Oracle has rolled out a new high-end Sparc-based cluster server, a 16-core T3 version that seems to close off any debate about whether the company is serious about the hardware business. In fact, our rumor mill and survey data show that Oracle may be ramping up for a major effort in 2011.
Software is the only place in tech where you can really build differentiation quickly and hope to sustain it for long enough to capitalize on your success. We’ve already seen software taking a larger role in networking, and what we’re seeing with Oracle is a software company exploiting the engagement that differentiation can bring to move itself into becoming a mainstream, full-service, IT player.
The Oracle blitz would have a significant competitive impact. Both IBM and HP, the incumbent giants, are relative lightweights in software relative to HP. IBM lacks lacks any strong connection to the networking space. Oracle’s server strategy focuses on database networking via appliances and through Infiniband, which is an alternative to the much-touted Ethernet-based data center networks. That runs counter to the data center network strategies of not only IBM and HP, but of Cicso, which could impacted by a big move by Oracle into servers and data center networks for a bunch of reasons.
Then there’s SAP and of course Microsoft. SAP unveiled a new real-time data analytics appliance, showing it’s going to shift more in the hardware direction, and there are rumors that it would be going even further in that direction, even as there are rumors that HP wants to do some serious software deals in 2011.
Microsoft might be left as the only relatively pure software play, except that there are also rumors Microsoft might be looking at the appliance game, not only for database products but also for collaboration and other middleware elements. “Cloud-in-a-box” Azure-inspired technology is already sold by Microsoft partners, but Microsoft realizes that many of its hardware partners may end up being competitors if the appliance business really takes off. Still, Microsoft getting into any sort of hardware is a big risk to its current partnerships, and unless they see real stress cracks they’ll probably go slow.
The FCC has released some comments on the Order it will be presenting on net neutrality at its December 21st meeting (if it doesn’t postpone or change the agenda again!) and the position is disappointing.
At a high level, what the FCC proposes is to state again its original principles of neutrality and apply only transparency and openness as standards in the wireless space. That’s not necessarily a bad position, but it does beg the questions that the Cablevision/Fox and Comcast/Level 3 disputes have raised. The problem is that the FCC is not proposing to use Title II reclassification to establish jurisdiction here, but instead relying primarily on what’s called “Title I” but should more accurately be called “Section 706” jurisdiction. That, in my view, may well be insufficient.
Section 706 says:
The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.
You can see that first-off, it talks about “advanced telecommunications capability” here, and we have not classified broadband as telecommunications. When this section was translated into amendments to the Communications Act of 1934, only the forbearance part was translated into Title I.
The second problem is that the FCC presented Section 706 authority to the Court of Appeals in the Comcast case, and the court rejected it. While it’s possible that the court was saying that the FCC hadn’t laid the right foundation to use it (the court pointed out that the FCC has said consistently that Section 706 didn’t convey independent authority, only the obligation to use authority the FCC had explicitly from other sections), it’s also possible that the court would simply reject the order on the same basis.
The right way to go here is what the Republican minority wanted (probably more to be disagreeable than on principle, to be sure): Classify broadband (not the Internet) as a Telecommunications Service and then forbear from the wholesaling regulations and other sections as needed. The FCC clearly has the authority for this, but it seems unwilling to buck the flood of negative (and uninformed) PR on the topic. I still hope that this might change as the meeting approaches, because we need some clarity here, and this doesn’t seem likely to be the path to getting it.
Sometimes governments solve problems, and sometimes they cause them. Sometimes it’s a bit of both. I’ve been watching Australia as an indicator of the extreme end of pro-consumer telecom regulation, and it has passed a bill that will split Telstra and create a telco that’s more reliant on what I’ve been calling the “service layer” than any other in the world.
The National Broadband Network (NBN) that will now provide broadband access may creep further into infrastructure, and Telstra would do well to firm up its higher-layer assets and prepare for being a kind of new breed of over-the-top (OTT) player, one with the low internal rate-of-return expectations and capital base of a public utility. That could be a truly formidable competitive position providing that Telstra can shed the inertia of a telco along with the access assets.
I’ve argued for years that breaking up regulated monopolies that were telcos was a mistake. Competition isn’t created by deregulation unless regulation suppressed it, and in the telco world the fall of the CLEC wave is pretty positive evidence that venture capital and private equity don’t want to fund competitive telecommunication because the return is too low.
Getting Telstra out of the access business isn’t going to make Australia’s network more competitive; it’s just going to change dominance from Telstra to NBN. But that may not be bad, even for Telstra and its shareholders, if the company can shake off the old model and embrace the opportunities of the new. If they do, it’s a half-step to making Australia a poster child for the way telecom will be done worldwide.
