September, 2008

Recession unavoidable; tech slump will increase

Against all odds and the advice of party leaders on both sides, the House has failed to pass the rescue bill. The problem came as Republicans deserted their leadership en masse and failed to support the bill. Democrats had previously indicated they would not accept responsibility for voting a measure that a Republican administration recommended unless it was supported by Republicans in the House, which failed to happen.

As we have indicated earlier, failure to pass this bill promptly would in our view put the U.S. into recession, and we believe that unless the current situation can somehow be recouped convincingly today, there is little or no chance that recession can now be avoided. We will publish an updated model result in our October Netwatcher newsletter issue, but it now appears to us that the odds of a recession worldwide and a tech spending slump have increased.

Regulators in Europe stepped in to rescue Dexia, a bank that has specialized in loans to state and local governments, offering the bank nearly $10 billion in loans. Dexia was among the EU banks considered to be in trouble, and the U.S. credit crisis is expected to continue to have broader impact in Europe unless a quick solution is found.

Our readers know that we have viewed the 2009 tech market health as depending on the timing of a U.S. recovery versus an EU turndown, and it now appears that the U.S. recovery is delayed and the EU turndown is accelerated. That makes it much more likely that tech spending will be curtailed worldwide in 2009, not only killing growth but actually creating a small decline in constant dollars.

Hope for a new plan that will pass is widely held, and stock futures this morning and the experience of foreign exchanges both suggest that the market is pricing in such a conclusion. The question will be one of timing.

Using DPI: Behavioral targeting and privacy

AT&T and Verizon have pledged not to track online users for behavioral targeting unless the user opts in, a move that we believe is being taken to help position both companies for later use of DPI for more direct user surveillance.

In fact, without DPI it is difficult for someone other than a portal player to track users at all. Network operators like AT&T and Verizon, like other operators worldwide, have been either considering or actually trialing technology to sniff packet streams to determine what sites a user is visiting.

Congressional hearings in the U.S., FCC comments, and EU regulatory trends all seem to be favoring DPI regulation of DPI to obtain user data, and in both cases, the “at the minimum, opt-in” position has been proposed by regulators. The current move is thus a step toward linking opt-in with “tracking”, not as much to justify current tracking but to pre-justify a later decision to use DPI. We don’t think it will be that simple. The FCC tells us that without permission of both websites and users it might well be illegal to snoop broadband Internet traffic.

Cisco’s collaboration launch conclusions

Cisco launched its long-awaited collaboration strategy, a move that is not only a giant step and risk for Ciscom, but an indicator of a major disruption in the networking market. Cisco is telling the world that selling bits is not enough, that margins and growth will have to come increasingly from the applications that ride on top of the network and link those bits to consumer or enterprise value.

By making the connection through others, both the sellers of capacity (the network operators) and the sellers of network equipment like Cisco have faced an increasing risk of commoditization and disintermediation. Others have often profited more from investment in networking than those who made it, and Google is the obvious example.

Cisco is apparently wrapping its launch in the mantle of Unified Communications, and in this particular regard we believe they’ve made a mistake. UC is an old concept, and by casting their offerings in the space they’ve both reduced the news impact and magnified the collision with their partners. There are only small chunks of technology that are critical to the collaborative space Cisco covets, and they should be focusing on them more discretely. We’ll have a full look at their launch when it’s public.

Comcast traffic management: Sign of the future?

Comcast’s response to the FCC on its traffic management policies seems to promise a future where operators may be moving to metered capacity or to pay-for-excess plans like those already adopted elsewhere. The network operators who provide broadband access to the Internet have, for years, complained that applications were being created that drove their traffic up and generated no compensatory revenue. YouTube is the most popular example. The most immediate problem for cable operators, however, has been the P2P and server activity that congests the narrow, shared, uplink cable provides. The interesting fact is that solving this problem and creating a broader pay-as-you-go strategy for traffic in either direction creates a similar strategy, and we believe access operators are preparing to begin to turn the tap overall unless they can figure out how to monetize.

Cisco to launch collaboration strategy

Cisco will shortly be launching its collaboration strategy, and will be changing its “Human Network” advertising campaign (a good branding exercise for Cisco) to reflect a more collaborative theme. The Cisco strategy, we believe, will be to link its collaborative and telepresence offerings and social network tools into a corporate service ecosystem that Cisco will provide online as a service and not as a product. This new venture may create some clashes with carrier customers that have their own plans in the area, but we believe Cisco also plans to sell service through carriers, as Microsoft does with its CSF.

Oracle DBMS earnings a good sign

Oracle’s DBMS (database management system) business helped boost its revenues by 14% and profits by 28%, offering the first new data point on the tech space, a favorable one. This continues to show that the strategic cycle is not yet derailed, and that would mean that tech spending in 2009 would not be likely to be impacted significantly by the current market conditions. We have a more complete analysis of this situation scheduled in the current issue of Netwatcher, due to be available by around September 25th

Juniper continues software transformation

Juniper has announced the first major innovation in its Service Layer Technology area, something it calls the Dynamic Services Architecture. This is a new product set, the first of which is the SRX Services Gateway, built on a platform that tightly couples service feature hosting and both signaling and control plane protocol handling. Cards are software-configurable to support multiple services, firewall services being the first announced.

This is the second of Juniper’s announcements that have created a “higher-than-the-network” layer of technology, the first being the company’s support of hosted control plane software for JUNOS. When you add this to the recent management changes at Juniper, it begins to look as though the company may be taking a turn more toward software and “transformation” versus routers and “convergence”.

Microsoft focuses on software in network planning

Microsoft has released a new TV platform for advertising, Mediaroom, but the product won’t actually be available until June of 2009 according to sources. The release marks a major initiative by Microsoft to become the platform provider for a wide variety of service components in both emerging services like video and older services like voice. Microsoft is seeing the overall industry trend toward a software focus in network planning, a shift that arises from the commoditization of access and transport that the Internet has created. We believe that there will be a war between IT players like HP, IBM, and Microsoft and network players like Cisco for dominance in the network platform software space.

Google Chrome: Sign of browsers to come?

Google’s Chrome browser may be a harbinger of changes to browsers brought about by SaaS applications and online services. As script-based tools and plugins become more important, browsers are beginning to address the performance of applications run within them as differentiators. This reflects a general trend toward integration of IT and networking, and a specific goal of both portal and software players to offer applications all or partly based on online software loaded into a browser. There will be major upgrades to other browsers this fall to improve application performance, so it is not clear that Google’s trend-setting will benefit it for long.