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Artisoft Inc., maker of the TeleVantage open-systems PBX, has acquired Vertical Networks Inc., a maker of distributed IP PBX systems for vertical markets, primarily in retail. The deal combines two separate customer bases and builds a sales footprint that better ables Artisoft to compete with traditional PBX entrants to VOIP.
Cambridge, Mass.-based Artisoft, among the first open-systems challengers to proprietary PBX and key system vendors, was able to complete the transaction upon receiving $22.5 million of a $27.5 million financing, led by Boston-based private equity firm M/C Venture Partners, of Boston. Artisoft will pay up to $19 million in cash for Vertical Networks, based in Sunnyvale, Calif.
The combined company, to be headquartered in Cambridge, will have more than 150 employees and will headed be up by Artisoft Chairman William Tauscher. Scott Pickett, founder of Vertical Networks, will be chief technology officer. The acquired company will keep “significant” sales and development offices in Sunnyvale, according to a Sept. 29 release.
“Were not surprised to see that Vertical Networks was acquired,” said Richard Costello, research director for enterprise voice systems at Gartner Inc. The company had been struggling, he said, adding, “Our surprise was who did it.” Costello was most surprised that Artisoft found the money. “Obviously, it looks good for Artisoft. Vertical has some pretty good customers in their retail niche.” These include CVS Corp., HSBC Holdings plc, and Aramark Corp.
Costello also agreed that the open-systems PBX makers—all IP-enabled and largely moving to native IP architectures—will have a rough road convincing customers that they can survive a market thats been entered—saloon doors swinging—by Cisco Systems Inc., Avaya and Nortel.
Tauscher hopes to step ahead of the pack with this unusual acquisition among peers, and its access to new markets. While both companies products are Windows-running PBXs, TeleVantage is a PBX software product offered on a choice of Windows servers. It has always required Intel/Dialogic telephony DSP (digital signal processor) boards, and sells to SMBs (small and midsize businesses) through 350 dealers. It switches a mixture of analog, digital and IP phones, giving users a chance to keep relatively inexpensive or legacy extensions.
Artisoft sells two families of applications on its TeleVantage PBX, said Tauscher. “One is a full-blown call center application, and the other is a knowledge worker application, which is a robust suite of converged communications tools with a slick GUI, call handling, find-me follow-me, conference management, and so forth. We publish APIs and software development kits, and some 100 different software packages have been written to it. Its a wide-ranging market in terms of customers and their sizes. “
The Vertical Network InstantOffice product, in contrast, is focused solely on large enterprise customers with a large number of branch sites. It finds its customers in retail, financial services and health care. “The businesses need to manage and monitor these systems centrally. Vertical has built an elegant system to do that on their own hardened telephony hardware,” said Tauscher.
Next Page: Future plans: United in SIP stack, lighter by DSP board.
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InstantOffice also comes optionally with a VoiceXML interpreter for designing and running IVR (interactive voice response) applications, text-to-speech, fax-server engines, and outbound dialing capability. As an IVR server with outbound dialing, it can perform such tasks as dialing out from a database of pharmacy customers to tell them their pictures are developed and ready for pickup.
Asked to draw the future product road map, Artisofts CEO said that both platforms are on the road to implement the same SIP (session initiation protocol) stack in the “not-too-distant” future. Both products currently operate internal TDM (time-division multiplexed) switching backplanes, and accept IP, digital or analog phones. IP gateway cards IP-enable the systems out to the WAN or in to phones on the LAN.
A common SIP stack will make it easier to deliver the TeleVantages contact center and convergent communications applications to the Vertical Networks platform, Tauscher said. Conversely, the InstantOffices fax server or other applications could be dropped into TeleVantage, which currently ships with a third-party fax product.
In addition, current plans with longtime partner Intel/Dialogic will allow Artisoft to lower the price of its TeleVantage, and hence make greater inroads among SMBs. The first commercially scalable release of Intels HMP (Host Media Processing) architecture, due sometime in 2005, will replace Intels currently required, expensive telephony DSP board with software running on an Intel server chip. “Were pretty excited about this HMP initiative,” Tauscher said.
Combined with Vertical Networks, Tauscher does see Artisoft as a more viable contender in the IP PBX space. “For Artisoft to expand into the large enterprise market would have been hard if not impossible. It takes a special channel, it takes references, it takes a footprint and a toehold. What does Vertical have? A special channel: people like AT&T, IBM. Real big reference customers. And its tailored its offering, and the knowledge of its sales and service staff, to that market. Conversely, if Vertical wanted to develop a small-to-medium business channel, same comment. Weve expanded our addressable market by a bunch.”
While expounding on the two companies synergies, Tauscher admits that a big reason behind the purchase was the need to convince customers of Artisofts staying power. “One of the biggest reasons for doing this was to get bigger. To increase our chances of not having what some people are taking as a foregone conclusion happen.” He said he has the support of some sophisticated venture capital firms, as well as the continued investment all of his earlier VCs backing him up.
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