With Brocade’s cut in guidance on its earnings call, the company joined what seemed a parade of network equipment vendors who’ve called the future of network spending into question. Most Wall Street analysts have suggested that Ethernet is coming under pressure and that corporate IT spending is likely to be weak. Both are likely true, but I think the Street is (as usual) content to catalog symptoms rather than address problems.
In the enterprise space, our spring survey found that enterprises were still generally holding their capital plans but were slow-rolling project spending. A part of the reason was concern over economic conditions, which was a visible issue even before the harsh political face-off that’s virtually killed market confidence this summer. Another part was some concern over their cloud plans, concern that arose from getting more insight into cost and benefit as they got deeper into the topic. Both these issues appear to have grown over the summer, and I expect our fall survey to show that. Continued »
Cisco is consolidating its video activities into a single unit and its Videoscape head is leaving. The decision seems an odd one to me if you look at things from a market perspective. Videoscape was arguably the most complete suite of content delivery elements available from anyone, but the sheer scope of the product seemed to confound the sales process and especially customers. But is a single video unit the best way to promote video delivery?
Operators have all been eager to monetize video, but while it’s been easy to set objectives for these projects and at least possible to outline functional requirements, operators are still having a tough time putting all the functional blocks inside products they can buy or software they can build or contract. In theory, Videoscape could have been the mechanism to support that effort, since it has all of the blocks. For example, Videoscape even includes a service bus architecture that would serve admirably as the technical foundation for a service layer aimed at content monetization. The problem is that it was never presented effectively. We’ve seen Cisco presentations that either raised issues and never addressed them or that praised features without putting them in a value context.
Creating a single end-to-end vision of video, one that includes both streaming/channelized and collaborative, is in one way interesting and potentially highly useful and in another way likely to further dilute messaging. Yes, video monetization has to embrace any delivery model. Yes, streaming and collaborative video have much in common in terms of service-layer elements (they fall out of a single approach in our current application-note monetization example). But if I was never able to make Videoscape sing as a solution, how does making the orchestra bigger really help?
Maybe it helps by creating a unit that could be sold or spun out. One possibility here is that Cisco is preparing to divest itself of the whole video area, and of course having the whole video area under one organizational roof would make that easier. Furthermore, a video-centric subdivision might be attractive to a bunch of players, from Apple to Microsoft to Google to even IBM and Oracle. More buyers, more bidders, more shareholder value.
Huawei, which has been gaining influence by leaps and bounds simply because it’s the network industry price leader, showed real gains in strategic insight in our most recent survey. Huawei is demonstrating that it intends to keep up its “build-a-strategy” trend by naming a kind of “chief security officer”. The mainstream thought is that this is intended to alleviate government agency fears that Huawei is in some way a spying conduit. It’s not.
You don’t have to be a genius to figure out that naming a CSO wouldn’t make that company less of a threat. Then what’s the goal here? It’s to build on Huawei’s growing lead in the networking market as a strategy leader and start to move into specific areas where early opportunity exists. Security is a major issue for consumers and businesses, as well as for service providers, and in the latter case the issue cuts both in the direction of self-protection and in the direction of managed services opportunities.
Our enterprise survey found that the cloud computing statement they identify with the most was “Only the network can secure the cloud”. If operators selling network services like VPNs would add a cloud security offering to that VPN, it would likely sell well with enterprises, even if it were positioned separately from a cloud offering by that operator. That’s critical because operators today have a miniscule share of the cloud market, and enterprises are very likely to fiddle a bit on cloud planning to fully grasp the implications. On the security side, they know. Not only that, a cloud security offering could grease the sales skids in positioning cloud services. Who better to buy a cloud service from than the provider of your network security services? Continued »
A tale of two companies, and possibly an example of unfortunate timing as well. Cisco yesterday announced it was laying off 6,500 workers, and IBM announced it was raising its guidance after having beat the revenue numbers expected by the Street. Both companies ended the session yesterday off slightly, but the contrast here is interesting.
