I sent out the survey material for our fall strategy sweep, and as usual I asked both service providers and enterprises to respond quickly with the answers to the following questions; “What’s the hottest network issue”, “What’s your biggest surprise?” and “What’s your biggest concern.” The answers were quite interesting.
The hottest issue for both enterprises and service providers was “the cloud” by a large margin, larger in fact than prior surveys. In my own view, the broad fascination with the cloud is more than just the typical response to media hype. I’s a reflection of the fact that cloud computing is an explicit marriage of a lot of technology trends, a kind of IT Unified Field Theory. Enterprises, in particular, need some strategic mantra to drive their project spending, some way of linking change to benefits, and “the cloud” seems to be even more favored in that role with each passing quarter.
The “biggest surprise” was a bit of a surprise to me. Both enterprises and service providers said that “the technical and business aspects of cloud computing are not what we expected”. While I knew from prior surveys that there was a considerable shift in enterprise attitude about the cloud as companies advanced the state of their own cloud planning, I wasn’t sure that the enterprises themselves saw this change. It was also interesting that enterprises listed “failure of the benefit case to prove out in our cloud projects” as a “biggest concern” enough times to give that issue the top spot among the technology responses.
In the “biggest concern” category, fear of another global economic ranked as the clear leader among enterprises, but with the service providers, it was in a virtual tie with “declining revenue per bit” or a variation on that theme. Network operators fear disintermediation and commoditization, a world where traffic growth pushes them to make more investment while revenue either stagnates or falls, the latter coming from the displacement of traditional services (notably TDM voice and even leased lines) by packet-based Internet OTT services.
If you reflect on the fact that Cisco’s Chambers says that the company is going to tighten its focus and build a strategy around product areas, you have to wonder whether “the cloud” is among them. We found in our last enterprise survey that Cisco had actually lost strategic influence in cloud computing despite the fact that more enterprises said they “knew” Cisco’s cloud strategy its competitors’ approach. I’d speculate that Cisco was pushing the role of UCS a bit too strongly. And buyers of network equipment expect Cisco to offer a network-centric cloud view.
There’s also a sense, in Chambers’ words, that Cisco is prepared to discount significantly to buy market share, or revenue. The question is which of these two Cisco is going after. Just buying revenue sets a new lower floor on your prices that you’re unlikely to be able to make up. Buying market share implies that you have some specific plan to enrich profits with follow-on business and and you’re getting a foothold with pricing. Cisco did say it expected to mine profits with services and software, both of which are higher margin than hardware. Cisco didn’t say it, but services and software would put it perhaps more on a collision course with HP.
While Cisco’s comments about Juniper’s vulnerability have received the most media focus, Cisco also said HP has a strategy problem, and that’s certainly true. With so many fundamental changes in the works, and with its future more linked than ever to the data center, HP has to not only do well there, it has to triumph. The cloud is obviously the only pathway to that goal.