Plantronics’ Acquisition of Polycom is Equal Parts Opportunity and Challenge
Mar 29, 2018
When Siris Capital acquired Polycom two years back, it was clear from the get-go that they would focus on the financial aspects i.e. cost reduction and profitability of the company. Riding on the heels of a successful quarter and healthy margins for CY2017 (Non-GAAP operating income of $183.1 million and Non-GAAP operating margin of 16.0%), there couldn’t be a better time for Siris to offload Polycom. As covered by my colleague Alaa Saayed, there is a clear strategic fit between Polycom and Plantronics. In this regard, Polycom is a perfect match for Plantronics.
The immediate opportunities are in the synergies the two companies have on the audio technologies and voice devices. From that point of view alone, this deal can be a game changer. After the merger is complete, Plantronics will more than double in size to become a leading vendor in the communications endpoints business. Polycom arms Plantronics with a comprehensive portfolio of endpoints that directly addresses user pain points to simplify the communications experience. Add to that Plantronics’ growing focus on software, analytics, IoT, and services and there is a strong potential to bring out innovative technologies that enable workplace transformation. With very little product line overlap, the Polycom assets make this deal a solid market expansion opportunity that allows Plantronics to extend its footprint beyond its mature headsets business. At the same time, the two companies' core technologies are complementary which is where the beauty of this acquisition lies. The technology and market synergies of this merger will allow the sum-of-parts to exceed the standalone. Moreover, the two companies have a significant customer and channel overlap. Channel partners selling the two products separately will now be able to sell a joint solution that works better together i.e. intelligent pairing between communications devices and headsets especially Bluetooth headsets (a messy experience for users today), improved usability, and enhanced feature sets. For customers, this also means less system integration hassles.
On the go-to-market front, Polycom’s strength in international markets will open up new avenues for Plantronics. As Chris Thompson, Vice President of Enterprise Product Marketing at Plantronics, pointed out on a call with our team, Polycom’s footprint and sophistication in international markets opens up new growth opportunities. Chris added that while the bigger synergies are well understood, it is the less obvious ones that are truly exciting. Among the use cases where we think there could be significant innovation are -
- Video-enabled contact centers -- Plantronics has been extremely successful in the contact center headsets market. Though the relevancy of video in the contact center has been questioned by many, there are well defined use cases where video adds tremendous value in customer engagement (tech support, banking, health care, hospitality). Not many vendors have been able to crack that puzzle to offer the right mix of technologies that provide an easy to use, affordable and unobtrusive audio, video and content sharing experience for contact center agents – an area where Plantronics can innovate. However, it should be noted that while Plantronics and Polycom offer the devices, they do not own the contact center workflow vis a vis competitors like Cisco. Cisco’s recent entry in the headsets market adds a whole new angle and creates a new competitor for Plantronics.
- Empowering the modern office worker -- The trend toward open floor plans and open workspaces has created a strong demand for technologies that allow disruption-free work. Plantronics’ Habitat Soundscaping line combined with Polycom’s rich heritage in audio including its NoiseBlock and Acoustic Fence technologies, can create that ideal productive workspace. In addition, Polycom’s lesser known content management solutions can add the third dimension to Soundscaping’s audio-visual environments. Add to that a futuristic scenario of AI capabilities (voice and facial recognition, biometrics) and the company could be looking at the workplace of the future that many others are still talking about.
While the opportunities for Plantronics abound, the baggage that Polycom brings is real and cannot be ignored. Plantronics inherits Polycom’s video conferencing business which has been hard hit on multiple fronts – an aging meeting-room product line, lack of a cloud/VCaaS play, and frustrated channel partners. Though video conferencing is a fast growing multi-billion dollar market, it remains a complex space to navigate. Over the last few years, software and cloud-centric solutions have driven the industry to morph significantly. Companies that have innovated at a fast pace are growing while others are becoming less and less relevant. Once a market leader, Polycom’s market share in the video conferencing endpoints and infrastructure business has consistently declined and now stands at a little more than half of what it was at its peak. Its immediate competitors including Cisco, on the other hand, have been able to protect their turf by developing new business models and keeping up the pace of innovation. Growth in video conferencing has primarily been captured by alternatives (Google Hangouts, Skype for Business, Zoom, BlueJeans etc.), which has increased the competitive pressures creating major upheavals. It will be no small task for Plantronics to address Polycom’s organic growth problems in this space.
In recent months, Polycom has switched its strategy and has articulated a clear device-centric focus. It has been working at building a large ecosystem of cloud partners (Microsoft, Zoom, BlueJeans, among others) to fill the gaping hole in its portfolio left by the lack of a VCaaS play. In a market where cloud services are becoming an integral part of the technology acquisition process, the big question going forward will be - what is the role of hard endpoints in this changing landscape and how committed will Plantronics be to not only maintain the existing cloud partnerships that Polycom has but also work to broaden the ecosystem. To add to the demands, as many industry insiders state, Polycom has a lot of catching up to do in its meeting room videoconferencing technology. Polycom’s R&D engine has slowed down considerably over the last two years which, outside of the success Trio has seen, has been reflected in its sales. Plantronics’ commitment to innovating Polycom’s product portfolio will determine whether Polycom remains relevant in the video conferencing market. If they take their eyes off that ball, Cisco, Lifesize, Logitech among others will be quick to steal the market share.
To sum it up, we view this acquisition as highly synergistic. However, Plantronics has its job cut out to ensure it can keep growing the Polycom business. As a company, Plantronics has innovation in its DNA and we believe the joint entity has significant potential.
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