IBM, as I’ve often noted, has been a master of the twists and turns of the IT marketplace. It’s been in and out of pretty much every sector of the market in response to the changes in opportunity. IBM has managed to sustain its strategic engagement with its customers throughout all of this, and in our surveys since the early 1980s, its strategic credibility has never varied by more than a couple of percentage points.
Cisco, interestingly, has gained as much on IBM’s decision to leave networking as it did on “the Internet”, maybe even more. IBM’s networking equipment, supporting its new version of its venerable System Network Architecture (SNA) called Advanced Peer-to-Peer Networking, wasn’t price-competitive with IP and routing. IBM knew it, and over time even sold its networking business to Cisco. That’s what gave Cisco a big boost with the enterprise. It’s the boost that Cisco needed to become what it was at its peak.
I’ve focused in the past on Cisco’s carrier moves, and in particular on the fact that the company failed to realize that traffic alone wasn’t going to drive carrier spending—they need revenue as much as Cisco does. Continued »
In yet another price change that angers customers, VMware announced a new pricing strategy for its vSphere 5, and the new pricing could create significant increases in license costs for some customers—as much as 4x. Our model suggests that the typical user will pay less than 20% more, but it’s pretty likely that the move is a response to a gradual saturation of the virtualization opportunity base. Companies all over tech (and elsewhere, of course) are trying to earn more revenue, and if you can’t grow your user base or add features, you have to increase pricing.
It’s hard to say whether the move will have a major impact on VMware’s market share. Yes, companies could in theory adopt Microsoft’s or Citrix’s solutions, but they could have done that from the first and elected not to. Will the price change be enough to change their minds? If so, then why not adopt “free” virtualization from Microsoft or from an open-source provider?
I think it’s possible that VMware is looking ahead to a shift in virtualization growth—from success in the enterprise to success in the cloud. Cloud adoption of virtualization is a service-industry application, and VMware may be rightfully unwilling to subsidize someone else’s business model by sustaining a pricing policy that encourages an explosion in the number of virtual machines per host. One could argue that the enterprises most likely to be hit by the changes are ones doing relatively simple server consolidation to address an explosion in independent server deployment that should never have happened in the first place.
Also to address cloud computing and data center evolution, Cisco, at its Cisco Live event, announced some interesting enhancements to its UCS portfolio. While what it did in terms of capacity changes was again valuable in an evolutionary sense, but its moves lacked the big strategic sweep that would have benefitted the company’s positioning.
There are two roles a company can play in the cloud: driver of the cloud or supplier to the cloud. Cisco offered some credentials in the latter role, but it’s the former role that needs to be filled. Remember, someone has to drive a strategic enterprise project. Whoever does that will likely deploy all their own gear where they have it and let the masses scramble for the scraps. IBM, HP and Microsoft are driving most of the cloud, and none of them is particularly friendly to Cisco’s interest. Two have their own data center lines, in fact.
I think vendors are missing something important in the enterprise space, just as they are in the service provider space. There was a time when network technology was almost a mandate; we knew we had insufficient connectivity to support optimum employee empowerment. Today the low productivity apples have been picked, and companies need to understand the business value behind proposed tech changes. Ten years ago, perhaps, the trade publications would have filled this need with long-ish insightful articles on adoption and benefits. Today, all anyone wants to publish is a snappy title on a vapid article that elicits a click-through and generates ad revenue. Nobody is offering the buyer the guidance they need, and so they move more slowly
Google reported its numbers, and by any measure it had a stellar quarter. Revenues were up 32%, and they beat Street estimates across the board. While the dark side of success will likely be greater anti-trust scrutiny for Google, it’s better than turning in bad numbers and seeing shares fall. But for me, two non-financial factoids dominated the earnings call: One is that Google+ seems to be taking off; the other is the Android sweep, and that’s the one I want to focus on.
First, Android is still going strong; last month it had 10% more device activations than the month before. The Android store had more than 6 billion downloads, and there are more than 400 devices licensed to run Android. For those like me who remember the early PC-versus-Apple wars, the similarities seem obvious. Even in those early days, Apple wanted complete ecosystem control, and IBM promoted an open platform. The result is history; IBM PCs swept the market.
