Under his leadership, Mitel has doubled revenue to more than CDN$1.3 billion, emerging as a global leader in the business communications market with #1 market share in Europe. Mr. McBee will offer insights into the keys to building a world class flagship tech company and what it will take to advance Canada’s competitive innovation nation success.
Our Keynote will share insights on key topics at the 32nd Innovation Leadership Gala ( May 17th, in Ottawa, Canada), such as:
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BETWEEN THE CEOS
As anyone who knows me will tell you, I like to think I know a fair bit about this next-gen-comms malarkey, but there’s nothing like an interview with one of the leading CEOs in the communications industry to make me realize how large the gaps in my knowledge base actually are.
That was certainly the case with the following interview with Rich McBee, CEO at Mitel.
I’ve known and written about Mitel as a provider of voice/PBX solutions for almost three decades
So shame on me for totally missing the fact that, under Rich’s leadership, the company has just been through a transformative shift from established olde worlde voice player (“can you hear me mother?”) to leading provider of converged network solutions (“space, the final frontier”).
The pivotal moment in its metamorphosis was Mitel’s acquisition of NFV virtualization pioneer Mavenir for over half a billion buckaroos in March of last year — a purchase that has tipped the company right into the heart of the most exciting sector of the comms industry, and today puts it in a head-to-head competition with the largest companies in the world.
Far from being a disadvantage in those battles, the fact that Mitel has voice and enterprise know-how in its DNA for over four decades (it was founded in 1972), combined with the state-of-the-art Mavenir tech, places it in a unique position to win business against all comers.
Read on for Rich’s genuinely insightful market commentary on converged communications — in both enterprise and service provider networks, and fixed and mobile networks — as well as to hear more about this company’s remarkable success story.
The journey so far…
Steve Saunders: So how long have you been in charge at Mitel, Rich?
Rich McBee: I’m coming up on five years. Boy, it’s been quite a journey.
SS: It must have been. You joined at the end of a period when things weren’t very interesting in communications and then the world sort of exploded, didn’t it?
RM: Yeah, it did.
SS: So, tell me about that experience. Did you expect to see so much change in the last five years?
RM: It’s interesting. In the first two years we had to get the business fundamentals in the right place, which meant rationalizing the portfolio and fixing the channels. And we had to focus, which meant making what I would describe as the big bet. And the big bet for us was on virtualization. We were the first company to virtualize both the applications, and to truly virtualize any server at any time.
Once we got the company really healthy from an operations and profitability perspective then we moved to the second stage, moving into what was then an adjacency but now just seems like bread and butter, and that was our cloud business.
Part of the virtualization strategy was to be able to offer a cloud platform as well as a premises-based platform. In our [voice] market when people say “premises equipment,” they think of a box, a PBX. But the reality today is that it is just software running on a server.
SS: The history of communications shows us that it can be harder to make money from software than it is from hardware. Has it been challenging for you to find a business model which allows you to monetize software?
RM: No, it really hasn’t. When you start out as a PBX house, what you were selling was hardware. And what was really hard was selling maintenance with that hardware.
SS: Right. It’s such a low-margin business.
RM: Totally. But as we moved into software at the same time there was a transition happening where the IT guys had a much higher expectation around software assurance. So the issue wasn’t whether we were going to do software assurance on the software, the question is what the price was going to be. So what we saw was at the same time that the transition from hardware to software was happening, we saw maintenance go down but service assurance going up.
RM: That’s obviously a very high-margin kind of business. If you look at the whole mix, the business has become more profitable and the hardware has gotten commoditized. That’s the advantage of virtualization; the real IP is in the software. Then it’s just a matter of managing the portfolio in the marketplace by continually innovating and increasing the feature set at the same price point. That’s what we do, simply. And we’ve been able to improve our margins every year using that model.
Why we bought Mavenir
SS: Mitel has had a string of acquisitions. Are you done yet?
RM: No. The vision of the company is very simple and very powerful. It’s about seamless communication and collaboration. In any of the many ways that users today communicate and collaborate, our ultimate goal is to make that completely seamless, so the customer can simply “tap to connect.” And that’s where our latest acquisition of Mavenir fits in: it brought the mobility piece into the enterprise for us. Think about all the things that are going on in the market: cloud, unified communications and collaboration, mobility, consumerization of IT. The way the customer interacts with all of this is so key. Fifty percent of business calls today are mobile calls — it’s not a desktop phone call anymore. With all of the mobile stuff, and social stuff, it just has to be easy to use.
