IP PBX vendor's public success would give buyers more options with less worries.
Enterprises don’t usually sit around waiting eagerly for their equipment vendors' IPOs. It's investors, not buyers, that typically have trouble containing their excitement. And that’s understandable. Buyers aren't the ones that will get rich, they're the ones that will make investors rich. Still, ShoreTel's planned IPO should make at least some current and prospective customers happy. The reason: it will give them reassurances and alternatives they might not otherwise have as they negotiate the still-worrisome road towards all-IP telephony.A ShoreTel IPO clearly won't be a Google-style game changer. The Sunnyvale, Calif. IP PBX vendor filed February 12th to sell a maximum of $85 million in common stock as soon as practicable. The company had only 223 employees at the end of 2006. Still, it's on a steep growth curve. Revenue last year was $61.6 million, up from $18.8 million in 2004. And despite its modest size, the IPO could have an impact on IP PBX buyers in several ways, according to analysts.
One way is stability and assurance. A successful IPO will give ShoreTel's current customers confidence that their phone vendor will be there when they need it. "When they buy PBX gear, enterprises want to make sure the company is going to be around for the lifespan of the product," says Dell'Oro Group analyst Alan Weckel. It's a sensitive issue, he notes, because the average lifespan of PBXs, which require ongoing support, is seven years.
Frost & Sullivan analyst Krithi Rao agrees that a sense of permanence is crucial. "Some companies in this space have shut down or been acquired pretty fast," she observes. "Even if they have great technology, they're not necessarily able to battle it out in the market" against giants like Cisco, Avaya and Nortel. The battle over the channel partners that actually sell the gear for the vendors can be particularly trying, she adds.
The increased stature a successful IPO would bring ShoreTel could expand horizons for IP PBX buyers in general, according to Rao. "I feel they will be convinced they have more choices," she says. "It will mean they can look beyond the top couple of vendors." That will be beneficial in part because ShoreTel brings significant advantages. "They are reputed to have ease of administration, management and deployment," Rao notes.
There could also be significant perceptual benefits for smaller organizations looking at purchasing an IP PBX. For one thing, the very visible success of a vendor selling IP-only phone systems to smaller businesses could do a lot to erase any lingering hesitations such companies might have in moving from TDM to IP systems. "ShoreTel's success in selling only IP PBXs proves the market is in transition away from TDM," notes Weckel. At the same time, it would free them from the perception that the only safe IP PBX bet is to go with Cisco, which has replaced IBM as the vendor no one ever got fired for buying from.
A successful IPO will also, of course, benefit ShoreTel itself in a number ways. In particular, notes Rao, it will let it boost its R&D efforts and marketing channels, which will help it move upmarket as the giants move down, as both inevitably will.
In the end, an IPO that boosts ShoreTel's chances for success will help make its customers as happy as investors. But that will only be true until the vendor reaches the point where it's no longer the innovative newcomer, but one of the established powers in the market. When that happens, some of its bolder and more technically savvy customers will start to look elsewhere. Then again, so will some of its investors.
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