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December 10, 2007

Vertical Communications Lures SMBs to IP Communications with the Wave 2500

By Richard Grigonis, Executive Editor, IP Communications Group

Vertical Communications (News - Alert) ( is one of the biggest telephony-related vendors in North America. With a current installed base of over 200,000 customers and approximately $100 million in annual revenue, Vertical offers an amazingly comprehensive range solutions, including InstantOffice, TeleVantage, Comdial and Vodavi brand products. Vertical was formed in September 2004, when Artisoft acquired Vertical Networks to form Vertical Communications, which then acquired the assets of Comdial in September 2005. Vertical then acquired Vodavi Technology in 2006.

Peter Bailey, Senior Vice President of Product Management and Business Development at Vertical Communications, says, “We’ve been working on our plan for the market for the past three years. We’re now going from a quiet phase in our evolution to one of banging the drum more during 2008, in terms of driving our strategy in the marketplace.”
“Vertical was founded in 2004,” says Bailey. “We’re private equity-backed. We literally came together as a management team and with a business plan to go after what we saw as a pretty significant market opportunity around the convergence of IP technologies in the voice sector, and specifically around servicing the SMB [Small and Medium-Sized Business marketplace. We see a huge portion of the overall U.S. business market that has yet to move to IP adoption, and that’s primarily the small business side. We think there are many hurdles that are keeping slowing small business adoption of IP, unlike medium or larger enterprises. We think we have a strategy that addresses this and we’re looking to become a leading market provider of IP telephony solutions in the SMB space.”
“To that end, our strategy has been to go out and aggregate an installed base and channel,” says Bailey. “We’ve done that through acquisition — we’ve actually acquired and put together four companies to date. As a result of that, we have almost 2,000 channel partners that had relationships with those companies. There’s an installed base out there of over 200,000 customers. These are all primarily TDM systems or hybrid systems of Vertical Networks, Artisoft, Comdial and Vodavi, and those systems are in some relative phase of depreciation and the customers will be coming up for an opportunity to migrate those customers here in the next couple of years. Our thesis is that the value of IP, and, more importantly, the value of the applications you can enable for an SMB customer is going to cause the replacement cycle to accelerate. Whereas normally an SMB customer may take seven to ten years to change their phone system, we think it will actually happen a lot sooner — in the next couple of years. And that obviously creates real growth.”
“Additionally, we believe that our product strategy is, by and large, more suitable for the SMB market than those of our competitors,” says Bailey. “So we think that, day-to-day, we’ll be winning more deals and we an allow ourselves to expand our channel through the strategy that we’ve put together. So that’s the foundation of what we’re pursuing.”
“We actually are a public company, though we’re not listed,” says Bailey. “We’ve kept the company in an unlisted state while we’ve made acquisitions and have gone through restructuring, as one does when one makes acquisitions. One of the things that we’re looking at doing over the next 12 months is to get the company re-listed and back out in the public eye.”
“We’re roughly an $85 million business,” says Bailey. “We have very good growth prospects for next year. We have almost 300 employees. Our mission statement continues to be very much focused on the SMB market and being a leading provider there.”
“We are big believers in consolidation,” says Bailey. “We think the market will continue to consolidate and we ourselves plan to be a ‘consolidator’, again, remaining focused on the SMB market. We believe, frankly, that there’s several big opportunities out there. One is simply helping the channel become trained so that they can sell voice-over-IP and related applications. Most of the guys in the SMB market are still fundamentally running TDM, so we’ve made a big investment in training and education. We’ve got something we call ‘Vertical University’. All of our dealers are associated with this, and it allows them to get trained on networking, Microsoft certifications, and of course our products. The end goal obviously is to work with our dealers, so they can go back to their installed base are pursue migration-to-IP opportunities as well as getting the dealers to sell IP in Greenfield opportunities. Today about 97 to 98 percent of our business is in North America, though we do have some distribution in Europe and we’re expecting to expand that pretty dramatically next year through some opportunities on which we’re working right now.”
Guiding SMBs to IP Communications
“One of the data points on which we’re focused is what’s happening with small businesses,” says Bailey. “We hear a great deal about IP telephony penetration, broadly speaking, in the marketplace. Clearly, at the high end of the market in the enterprise, this has been happening a great deal faster. These large organizations are the early adopters, the guys who can afford to ‘invest ahead’ and perhaps take a hit on costs early on in pursuit returns later on. Looking at medium-sized businesses, the penetration rate is lower, and in the small business it’s the lowest. According to a 2007 InfoTrack report, small businesses are three years behind medium-sized businesses in terms of IP telephony penetration. There are some fundamental reasons that explain this and that we’re trying to address. But the basic message is that we’re starting to see acceleration in IP adoption by the small business. Now is the time to go after this market and we think that, over the next four or five years, there’s going to be a tremendous opportunity to ship small business into VoIP and applications, and that’s what we’re pursuing with our business plan.”
Bailey continues: “So, what’s the pitch to the end customer for IP? First, with IP you get a single network for voice and data. Second, there’s easy management. Management of technologies you normally use with the data infrastructure now work with voice. Finally, there are applications that optimize business — desktop integration, unified communications and mobility — and which really enhance the ROI message. That’s the pitch to customers on why go to IP.”
“Now, the reality for small and medium businesses is that there are many costs associated in pursuing such a migration strategy,” says Bailey. “There’s a higher initial cost to upgrade the IP network. And invariably, there’s a higher cost to manage the network — for example, they need more IT staff, or they rely more on the dealer which has its own service costs. And the applications themselves are quite expensive, when you consider licenses, servers and management cost.”
