Avaya once filed for bankruptcy. Now it's making a comeback by investing in cloud and partnering with Google and Microsoft.

Richard Drew/AP Photo

Avaya Holdings Corp. CEO Jim Chirico, right, joins applause and celebrates with New York Stock Exchange President Tom Farley, left, as Avaya begins trading on the floor of the NYSE, Wednesday, Jan. 17, 2018.

• The $1.24 billion communications technology company Avaya filed for bankruptcy in 2017.
• Now it's planning for a comeback - and its strategy hinges on updating its entire business to serve not only customers using private data centers, but also the cloud.
• It underscores how even tech companies need to take stock of the rapid pace of change and undergo their own digital transformations to keep up with how customers are buying their IT these days.
• Avaya is also partnering with tech giants like Google Cloud, Microsoft, Salesforce, and RingCentral.
• Visit Business Insider's homepage for more stories.

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Just three years ago, the $1.24 billion communications technology company Avaya filed for bankruptcy as it struggled to keep up with its rivals, who had gone all-in on cloud computing - a trend with which Avaya struggled to keep pace.

Later that year, Avaya emerged from bankruptcy, and shook up its leadership team with new hires, including new CEO Jim Chirico.

Avaya sells phones and video systems for companies to use, as well as applications for customer service, call centers, and other similar industries.

Now, as the company prepares for its comeback, Avaya is staking its bets on succeeding where it had originally failed. Where before, it had only made its telecommunications software available to customers running their own servers and data centers, it's now broadening its market to go after the increasing number of customers who rely on the cloud. And to do so, it's banking on new partnerships with cloud giants including Google and Microsoft.

Furthermore, Avaya is adapting its sales cycle to keep pace with how companies buy technology today. Where before, companies would take weeks or months to commit to a contract with Avaya, the cloud has reduced the cycle to the time it takes to click a button.

The strategy underscores how even tech companies sometimes struggle to transform themselves to meet the increased demands of the cloud computing era. Hardy Myers, senior VP of strategy and business, says that Avaya is approaching the payoff for what's been a three-year turnaround process at the 20-year-old company.

"We're very well financed and very excited about the transformation we've been undertaking as well as our customers as we all rotate to the cloud," Myers told Business Insider.

It's still early to say whether Avaya's investments are paying off. At its most recent quarterly earnings, analysts said that Avaya is showing progress in transitioning to cloud products, but its growth remains weak and it's not currently profitable. Still, its stock is up from lows in 2019, and analysts say there's potential for Avaya to prove that it can make a turnaround.

A four-step strategy

Chirico, the CEO, says that after Avaya emerged from bankruptcy, the first thing the company did was reassess its strategy and the areas in which it wanted to invest. That meant checking its underlying assumptions, and identifying what the most important thing it needed to accomplish.

"It just doesn't happen overnight," Chirico said. "The first priority is to provide large enterprise customers on their path to cloud. That was their most important deliverable."

He says the company has a four-step strategy in its renewed cloud push:

• Update its communication technology to work better in the cloud.
• Expand its subscription-based business model, to bring it in line with most other cloud computing services.
• Build services for private clouds and the so-called hybrid cloud, where companies run some of their infrastructure in a massive cloud like Amazon Web Services, and the rest in their own servers.
• Bringing existing customers to this new cloud model.

A sign of this new strategy can be seen in Avaya's R&D budget, Myers says. Last year, Avaya spent $204 million on R&D, and the budget for cloud is growing. Three years ago, only 10% of Avaya's R&D budget was allocated to cloud computing. This year, that was up to 50%, and Avaya expects it to reach 80% by 2023.

Avaya's secret weapon

Avaya sees a huge opportunity in hybrid cloud especially because most enterprises will still be running their work on data centers, Myers says. As a result, he expects a high demand from customers using hybrid cloud.

"Certainly the trend is in the direction of cloud and we intend to be the most flexible company in the enterprise space in how consumers consume that technology," Myers said.

Myers says hybrid cloud has now become one of Avaya's biggest advantages, and he sees more customers gravitating towards this option. It's even built a special team that helps customers install and set up Avaya's tech in the hybrid cloud.

"Having that type of weaponry in the house enables us to do things like hybrid," Myers said.

'We're going to be moving very quickly'

To underpin its strategy, Avaya partners with other cloud-based companies like Microsoft, Salesforce, Google Cloud, and RingCentral.

"We needed to drive scale, reach and market share," Chirico said. "In order to do that, we definitely needed to expand our ecosystem. The strategic alliance is to grow addressable markets."

Avaya partners with Google Cloud for its contact center product that's powered by artificial intelligence. Myers said Google approached Avaya for this partnership because Avaya is a leader in contact centers for businesses, while Google is known as a leader in artificial intelligence technology. And most recently, Avaya participated in Google Cloud's internal sales conference, where partners attended for the first time this year.

"They need that entry point into the enterprise which we have," Myers said. "To combine Avaya's technology with that really powerful AI technology at Google is an amazing incremental outcome for customers both from quality of experience and on productivity improvement for contact center."

Myers also points to Avaya's partner Microsoft as an example. Five years ago, people would not have believed that an old school giant like Microsoft would be able to pull off adapting to the cloud, Myers says, but now it's the top cloud challenging Amazon Web Services and one of the most valuable companies in the world.

"We're going to be moving very quickly to address all the elements of market opportunity," Myers said. "As we guided publicly, we're very bullish about the future of our ability to grow."

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