But Apple is still in the PC business, and IBM isn’t. That raises what I think is the key question for Apple. Is the best way to succeed in the long run to develop a new market, hunker down on a niche segment of it, and then milk that segment until another market comes along? Or is it to develop a concept that sweeps the market, share in its success, and move on? Continued »
As some things change, others stay the same. That’s about how I see things fresh from two weeks in Brazil. We’re seeing changes in the networking business space as Google vies anew with Facebook and Twitter, and yet the moves raise the same issues we’ve faced all along. In the economic world, it almost seems like Groundhog Day.
Google+ is definitely a revolution, a step toward social networking as many believe it should have been all along. Because it avoids most of the privacy problems that seem inherent to Facebook’s simple model of “friends,” it could potentially be used more effectively without putting its members at risk. Because it’s built around communication, it would establish Google not only as a social network leader but also as a player in the web-based communications space that will eventually displace the old PSTN we’ve come to know. And behind it all looms the old Google/Microsoft face-off, this time regarding the Microsoft acquisition of Skype.
Make no mistake, Google wanted to counter the Skype deal probably as much or more as it wanted to be a social networking player. Skype, in Microsoft’s hands, could become a powerful force to integrate Microsoft cloud software into people’s lives. Skype could also be the foundation for social communities, of course, and having Microsoft in a position to exploit Skype at its leisure wouldn’t serve Google’s interests. Continued »
Verizon is preparing to move to tiered pricing for mobile data in early July. There’s a growing conviction among operators that everyone will be charging for usage on mobile networks by the end of this year and that everyone will be charging for wireline usage by the end of 2012.
The move to usage pricing isn’t being heralded as a victory; network operators would prefer to get their profits from other sources. The problem is that they’re becoming convinced they can’t roll out a monetization strategy in time to sustain infrastructure investment without a bandwidth-cost kicker.
Mobile data use is growing by 50% per year worldwide, and that’s creating not only a backhaul cost but also a multiplication of towers as cells become congested with more users and more traffic per user. The whole metro infrastructure is stressed by the mobile traffic load, and wireline streaming video traffic is also contributing. Continued »
Alcatel-Lucent provided its own ballyhoo with the announcement that the company had promised would make the Internet faster. I’m not big on ballyhoo, and I have to admit that I have mixed feelings on the Alcatel-Lucent announcement. I want to be fair, so I want to start with the perspective I bring to the issue of “advancing the performance of the Internet.”
I’m a strategy analyst—someone who surveys and models markets. My goal isn’t to find out what people want, but rather to find out what’s going to happen and what’s not. People want gigabits for nothing, but that’s not going to happen. We could give people faster broadband today in a technical sense, but the decision would fail for financial reasons. You could argue that anything that reduces the cost of the much-for-nothing goal is an advance, but it’s doubtful that any single development could create a cost revolution.
That is the dilemma Alcatel-Lucent’s announcement poses. The company has made an impressive technical stride that I’m not confident is a significant market stride. Continued »
Verizon has decided to keep its cloud offerings under the Terremark brand, which I think is a good idea because the cloud and cloud-hosted services fall outside the traditional structure of a telco. Operations in telecom providers means the network, and science and technology is not typically involved in monetization projects. While internal IT (OSS/BSS) has IT expertise, for now, most operators are seeing their internal IT and cloud IT as separate, until they’re sure that the two can share an infrastructure without creating security or performance issues for either one.
Cloud monetization is the third pillar of operator profit-building (after content and mobile). Operators here are envisioning a rather convoluted evolution, with service feature technology (the evolution of the stuff hosted today on service delivery platforms), OSS/BSS, and cloud services all being relatively independent at first and then converging over time. One likely instrument of this convergence is the “feature cloud”. Managed security services and other services offered from a cloud platform are only a little different from content or mobile service features hosted on a cloud, and over time the difference will likely disappear.