With Cyber Monday turning in good numbers, it’s ironic that we’re also seeing more stress cracks in the business model of the Internet in its broadest sense. The popular hope that somehow things will just get better and cheaper forever is colliding with hard economic reality within the ecosystem as players work against each other to grab profits when paths to profitability are far from clear.
Today, Comcast and Level 3 revealed a fundamental problem with transport with the former demanding that Level 3 pay for transport of Netflix video that Level 3 is being paid to cache and deliver as a CDN. Level 3 is crying foul under net neutrality, but Comcast was the company whose appeal of the FCC’s rules resulted in the Court of Appeals declaring the FCC had no right to enforce such principles. While many will see this as yet another example of Comcast being the bad boy of ISPs, it’s really a sign that ISPs are fed up with people creating business models that depend on Internet access and transport and not paying for either one.
There’s only one thing that’s clear at this point, and that’s the fact that we can’t go on the way we are. Market forces worldwide are speaking the language of profit, and that speech won’t be ignored.
There are reports that Nokia Siemens Networks (NSN) might consider an IPO to provide an exit for its somewhat-in-disagreement partners as an alternative to a restoration of their pact or a complicated private equity deal. We’re not sure how this would fare given NSN’s market position. t’s not that the company isn’t large, but that it seems stuck in neutral at best with respect to growth and market share. We think NSN could be a powerhouse based on its objective assets, but like many of the Euro-giant firms it seems to have a problem with positioning itself in the new telecom market. It’s not an easy place to be these days for sure.
AT&T is moving to HSPA+, which is faster than 3G but slower in terms of potential than 4G. Like T-Mobile, AT&T may advertise its move as 4G and spawn the usual market debate on what that really means and whether AT&T is being deceitful.
Truth be told, all marketing these days is deceit, and our surveys show clearly that people don’t understand what xG means anyway. This reinforces a point the FCC’s broadband inquiries have made: We need some objective way to measure broadband and compare offerings. Verizon’s early comments on 4G services suggest it would launch at a lower speed than AT&T’s HSPA+ (now the rumor is that Verizon will up its 4G speed before launch), and that would mean that “old” wireless could be faster than “the latest.”
Whatever the name we give to higher-speed wireless broadband, it’s clear that it’s going to change how we use broadband services. I’ve been analyzing how people’s behavior and their communications tools interact, and it’s a kind of feedback process rather than a simple linear progression. Tools have always guided human processes. You don’t connect boards the same way once the hammer and nails have been invented. But human processes drive the development of tools because their adoption can’t be too much of a behavioral leap of faith. The big opportunity for the network of the future is the exploitation of this feedback process, the development of an ecosystem that can support the evolution of social behavior and ubiquitous broadband as they feed on each other to establish a new norm.
That’s what’s missing, in my view, in the announcements by vendors in the space—in this week and in weeks past. Collaboration or wireless or content or 4G or any other technology or approach is relevant not for what it can do at this instant, or what it might be able to do in some indefinite future, but in how it navigates the path between those points.
Facebooks’ Zuckerberg, who I don’t think is possessed by any dazzling set of insights in most of his interviews, did say recently that Facebook’s value was to build businesses around the social graph, the chart that maps behavioral links. I think he’s half right. Business practices and social behavior will transform our tools and be transformed in return. If Facebook could be the incubator for the evolution, it has a great future. But it’s hard for things to make money in the present and prepare for the future because the people in the company are always blinded by the next paycheck or quarterly report.
The world has a lot of potholes to fall into, and if you never take your eyes off your feet, it’s going to be hard to avoid them as you move into the future.
There’s been a recent flap about a report that China rerouted a bunch of U.S. traffic through China, capturing and potentially (so they say) examining both government and corporate information. China denies the story, and the real issue here, in my view, is the lack of any discipline in the way the Internet operates as a global network.
There has always been an issue with route advertising in IP networks. Someone can advertise a route falsely and thus capture traffic. Making the Internet into a “real” global public network means making it relatively immune to this kind of hijacking. And whether the China allegations are true or not, there is potential for harm because of either accidents or malice, and both have surely happened before.
Border Gateway Protocol (BGP) security and management of domains isn’t an easy process, but we certainly have the components to make the Internet more bulletproof, and it’s time we tried to do that. A key requirement is some overall enforcement of reasonable practices, though, and the only way that will happen is if the ISPs themselves say they won’t peer with anyone who doesn’t follow the rules, nor accept routes/traffic from or through them.
