On a recent trip to Canada I sat down with Mitel CEO Don Smith and President and COO Paul Butcher to discuss the company, industry and future. The dynamic duo is exactly that, mixing copious amounts of humor and friendly verbal jabs (this time at each other and not me ;) ) with frank talk about technology and marketshare.

Avaya Purchasing Nortel

The issue of greatest importance was the demise of Nortel and sale to Avaya, since both are Canadian companies with a similar tradition of great engineering.

Don and Paul explained off the bat that they are excited to see two of their biggest competitors Nortel and Avaya merge as they have 100% channel/geographic/product overlap (may be a slight exaggeration but at least 85% is probably a “safer” estimate) and the two companies hated each other for 100 years. They say they are getting calls from not only the Avaya channel but the Nortel channel as the combined channel from the newly combined company will make it more difficult for these resellers to compete for business.

Software, the Strategic Direction

I must say, Siemens was probably the first large PBX company to sit me down years and explain that they believe the future of the business is software. Of course this idea has been the holy grail of startups and small companies alike. Altigen, Comdial and Televantage were just some of the pioneers in this space from a decade ago.

But Mitel has always been a strong engineering company and they took the PBX-as-software concept a step further by integrating tightly with VMware. What’s that you say? VMware doesn’t support real-time applications. Well, it seems Mitel worked closely with VMware engineers to get real-time working on a virtualized system. Specifically Mitel Communications Director software and Mitel real-time voice applications can run on the VMware vSphere™ 4 platform.

From there Don explained how more and more meetings with CIOs include discussions regarding how an increasing number of data center applications have to live in a virtualized world.

A Bigger Shift Than IP

What the execs said next was perhaps the most important… They explained that the shift from TDM to IP while dramatic is really a lot easier than the shift from hardware to virtualized systems. This explains why in 2001 the company spent 60% of its R&D on software but today it is over 90%. The question I have is when will other companies catch up and will lack of virtualization support be a deal-breaker for CIOs??

Avaya Going Down Wrong Path?

From there Paul explained the model Avaya is using of increasing the price of hardware while reducing the price of software is unsustainable and it will be difficult for Avaya to shift back. While I did not have time to independently verify Avaya raising hardware prices, the New Jersey-based enterprise communications market-share leader has been lowering prices on software-based UC solutions in the hopes of greater adoption. Interestingly Iwatsu, a smaller player in the PBX space has been giving away some software features such as UC in the past year or so.

The Power of Virtualization

The incredible power of virtualization reveals itself when you realize you can have a single server running different instances of your communications software. Imagine that one division can have one version of the software while another division uses a completely different version. In addition, each division has autonomy while data center functions such as backups etc can be centralized.

Smith said at this point, “Multiple Instance Communications Director, it doesn’t roll off the tongue but that is what it is.” And with that, a new a new telecom acronym, MICD opened its eyes for the very first time. ;)

Vonage Not a VoIP IPO Killer?

It was widely believed that the Mitel IPO of a few years back as squashed because Vonage tanked so badly and the stigma would be associated with Mitel. To this the company replied the reason the IPO was pulled was that they were able to raise the money quickly without an IPO and moreover they had a short window in which to acquire Inter-Tel as the company’s founder Steve Mihaylo was in competition for the Arizona-based enterprise communications company.

What’s next for the Mitel? Well for the short-term it is trying to figure out the optimum way to sell VMware-based telephony. In a business where resellers used to distinguish themselves by running wires neatly, we have seen a shift in the skillset necessary to be successful. First there was CTI, then VoIP, IP communications (including video) and now virtualization is the latest frontier. Expect more interconnects/resellers to hang up their hats as the complexity level eclipses their skills. Filling this void is the new opportunity for the channel.

After my meeting, I spent some time in Sir Terry Matthews incubator-land (Wesley Clover is a Terry Matthews company which also owns Mitel) where a slew of communications startups compete for time, attention and resources. My wife tells me I have an obsession With Sir Terry but I would call it a fascination with a person who can launch and invest in so many companies and maintain such a successful track record. At this point, the man is a legend and companies he starts have a head-start in the world. But when I compare sir Terry to different legends in tech I realize while others merge and slash jobs, Matthews keeps launching new companies, creating new equity and incentivizing new generations to build new companies which hire the engineers, marketers and salespeople of the future.

Here are some videos of my experience. I am still not as smooth as Larry King – but I am working on it.