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ShoreTel – A View From Across the Pond

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We were fortunate to have Duncan Clark of industry analyst firm Canalys from the United Kingdom join us for our annual Industry Analyst Briefing held at our Champion Conference. Duncan shares his view on ShoreTel and the overall event:

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How does ShoreTel intend to maintain its growth trajectory?

  • ShoreTel has been one of the fastest-growing vendors of the last three years
  • But it is still not one the world’s top 10 vendors
  • Increasing investment in international expansion and building brand awareness must continue to be its top priorities

ShoreTel has been one of fastest-growing vendors in the UC call control market over the last three years. In the first quarter of 2011, its shipments grew 35.3% year-on-year, significantly outpacing the market average of 8.4%. In Q4 2010, it recorded growth of 32.6%, while in the third quarter it achieved 28.7%. Continued momentum in its core US market and expansion in selected international markets, particularly in Europe, are behind ShoreTel’s strong performance. This has been achieved exclusively through organic growth and by gaining a higher profile among channel companies, which is impressive but has taken time. In spite of this, ShoreTel still lacks the scale of its biggest competitors, especially in key international markets, such as Brazil, China, France, Germany, India, Japan and Russia. By its own assessment, its overall consideration rate in large accounts is still low. In the US, it ranks among the top five vendors with 3.6% market share, but on a worldwide basis it only accounted for 0.9% last quarter and remained outside the top 10 vendors. It needs to become a billion-dollar-revenue-generating company to challenge the top three vendors in terms of market share. Canalys estimates the US accounted for 84.6% of its worldwide shipments in Q1 2011, down from 90.5% in Q1 2009. But it is still too dependent on the US. Ideally, ShoreTel should be aiming for its international activities to account for more than 50% of its shipments. As a benchmark, Alcatel-Lucent, Avaya, Cisco and Siemens have achieved a mix where their home market represents 35% to 45% of total shipments. Its recent Champion Partner event in Chicago gave the opportunity for ShoreTel to outline its strategy to its channel partners to push them to close the gap on the competition.

Its ‘Brilliantly Simple’ tagline was heavily used during the event and this was the message that customers and channel partners also conveyed when describing their experience of working with the vendor. It is apparent that this is more than just a product description, as ShoreTel demonstrated it is also ingrained in its business philosophy, with customer satisfaction remaining a key metric. The same message and focus has remained despite the change of CEO in the last year. This consistency will continue to benefit ShoreTel in the long run, especially as most of its major competitors are going through significant disruptive ownership, organizational, product and go-to-market changes. Opportunities will consequently arise for ShoreTel to recruit disgruntled channel partners and win new customers that are looking for a stable and innovative alternative vendor. Though the ShoreTel 12 and Contact Center 7 solutions were announced only in May, ShoreTel outlined further enhancements relating to its UC offerings, particularly around video collaboration, while mobility will be a key focus area. These are areas where ShoreTel can differentiate, especially around mobility if it plays an enabling role for businesses to deploy bring-your-own-device policies. ShoreTel aims to speed up integration with new devices and support an increasing number of operating systems, and it is likely that it will also use its acquisition of Agito to penetrate new accounts. Additionally, SIP will be an increasingly important area for future investment.

ShoreTel demonstrated that it has invested in international expansion and brand awareness. It showed that through a highly focused sales approach it was having greater success in larger accounts. By continuing to invest in brand awareness, it stands a better chance of increasing its consideration rate for large corporate and multinational accounts. In terms of international expansion, it has decided to concentrate its efforts on selected key markets where it can further increase market share, in particular Canada, the UK, Australia and India. It wants to ensure that investments are made in a strategic manner, rather than entering too many markets with little sense of direction – a mistake many of its competitors and industry peers have made in the past. This should help the vendor ensure that it can establish itself and engage with the right level of partner and provide appropriate levels of investment and support. This has proven to be successful so far, especially in the UK and Australia. It is also rolling this approach out to other smaller markets, including the Netherlands and South Africa, among others. It will need to reassess this strategy before targeting other key international markets, where local vendors dominate and provide challenging conditions for new entrants to gain a foothold. Organic growth alone may not be enough in these countries. But without penetrating these markets, it will be challenging for it to become a top-three global vendor.

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Duncan,

Thank you for attending the conference and for your fine words. We look forward to having you join us for future briefings, and look forward to your reviews and updates.