RM: And those are the apps that really win in the marketplace. If you think about the transition, the next big things for all the vendors, not just us, is how those applications can enhance the way that people work. That’s the piece that we’re working on.
SS: The perception of Mavenir is that it was a service provider play. The perception of Mitel is an enterprise company. When you bought Mavenir a lot of people didn’t really understand how the two fit together.
RM: My response to people who say that is to ask them how people get their voice and collaboration services today. About half of the market gets served by someone offering enterprise solutions — about half is provided by service providers.
The service providers own the pipes, and they are always going to have a place in the network. But today what they are being forced to do is make some changes to the speed at which they operate because now people are putting some very robust applications on their pipes.
In a tongue-in-cheek way I like to say that service providers are usually late to the game but when they finally get there they are huge and have a ton of money so they will always have a real presence. And they’re constantly looking for ways to make themselves more relevant to customers.
This is actually one of the key reasons we bought Mavenir. There’s a big transition going on in the service provider space. In the past the state of comms technology kept enterprise or fixed-line services separate from mobile service. With 4G LTE, that IMS network is just an IP network — and IP is IP, it doesn’t matter whether it’s an enterprise or a mobile service running over it.
So what we saw was some of the mobile carriers looking to diversify out of mobile by going after some of that low-end enterprise business by providing an IMS PBX over their network. Those small guys just want a mixture of desktop phones and mobile phones, and they are going after them with a bundled package.
So we kind of leapfrogged all that and said “virtualization is the future,” and Mavenir was the first to provide full virtualization. And the people we compete with, the Alcatel-Lucents the Ericssons and all those guys, they’ve got a tough transition to make, and they have very large revenue and maintenance streams built on this purpose-built hardware, but where the carriers want to go is towards low-cost servers which virtualize applications and provide the next-generation services and voice and applications to the customer base.
So it’s a tough transition for the OEMs to make, but Mavenir has allows us to bypass all the circuit switched stuff and make the LTE transition. So we’re really excited about that particular business but it’s also been part of a strategic roadmap, towards seamless communication and collaboration.
Making the connection
SS: What about the competitors?
RM: You know, I kind of look at this Cisco-Ericsson partnership as the ultimate validation of what we did. [Laughs] We compete with both of them for sure and the difference is they’re partnering and we own it.
SS: Yeah, it’s part of an integrated solution which is supported by one team.
It’s interesting because a lot of the boundaries which used to be inviolable within the industry are being broken now. People used to think of Mitel as a “the enterprise voice company.” Now, of course, you are a communications company, and you sell on both sides of the fence — enterprise and service provider. At what point does the technology stop being specialized for each of those markets? Will you ever be able to sell one product across the board?
RM: That’s a long ways off, but today we do get a lot of synergies in development.
You know, when we bought Mavenir, I had the opportunity to sit down with a lot of CIOs of the major carriers. And could see the light bulb coming on. They were like, “Wait a minute, you guys have been in this IP stuff from the start, you’ve got a rich heritage of IP capabilities, we’re transitioning our network to be IP based — LTE IP based with an IMS core.” And they just got the connection, boom!
So they wanted to right away have a technical planning meeting because they were really interested in how they could differentiate the services they provided in a mobile environment or in an IMS PBX environment with the things we’d been doing forever.
So a feature like a ring group; that’s a jellybean technology for an IP provider such as us. But wow, what if you can do that in a mobile environment? So the IP technology we’ve been working on is now starting to be enabled in the mobile network, for lack of a better term.
As time marches forward, what you’re going to see is more applications become more critical, and more seamless interoperability between those applications. So we feel we are really well positioned to lead and be on the front end of that.
Candidly, the new technologies, the new capabilities, are just the start. There’s been a major technology turn in mobile technology that’s going to come back around and anything you can do in fixed today you’re going to be able to do wireless.
Turning the vision into a (virtual) reality
SS: How important is network NFV, as opposed to server virtualization, to Mitel?
