Avaya Sale Underscores Push to Software, Services

Carl Weinschenk

While it made headlines, the June 4 acquisition of Avaya by investment firms Silver Lake Partners and TPG Capital for $8.2 billion received a somewhat muted reaction. The reason is nicely encapsulated in this VoIP News story: The deal won't change too much. Since the acquiring companies aren't vendors, there is no industry consolidation involved. Due to steps taken during the past decade to save it, Avaya already is operating at a high level of efficiency, so its performance won't markedly change.


But while the deal in and of itself isn't earth shattering -- purchases by investment firms few people have ever heard of are inherently less dramatic than acquisitions by glamorous competitors -- it serves as a marker in an important industry-wide shift.


Gartner's take on the deal, outlined in this ITP Technology piece, is that private ownership will give Avaya's management the elbow room necessary to make strategic decisions "away from public scrutiny" -- i.e., independent of the quarterly-driven myopia that drives decisions by publicly owned companies. The firm says this freedom will accelerate the transition of Avaya from a hardware- to a software-focused company. Private ownership is a good thing during tumultuous times, since many decisions won't have immediate bottom-line ramifications.


This dovetails nicely with comments made by Krithi Rao, an analyst for Frost & Sullivan, in an Executive Briefing we posted this week on IT Business Edge. Rao says the IP hardware business is becoming commoditized and firms are looking to transition to greener pastures that include writing applications, offering services, marketing to smaller companies and accommodating branch offices and remote workers.http://lippisreport.com/2007/06/06/avaya-goes-private/


Nathan Swartz at The Lippas Report concurs. After discussing two competitors that could have made a play for Avaya -- Nortel and Cisco -- he also points to the transition to software and services orientations.


The big picture here, of course, is where the industry is going, not who the owners of Avaya are. The thread through most of the reaction pieces to the deal hits this bigger picture nail on the head. If anything, the announcement suggests that the new common wisdom has coalesced. No longer is the key how many IP PBXs are sold, though that will remain important. Today, the most vital single issue is which companies effectively build and market sales and services.

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