NimCat and Avaya: Declawing the cat?

With Avaya‘s recent $46-million acquisition of NimCat Networks makers of an OEM peer-to-peer (P2P) telephony solution for small offices, P2P as a network architecture for enterprise telephony instantly gained stature and credibility. But could the Avaya move also ultimately stunt the growth of P2P in enterprise telephony? It seems possible that Avaya’s strategy is, at least partly, to contain the threat from P2P to its traditional lines of business—the key systems and IP PBXs it sells into small enterprises and branch offices today.

According to Washington, DC-based analyst Frank Dzubeck, president of Communications Network Architects Inc., Avaya needed something that could compete better than its existing products with arch-rival Cisco Systems all-in-one small office IP phone systems based on its CallManager Express software running on a network router. “Avaya looked at [NimCat] as a viable competitor at the lowest end,” Dzubeck says. “And it could also link easily with the high-end systems for the big play into the branch office [market].” The price for NimCat was also right, he adds.

The question is, could NimCat on its own eventually have scaled the technology up to work in much larger offices than those with fewer than 20 lines, which is where Avaya is exclusively targeting it?

NimCat, based in Ottawa, Ontario, developed its NimX software to run on any standard IP phone. NimX systems provide basic PBX functionality—voice mail, auto attendant, call waiting, conferencing, forwarding—without the need for a dedicated telephony server. All the processing and storage is handled by the phones. The system is plug and play. The company claims non-technical users can simply plug the phones into an Ethernet network and they will automatically self-configure, find each other, and assign extensions. The system even sets up peers as backups to handle calls in the event of one phone going down.

NimCat’s first, and so far only publicly announced, OEM customer is Aastra Technologies Ltd. Aastra launched its NimX-based VentureIP system in March. The phones cost about $250 each. The value proposition? Initial capital costs are lower than for server-based systems. Because the technology is plug and play, small businesses eliminate an expensive and time-consuming system implementation. And they only need to buy as many phones as they have people rather than trying to plan for future growth.

No planning needed
“With this technology, you don’t have to worry about planning for growth,” says NimCat co-founder and former CEO, Mahshad Koohgoli. “It’s partly the initial cost of the system, but the real value is in taking away all the guesswork in the procurement process—and in the fact that you have a very incremental capex. You just add phones as you need them.”

Avaya will keep NimCat intact as a separate P2P unit based in Ottawa, with Koohgoli as vice president. Its first order of business will be to port the NimX software to one or more of Avaya’s IP phone set platforms, but it will also continue to support NimCat’s OEM strategy. Other OEM customers besides Aastra have licensed the software but none has announced a product yet. Avaya will also continue to develop NimX. “But we won’t compromise the P2P nature of the technology which is at the heart of the value proposition,” says Avaya Canada president Mario Belanger.

NimCat is not the only P2P office phone system developer. Popular Telephony Inc. of Los Altos, California is the other major player in the space with its Peerio solution. Dzubeck, says there are several other very small companies that are in the process of developing similar systems or are already offering them. None is making much impact in the market, though, he says. And all are targeting the same very small office segment.

Pain threshold
Could the technology work in bigger offices? When we ask Koohgoli and Belanger, their response seems somewhat evasive. It’s not that the technology isn’t scalable, Koohgoli says. It was more a marketing decision to target offices with fewer than 20 lines—one that NimCat made before Avaya came along, he emphasizes. “This is where we saw that the pain was most acute,” Koohgoli says. “Tier 1 and 2 players have very effective solutions for offices with above 100 lines, but below that, it’s more painful, and below 20 or 30, it’s very painful.”

If offices grow much beyond the 20-line plateau, Avaya’s solution will be to migrate them to a server-based solution. Customers can reuse the Avaya phone sets running NimX by simply installing different software that will let them work with server-based PBXs.

Koohgoli never actually says how far the technology could scale up, but Tony Shen, president of Aastra, says NimCat told him it would be feasible to support an office with as many as 1,000 lines. Shen, whose company started as a phone maker but has recently moved into the enterprise PBX market with acquisitions in Europe, says that NimX-based systems for larger offices are “definitely a possibility,” and later adds, “I think this technology is definitely here to challenge the traditional ones.”

P2P on every desktop?
Dzubeck is also bullish on P2P for telephony, but not for larger offices. “Peer-to-peer IP PBX technology is coming of age very rapidly,” he says. He points to Microsoft embedding more voice and P2P functionality in its new Windows Vista operating system, currently in beta testing. Windows itself could become a viable P2P IP PBX platform, he says. Dzubeck expects P2P PBX technology to break through in 2006. However, he doesn’t see it anywhere in the enterprise except in branch offices.

Large enterprises need features, security, and management control that P2P systems will never be able to offer, Dzubeck says. Koohgoli and Belanger say much the same. Dzubeck sees enterprises using P2P to switch intra-office calls in branches offices, and connect them to what he refers to as “the virtual PBX in the [Internet] cloud.” In big distributed companies, he explains, telephony could be controlled across the enterprise by a few strategically located, networked PBXs—with P2P systems more efficiently managing calls within offices. NimX phones can’t be integrated with server-based PBXs yet, but making that possible is presumably part of the continuing development effort.

Given that Skype operates across the wide area network with millions of users—albeit not yet with all the security and management features an enterprise might demand—it’s hard not to wonder if P2P telephony could eventually evolve into something more than Avaya and analysts like Dzubeck envision for it today. It’s interesting to note, incidentally, that Popular Telephony, unaligned with a legacy PBX maker, already has a solution that integrates its small office P2P system with Skype.

It seems obvious too that Avaya has an interest in keeping P2P as a very small office play. After all, it doesn’t want to wipe out the lucrative market for its larger small office phone systems, the ones that do compete well today with Cisco’s router-based solutions.

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