customers to easily and economically migrate from one deployment option to another. Customers can also conveniently mix and match communications and collaboration capabilities in a variety of hybrid implementations. For example, businesses with premises-based telephony deployments can add mobility, fax-to-email or voicemail-to-email capabilities from the cloud.
ShoreTel Connect CLOUD leverages ShoreTel’s home-grown virtualized multi-tenant platform to deliver next-generation cloud communications services to businesses looking to outsource their communications capabilities from a trusted provider. Full ownership of the back-end platform allows ShoreTel to be more agile and responsive to evolving customer demands and market trends. When adding new features and capabilities, there is no latency associated with third-party development schedules. ShoreTel Connect CLOUD offers a comprehensive bundle of cloud-based communications and collaboration applications, including a full-fledged hosted IP PBX, voice messaging, instant messaging (IM), mobility, contact center, audio and web conferencing, video calling, and more. Service packages also includes local and long-distance calling and are frequently bundled with an access-line service.
With 189,200 installed hosted IP telephony users as of October 2015, ShoreTel ranks among the top 15 hosted voice providers in North America and continues to grow at double-digit rates year over year.
ShoreTel is acquiring Corvisa from Novation, a company focused on helping entrepreneurs grow their start-up businesses. Corvisa (originally branded CorvisaCloud) emerged through Novation’s acquisition of a small communications provider, IVR Central. Using open-source FreeSwitch technology, Corvisa developed a proprietary cloud communications suite of PBX, UC and contact center solutions. A key Corvisa differentiator is the ability to offer both complete off-the-shelf hosted/cloud communications solutions and a platform as a service (PaaS) for customers and third-party developers looking to create their own custom communications capabilities. Unlike most other cloud providers, Corvisa has placed a greater focus on developing a full-fledged contact center functionality, which allows it to offer standalone contact center in addition to integrated PBX /UC and contact center solutions. Corvisa reports that the majority of its contact center customers deploy its PBX and UC functionality as well.
Corvisa’s customers average 100 to 200 seats, ranging from very small businesses of under 10 users to some large organizations of over 1,000 users. Corvisa has been expanding its channel over the past year with about 30 percent of new deals coming from the channel in 2015.
By exposing code-level platform capabilities, Corvisa enables its customers to build highly tailored apps to enhance mission-critical business processes. Customizations range from massive apps to small, but very impactful enhancements. Corvisa reports that customization flexibility has resonated among businesses of varying size, even among small ones.
Potential Benefits of the ShoreTel—Corvisa Union
ShoreTel’s acquisition press release summarizes the potential benefits of the transaction as follows:
“This acquisition is expected to accelerate ShoreTel's fiscal 2017 hosted revenue growth to at or around 30 percent by enhancing ShoreTel's solutions and architecture in four key areas:
•Corvisa's open, standards-based application programming interfaces (APIs) and software development kits (SDKs) will accelerate third party application integration within the ShoreTel ecosystem.
•The addition of Corvisa's SIP trunking to the ShoreTel solution portfolio will position ShoreTel as a SIP trunking provider, unlocking new revenue streams for ShoreTel and its channel partners while delivering simpler transactions for customers.
•Corvisa's standalone cloud contact center expands ShoreTel's presence in the rapidly growing contact center market, allowing for integration with non-ShoreTel communication solutions.
•The acquisition will bring approximately 95 employees, most of whom are in technical and customer-facing roles. These highly desired technical engineers will be instrumental in the acceleration of ShoreTel's innovative architecture and product roadmap.
In addition, ShoreTel continues to expand its cloud services in Europe as a result of acquiring Corvisa's Amsterdam and UK data centers. “
Stagnation in the premises-based communications market is a well-known fact. Vendors such as ShoreTel and its key competitors—Avaya, Alcatel-Lucent, Cisco, Microsoft, Mitel, NEC, Toshiba and Unify—have markedly focused their efforts on enhancing their cloud portfolios. Every vendor has a different game in this space, but they all realize the cloud is the only growth path available to them. Most have leveraged their own technologies to build cloud platforms while others (e.g., ShoreTel) have entered the market through acquisitions. Vendor strategies also differ in terms of service delivery with some (e.g., Microsoft, ShoreTel) becoming service providers themselves and others enabling partners (e.g., telcos, VARs) to provide cloud communications services to end customers.
As stated in the press release, the acquisition of Corvisa enhances ShoreTel’s cloud communications portfolio and overall market position through incremental revenues and differentiated technology capabilities. It provides an opportunity to target customers looking for more customized solutions and integrations, which ShoreTel is unable to support with the multi-tenant ShoreTel Sky and Connect CLOUD offerings.
Corvisa’s platfrom also gives ShoreTel a foothold in the SIP trunking market, which is growing rapidly driven by demand for cost-effective connectivity solutions among businesses with existing premises-based communications investments. Unlike most other SIP trunking providers, ShoreTel will be able to deliver SIP trunking services more cost-effectively using its own proprietary platform, rather than a third-party solution.
Contact center capabilities are also important for ShoreTel’s ability to grow and differentiate in the cloud space. Annual cloud contact center revenues have already surpassed premises-based contact center revenues, demonstrating high demand for outsourced customer care solutions. Contact center is, however, also very important to cloud PBX providers looking to penetrate larger businesses. There are inherent costs and functionality benefits in providing a one-stop shop for both PBX/ UC and contact center services to businesses.
ShoreTel’s growth in the cloud space will also be determined by its ability to expand internationally. This will not only open new markets, but will also enable the company to more effectively support US-based multi-national firms. Corvisa’s new UK and Netherlands data centers provide some of the capabilities necessary for ShoreTel to launch services in Europe.
Overall, ShoreTel can potentially gain significant value for the modest price of $8.5 million it will pay for Corvisa. Corvisa’s current installed base and revenues are fairly small to considerably boost ShoreTel’s 2016 revenues, but can have a more substantial impact in the future (e.g., accelerate cloud growth rates by 2017 as suggested in the press release).
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