AT&T Acquisition Highlights Importance of Customer ChoiceAT&T Acquisition Highlights Importance of Customer Choice

In an effort to expand its IP business services, AT&T Inc. last week announced that is has agreed, through one of its subsidiaries, to acquire privately held Interwise, a global enterprise provider of converged voice, video and web conferencing software. AT&T will pay approximately $121 million in cash for the company, which will operate as a business unit within AT&T Global Business Services. AT&T expects to retain Interwise’s 150 employees, including its R&D center in Israel.

AT&T says the acquisition, expected to close in the fourth quarter, strategically aligns Interwise’s IP-based conferencing and collaboration solution with AT&T’s enterprise networking, communications and collaboration services, global MPLS-based IP network and its portfolio of conferencing services. Interwise offers both on-premise software and hosted services (as well as hybrid solutions), but the majority of its customers opt for the on-premise offering. The company targets mid- to large-size businesses that can realize significant savings by migrating to IP-based conferencing; its success comes from unifying voice, web and video conferencing on a single software platform, and offering them for a fixed price and unlimited usage.

Interwise has been good at winning “wall-to-wall” deals for corporate deployments of 1,000 users or more in which a company is rolling out conferencing to all its knowledge workers. The company’s strengths include its extensive VoIP capabilities, which have helped differentiate its products and end-user ROI.

The acquisition should help AT&T gain a foothold in the web conferencing market as a player in its own right, rather than relying on reselling services from WebEx and Microsoft. (What it will do with those partnerships remains to be seen, but clearly this move puts pressure on them.) And AT&T’s decision will allow it to let customers choose the deployment scenario that’s right for them: The conferencing market is moving toward blended implementations, whereby companies can offer some number of users on-premise applications and allow others to access the software occasionally through a services contract. Microsoft, Cisco, and IBM all offer both hosted and CPE conferencing solutions, as does InterCall, arguably AT&T’s largest competitor. Even smaller players are getting the message—note Avistar’s announcement, also last week, that it is now offering its desktop video conferencing software as a service.

Another area this move opens up is managed services, since companies that deploy software on premise then have to manage it. AT&T can not only offer the product, but also the outsourcing behind it, as well as help for companies that want a blended deployment of on-premises and hosted applications. The margins in managed services can be significant. AT&T’s jump into the on premise software game could also get it one step closer to a unified communications offering, which AT&T needs to be a dominant player in the market.

According to the latest research from Frost & Sullivan, the web conferencing services and software market in North America reached $594.4 million in 2006 and is forecasted to grow to $1.4 billion in 2012. Although currently 85% of web conferencing revenues come from hosted services, Frost & Sullivan expects that the new generation of on-premise software applications is poised to undergo rapid growth, as software applications become easier and less expensive to deploy.