RM: It’s very important because of our mobile piece. The thing that’s driving virtualization is cost. Purpose-built hardware is too expensive. Over the next five or ten years, as the data centers grow, and server costs rise, the IP is going to be in the software. It comes back to the transition as a company that we were making. The reality is that the future is enabled by more software, more applications, and a more IP environment.
SS: I wasn’t actually aware that Mitel was such a leader in NFV. And you already have developed a virtual CPE solution, is that right?
RM: Yeah, absolutely.
SS: How long has that been available for? Because that’s blisteringly hot right now. That’s really the number one virtualized service that service providers want to talk about.
RM: From the enterprise side, I think we are on our fifth or sixth generation, so we were first with that. In the mobile side, we’re on our second generation now. In that space, the typical NEMs [network equipment manufacturers] have a tough challenge because they have all this purpose-built hardware and they have this built-in revenue stream for service and maintenance and all that kind of stuff. But when you look at the true value of virtualization, it’s cost and flexibility. It’s cheaper.
SS: I started my career as a reporter, an editor, in London, and one of the first ever articles I wrote was about a Mitel PBX. There’s a nice sense of synergy for me coming back 25 years later, to interview the CEO of Mitel, and hear about this transition which you’ve gone through. It’s quite a story, isn’t it?
RM: Yeah, it’s a period of renewal. As a team we’re talking about how fast and how far we’ve come in the last three years. And the reason I say three years is because the first couple of years were tough. But how fast things have changed. And I always talk to my team with a glint in my eye and say, “Hey, you guys did a great job sprinting that first lap, now pick up the speed.” [Laughs]
SS: Nobody’s going to take their foot off the gas for the next three years either. I don’t know if you read the letter from the rotating CEO of Huawei that he sent to his employees over the holiday period. It’s on the Light Reading site. (See Huawei Expects 2015 Revenues of $60B.)
RM: I didn’t see it.
SS: You should read it. It’s really entertaining because he’s basically saying: This is war. We have better weapons, we’re going to invade. Come on, let’s just get out there and do this. And he’s astute — he quotes all of these military historians and this whole thing is about attack, attack, attack; take no prisoners, but also be really honest with ourselves. So it’s quite an inspirational letter and you just look at it and you think, if you’re an incumbent anywhere else in the world and you aren’t set up in a defensive formation or you don’t have the same level of energy and strategy and aggression, you’re going to have a very, very hard time if you’re competing with some companies.
SS: So that’s what the industry needs right now. It needs enthusiasm and people to move us forward and obviously you guys are doing that.
Let me ask you a piece of advice, Rich, if I may. Light Reading started in telecom, but we can cover anything we like. What do you think is interesting? What are the growth opportunities in enterprise?
RM: Well, the reality is that communications and collaboration are becoming one market. Some people are running to that world, some people are being dragged into it. And the communications piece really comes out of the telco world, and the enterprise is providing the collaboration DNA, and seamless communication and collaboration is coming together. Voice, video and data; the entire business of how people want to interact.
So I think that businesses don’t really care whether the carrier or somebody else is providing it to them. What they want to do is have robust, easy-to-use systems that just work. And you know, they really don’t care whether you’re a Cisco or you’re a Mitel — what they care about is simplicity of use, so I can do my job. I can’t tell you how many times I’ve sat in the conference room at other companies and you’ve got all five people standing trying to make the video conference call work. If you could just sit down, tap it, and it worked, well, we think there’s a goldmine in that.
SS: That’s the end game, isn’t it? Making it possible for people to communicate and collaborate. But the way that you said that, that the comms piece is essentially derived from the telco world, and collaboration is where the enterprise comes in — that’s a remarkably eloquent way of explaining convergence. I shall write it down and pretend that I thought of it.
RM: [Laughs] It’s the root of our strategy. When you look at the things that we continue to acquire, continue to build, we’re not an opportunistic buyer. We have a roadmap of capabilities that we have bought and are in the process of constantly looking to make that vision a reality. And I won’t sleep until we get there. That’s what I’m passionate about making happen.
Clearly we want to be a leader in this transformation of communications and collaboration. We’re going to continue to push that agenda very hard, to continue to grow in size and scale, and we’re going to make it pretty tough on some of the big boys.