Juniper added to its content portfolio today, acquiring the intellectual property of a video delivery firm called Blackwave. This is a small deal by recent Juniper standards, but it’s potentially critically important. Network operators are getting more sophisticated and demanding in their content plans, moving just from optimizing traffic to demanding reasonable monetization strategies.
Anyone who actually owns and/or hosts video has both a caching issue, and delivery storage and stream management issues. Players like the MSOs have much more of the latter, as do any telcos with video on demand (VoD) plans. Blackwave rounds out Juniper’s content repertoire, adding a solution to the storage adn stream management dimension and potentially making it a premier player in the content monetization plans now emerging.
Yet the question remains: Can Juniper create a whole from the sum of the parts? Contrasting its approach with that of competitors, Juniper takes a bottom-up path toward strategic issues, and that risks getting to the goal long after it’s been claimed by someone else. Competitors tend to take a top-down approach, claiming the high ground but often failing to deliver on time. The best approach, of course, is to have everything needed when it’s needed, but nobody seems to have grokked that one as yet. The recent flood of M&A activity from Juniper is an opportunity to do something truly revolutionary, but you can’t have a revolution nobody knows about. The Silent Majority may as well be a minority.
Juniper acquired Trapeze Networks from Belden, a move that’s been expected by Wall Street for some time. Trapeze is an industrial-grade wireless LAN provider whose offerings can be targeted at the enterprise (which is how Juniper positions them in its press release) or at the now-expanding hospitality-Fi or hotspot market.
Both of these spaces are important because of the tablet explosion. Enterprises are somewhat interested in using smartphones as a way of getting communication with the “corridor warriors” and even off company premises, but they’re more interested in tablets (the 7-inch form factor is preferred) for that mission. We also noted earlier that tablets with WiFi are cheaper and more accessible to consumers, and that they’d likely promote hotspot/hospitality-Fi applications. In both cases, having technology that’s capable of delivering WiFi as an architected service component and not just as a local convenience is critical.
The Juniper decision to focus on the enterprise side with this deal, I think, underplays the value to Juniper and to the market. The integration of Trapeze with Juniper’s service-layer assets make it a realistic element in not only enterprise-based service automation but also carrier-grade content delivery to tablets, and that’s a mission that crosses product and business unit boundaries. Hopefully the execution will integrate the elements that make the deal a strong one, because the Trapeze buy puts Juniper competitors on notice and raises the risk someone will do a similar announcement with more spectacle and steal the market’s interest.
Last week was challenging in a number of ways, not the least of which being the shock generated by Cisco’s cautious comments on its quarterly call. That was enough to cause a route in the stock market and raise concerns about the state of technology. As we indicated at the time, there’s good reason to be worried. The era of high margins and growth rates relied on a continued renewal of the benefit case for tech investment, and since 2002, we’ve apparently lost the key to unlocking the next wave.
CIMI Corp. finished its carrier survey this week (the number of operators is smaller than the number of enterprises, so it’s easier to get things in and tabulated), and we’ve found some sense of caution there as well. Operators increased their level of concern about most of their topics, and reduced it for none. Normally that means increased anxiety about the business model, which can lead to spending conservatism. We don’t see clear signs of that yet, but the trend is a bit troubling.
One of the reasons for carrier angst is the uncertainty surrounding net neutrality, particularly in the U.S., as well as concerns about consumer privacy issues and their impact. In the case of net neutrality, the FCC inquiry brought out the usual madness on both sides of the issue, and this sort of thing always raises the most FUD and generates the least insight. The comments are now closed, and what we hear is that the FCC is not going to propose a need to extend net neutrality principles to “managed” or “special” non-Internet IP services.
The bigger question is whether the FCC will propose its “third way” of regulation, declaring broadband a telecommunications service and then forbearing from applying many of the Title II rules, as it may do under Section 706 of the Telecom Act. Operators fear that applying Title II would inevitably lead to regulation without forbearance, which could reduce their margins and accelerate disintermediation.
The privacy stuff is potentially a major issue for the over the top (OTT) guys. The Obama Administration in the U.S. is promising to appoint someone as a watchdog for consumer privacy, and the EU is also looking at a sweeping policy on privacy. We appear to be moving closer to an opt-in process, something that advertisers and portal players know is likely to result in fewer than 20% of consumers opting in, versus only about 8% opting out where that choice is available. But even without changes here, the privacy gaffes of the social network players like Facebook have made people more wary. We’re told that record numbers of Facebook users have changed their profiles to reduce their exposure of personal information.
Most of the major market moves won’t happen until early next year because nobody wants to overhang the current holiday buying period. By Q2, however, it may be a good idea to hold on to your hats.