Vertical Communications - East Coast Analyst Day Recap, and a New Market Opp

Don't get too many trips where I fly to the U.S. for half a day, but that's what I did on Tuesday. In theory, it's very efficient - leave early, do your business and be home the same night. Sure makes for light packing, but just like when packets get dropped with VoIP, things happen - more on that later...

I'm seeing a common theme these days among second tier or lower vendors in this space, and what I heard at Vertical's event was no different. Analysts, of course, are in a different boat than customers or channels - we're influencers, not buyers. The Vertical team gave us a pretty good overview of their portfolio, which has 3 core offerings - Wave IP, MBX IP and SBX IP. In short, Wave is their future-forward UC offering, while MBX and SBX are hybrid key systems to get laggards started on the path to VoIP.

Vertical is a classic SMB play - their sweet spot is multi-site businesses, and the more the better. Their product line certainly covers the core needs of this market - it's very telecom-centric, with some collaboration capability. We didn't hear about video or social media, but they address needs that provide plenty of value for SMBs - IM, presence, mobility, soft phone, voice mail, conferencing, call recording and even some core contact center features. It really is an all-in-one solution, and on that basis, I can see the appeal for sure.

There's a  lot of legacy in their DNA - mainly from Comdial and Vodavi - so they have a solid solution to get businesses on the path to VoIP and UC. The messages here are different than what you hear from the Tier 1s when they talk about the enterprise market. I found it a clear reminder that a lot of the business world is still very much entrenched in legacy, so you have to dial things down to a level they can relate to. That's why I don't think it matters much that Vertical isn't talking about video or business process improvement - these aren't value drivers yet for SMBs. Actually, what SMBs really value is good value and simplicity, and that's what Vertical seems to be doing well. They talked a lot about their singular licensing model being a differentiator, and I can see that having appeal for SMBs when considering how to make all these applications work together.

As you know, I'm not a technical analyst, but based on the presentations and demos, it's fair to say that their technology does the job well enough. Actually, probably better than others, especially if you consider their large customer base, growth track record and portfolio of over 200 patents. Also, as their name implies, they  have a strong focus on vertical markets - especially retail, but others, such as education, medical, financial and government.

This takes me to the common theme mentioned earlier. I have no reason to doubt that Vertical's technology works fine and that they really understand how to help SMBs move along the TDM-IP migration path. The real challenge that all vendors serving SMBs face is marketing and sales. This is what really creates separation. Vertical understands the needs of SMBs perfectly well, but the big job is getting the market to see that. We heard plenty from COO Rick Dell about how hard they're working to build up the channels and to educate them on Vertical's value proposition. It's an endless job, of course, but it's the lifeblood of their business.

The SMB market is huge, and it sounds like Vertical has a good game plan here. My post here is one example of how engaging with the analyst community is part of that plan, so I'd say that's working pretty well. For me, the bottom line is that you have to bring the technology to the market - for most SMBs, their phones work just fine, but there's not a huge impetus to change. The market needs to be educated first, and you need to show them what's possible with VoIP and UC.  Based on Tuesday's event, Vertical knows how to do that, and if they stick to plan, they should continue to do well.

Oh - one more thing you should know that could bode well for them down the road. Vertical is privately-held, and Korea's LG is a major shareholder, as well as a development and distribution partner. I found that pretty interesting, and can't think of any parallels among Vertical's competitors. Clearly, this could open some avenues for global growth, and possible tie-ins for mobility offerings. Most of the aforementioned patents are Vertical's, but you can't rule out leveraging LG's R&D at some point, or even access to capital for expansion or acquisitions. Consolidation at this end of the vendor pool will no doubt happen at some point, and I'm sure that must be in Vertical's thinking.

As a quick coda, I mentioned this was supposed to be a tidy, one-day trip. Well, best intentions aside, the weather didn't cooperate, and I spent a lovely evening trying to sleep on the floor at the airport. My 6am flight the next day went off without a hitch, but Tuesday night was pretty chaotic. All I'll say is that there were many missed opportunities where the airline could have made this mess totally manageable with some simple communication. This isn't rocket science, but as a parting message to my hosts, the airline sector sure looks like a ripe vertical for the taking.