“In short, the smaller the business, the greater is the hurdle to adopt IP telephony and applications,” says Bailey. “For smaller businesses, there’s more ‘cost’ than ‘benefit’ up front regarding IP Communications. That is fundamentally the issue or set of issues that we at Vertical Communications are looking to address with out products. We want to remove the costs, remove the pain, and make IP migration a much easier proposition for small businesses.”
“In doing this, our product strategy consists of a number of ideas,” says Bailey. “First, we are absolutely a big believer in converged systems. By that, we’re not talking about taking a TDM system and installing an IP gateway card in it. We’re talking about truly converged systems that can support IP or TDM natively. And so what that allows us to do is take the IP cost issue head on, where, without our next-gen platform, we can literally support a TDM network or an IP network, as a native aspect of the solution. So the cost equation no longer need include gateways or extra cards — all of that gets taken out. Furthermore, our strategy involves integrating applications with our solutions, and so there are no separate servers; it’s a unified management infrastructure so you can really turn on applications and demonstrate ROI with just a software license, as opposed to adding needlessly to your infrastructure, setting up separate management, and all that goes with that.”
“Additionally, we have a strategy that is very migration-friendly,” says Bailey. “So, for example, with all of our new products we allow you to use your old legacy phones, whether they’re digital phones or what have you — for Vodavi and Comdial dealers. Interestingly, about 50 percent of the investment for a phone system is for the phones themselves. And so for our customers, they can migrate and use their existing phones. Moreover, we can enable our customers to actually network with legacy switches and network voicemail servers so that they can also, from multi-site deployments, introduce next-gen technology on a site-by-site basis. Those kinds of things enable easy migration and, again, remove hurdles for small business to migrate to these solutions.”
“Lastly, we absolutely do have some investment in what you’d call ‘pure IP’, which means products that don’t support TDM natively,” says Bailey. “This is really for the early adopters in our market, the guys who are looking for perhaps multi-service gateway-type solutions or SIP trunking-focused solutions. So we do have some products in this area too. We frankly view that as some table stakes in the market place, as that market grows more for small business. But the core products today, and where we really expect to make a lot of our money over the next couple years, concerns this converged integrated application strategy for this market.”
What They Offer and Where They’re Going
“At the low end, we’ve got some key system products,” says Bailey. “In the mid-range, we offer small PBX and key system products and at the higher-end of the market we offer pure PBX products. Most of these products are IP-enabled, either with a card or have, in the case of TeleVantage, can be deployed as an HMP [Host Media Processor (News - Alert)]-based solution, but none of them are really built from the ground up to support IP deployments, nor the application strategy that we’re talking about for our newer products.”
“Vertical TeleVantage, by the way, is an IP-based phone system wherein users can immediately locate and check the status of co-workers, initiate conference calls or access contact information,” says Bailey, “so they don’t waste time searching for numbers and transferring calls. TeleVantage’s “find me” call routing capabilities ensure that employees can receive calls any time, anywhere.”
“Vertical Wave is our flagship product,” says Bailey. “The Vertical Wave IP 2500 Business Communications System what we just introduced in October 2007. It’s really designed to replace all of our previous products in the 30 to 500 user segment of the market. It supports up to 500 SIP endpoints,, or up to 480 TDM endpoints. Obviously, you can also scale that product down below 30, but from a cost perspective it’s very competitive above 30 users. Wave supports legacy TeleVantage, Comdial, Vodavi, and InstantOffice endpoints. There is comprehensive migration available for your installed base. The system has a dual processor architecture for the core IP PBX (News - Alert) and a dedicated application server module. It can work with Linux and Win2K3. There’s also an integrated modular DSP pool for VoIP Gateway and applications support.”
A set of sophisticated applications come standard on the Wave IP 2500 platform include Wave ViewPoint, Visual Voicemail, Unified Messaging, Presence, Call Recording and Auto Attendant. The Wave ViewPoint desktop call management tool works in conjunction with and extends and enhances the capabilities of a physical phone.
“In 2008 we’ll be introducing a second Wave platform that targets the smaller PBX and smaller key system marketplace,” says Bailey. “We also have a product called Vertical Xcelerator IP that’s really a multi-service gateway pure IP solution for the low-end of the market. It’s an all-in-one wireless VoIP and data network solution for small businesses. Xcelerator IP integrates voice, data and wireless networking in one compact, cost-effective wireless device. One Xcelerator IP gateway can support up to 24 Vertical IP2007 SIP endpoints plus additional office devices.”
A Huge Portfolio
Vertical Communications offers a wide range of IP communications solutions that should be enticing to any SMB. Their systems feature advanced, intelligent call routing functionality that ensures that every inbound call is answered promptly and routed properly, and their special features include priority handling for VIP callers, voice broadcasting of special limited-time offers, and much more. Thanks to Vertical’s software-centric architecture, their solutions will work with your existing phone system and will scale up with your business.
Richard Grigonis is an internationally-known technology editor and writer. Prior to joining TMC as Executive Editor of its IP Communications Group, he was the Editor-in-Chief of VON Magazine (News - Alert) from its founding in 2003 to August 2006. He also served as the Chief Technical Editor of CMP Media’s Computer Telephony magazine, later called Communications Convergence (News - Alert) (NewsAlert), from its first year of operation in 1994 until 2003. In addition, he has written five books on computers and telecom (including the Computer Telephony Encyclopedia and Dictionary of IP Communications). To see more of his articles, please visit his columnist page.


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