One of the issues that now faces the networking market is the fate of Nokia, the once-giant smartphone and networking company that has seemed to stumble in every market race for the last couple of years. There have been all manner of analyses of why this has happened, but they’ve all (in my opinion at least) missed the most critical point because they’ve focused on symptoms of the decline and not causes. The cause of Nokia’s problem is its culture.
Tech companies in general, and companies that tend to sell to large conservative buyers in particular, become accustomed to serving a market that’s supply-driven. The buyer sets the goals based on formal (and protracted) planning processes, and the seller fills orders. There’s a nice horizon out there, clearly visible, and everyone can see the path to it. The Bell System rules; build it and they will come.
But not any more. The Internet produced universal data connectivity, IP dialtone. That opened the way for people to work to deliver stuff without the protracted planning and capitalization issues that would face somebody who had to create the connectivity in the first place. It made data networking consumer oriented, and you can see that today in every aspect of networking from appliances to the deep core—or at least the smart players can see it. Nokia, and again IMHO, other Euro-equipment giants, had the most invested culturally in the supply-side mindset. Thus, they’re the least adaptable to the new demand-side world. Nokia may be among the most challenged, but it’s far from the only one in that mode. With the exception of Cisco, every single network equipment vendor on the planet is stuck in supply-side quicksand.
Cisco’s not the darling of many financial analysts these days, so it may seem odd to hold it up as a model of facing the future. But facing the future often means accepting short-term lumps to achieve longer-term rewards. Cisco is trying to be the networking company of the Age of Network Consumerism. It’s not always doing it right, of course, but it’s picking its way on its own into a new world, and you can never reach the destination without braving the journey.
In the next two years, every player in the market will be forced to make that same journey. Some, like Nokia, are clearly falling short in their early efforts and creating challenges that are increasingly unlikely to overcome. The longer you delay the first step, the further the canoe has slipped from the bank and the harder it will be to step off. Bigger players are also institutionally less able to support change because there are too many layers of high-inertia humans to drive into new behavioral models. Other smaller companies will figure out what to do and will command some of the key transitional issues between the supply and demand visions of the network. These early positions will then lead them to the future. There are perhaps a half-dozen such positions in all of the networking market, and right now virtually all of them are unoccupied. What Nokia needs to do is to identify them, occupy them and rebuild itself. But that’s also what every other networking player has to do, or the industry five years from now won’t contain many familiar faces.
In 2000, nobody believed me when I said at a conference that the IXCs were doomed, and yet within five years they had been bought by local exchange carriers their management had considered the weak sisters of the markets. Names like MCI that had rung through the markets disappeared. It can happen in the equipment space. Those who refuse to read history are doomed to repeat it.
Verizon and Time Warner have both bought assets in the cloud computing space. Sure, those assets will be used to create cloud services for enterprises and SMBs and also to host SaaS services for SMBs and consumers. But from day one, operators told me that they wanted cloud architectures for their service layer to service both customers and their own feature-hosting needs. Platform as a Service (PaaS) is not only a service for enterprises, it’s the foundation of the intelligent network of the future. The question is only whose PaaS it will be, and it’s clear from recent cloud deals and the AT&T Foundry that the operators are ready to go it alone, without standards or equipment partners. If they do, then a lot of those key transitional issues will be commoditized at the equipment level, and the future will contain more examples of failure in the equipment space than it will of success.