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Cisco and Oracle look to change data center landscape

Oracle and Cisco may change the landscape in the data center if the companies continue to pursue their current tracks, according to most pundits, and we agree.

Oracle is already the giant of middleware, broader there even than IBM and more focused on making software the premier offering. The Oracle approach to IT is to create a brand around software and middleware, adding hardware to reap the maximum benefit from the sale, but focusing on software (especially middleware) for differentiation.

Cisco wants to ride virtualization and connectivity in the data center, and collaborative applications that link employees, into a dominant position. Cisco’s theory is that owning collaboration could give the company a foot into every application door because collaboration is the broadest of all horizontal applications.

Both companies face competition from incumbent giants IBM and HP, and the big question for 2010 is whether the competition among this group of four will create enough market buzz to build buyer literacy and interest levels enough to create a new technology buying cycle. We’re doubtful that competition alone can do it because competition typically focuses on differentiation rather than project justification. But we’ll have a better idea next month when we complete our enterprise fall planning survey.

Alcatel-Lucent/HP alliance important sign in converged networking and IT

Alcatel-Lucent and HP have formed a global alliance to deliver converged network and IT strategies to service providers and enterprises, perhaps the most direct validation yet presented of the service layer trends we’ve been discussing for the last year. The alliance will include integration/management services, as well as products. It is aimed at the increased buyer interest in containing vendors involved in deals and assigning key vendors overall responsibility.

In a competitive sense, it’s aimed at both Cisco and IBM, who have been increasingly offering integrated IT/network strategies. This sort of alliance is likely to eventually lead to M&A, though we don’t think Alcatel-Lucent and HP have any mutual intentions. While this is good for the buyer and the market, in the sense that it’s responsive to strategic trends, it shows that network vendors are increasingly facing commoditization at the transport/connection layer because the action is moving up the stack.

Microsoft and HP join UC hosted service trend

Microsoft and HP announced a major partnership in unified communications (UC) building on HP’s ProCurve blades and Microsoft’s UC and collaboration software tools. The two companies articulated a vision of communications as something more virtualized than tied to an appliance, a story that’s not unlike that being told by Cisco and one likely to be advanced further by Oracle. The deal is most likely a part of the overall trend we’ve discussed before; IT and networking players are fighting for the middle zone of hosted service features where much of the future value of both networking and IT will lie.

Cisco positions for cloud computing move

Cisco is reportedly eyeing VMware for possible acquisition, a move that would surely put Cisco squarely into the IT competition and mark perhaps the most dramatic transformation of business model attempted by any major U.S. tech vendor.

There are other things that Cisco could be focusing on, but the recurring rumor we’ve heard is that Cisco plans a major cloud computing initiative, recognizing correctly that enterprise transition to a cloud computing model may be the most significant incremental spending opportunity in 2010 and 2011 (it isn’t likely to hit this year, so Cisco has some time).

Cloud computing is a strategic mixture of IT and networking, but it is also a space where having the total solution seems valuable, and Cisco fears that IBM, HP, or Microsoft might at best support a strategy that was open in terms of networking, and at worst ally with a competitor. IBM and Juniper have done some joint cloud announcements already.

Service layer platform vendors: Not game-changing yet

Nortel may be preparing its own application platform, something that would compete with HP ProCurve, Cisco’s new blade server, and Juniper’s JCS1200. All of these products reflect the reality that the “network” is dividing formally into a service layer and a transport layer, and that value-add in the service layer is critical to operators monetizing network investment.

The challenge for Nortel here will be the same as for other players: It’s not enough to have service-layer platforms; you also need an NGN Services Architecture, a framework for application/feature creation that empowers the platforms you’ve deployed.

Truth be told, none of the applications presented on these platforms so far has been compelling or game-changing, and operators want the game to change. Our view remains the same: The standards bodies tasked with work in the service layer are moving too slowly—as telco standards bodies tend to do. The vendors have been happy to blow kisses at standards instead of taking risks to get in front of the issues, and the operators have little chance to progress toward their goals without vendor support. This accounts for the uniformly low scores equipment vendors earn from operators in their support of operator monetization goals.

Microsoft’s cloud strategies

Microsoft is still playing coy with its Azure cloud computing pricing, but there is little question that Microsoft and IBM are both gearing up for more competition in the space, and other players like Sun and HP are doing likewise.

Cloud computing is a typical emerging market in tech—vague and multiply defined. But it appears that the early opportunities for cloud computing will come in areas like hosting some web content, supporting collaboration and other interpersonal communications applications, and perhaps some backup/offload.

The broader transition to cloud computing must come, as IBM suggests, from the reorientation of current application architectures to something more mashup-friendly and better able to take advantage of selective movement of applications to the cloud, and also to broader private cloud usage by enterprises. We think most of this won’t happen until 2H10 or later.

Cisco blade servers — part of a bigger plan?

Rumors that Cisco was going to enter the blade server market have been swirling for a year now, and got some boost from being published in The New York Times this week. It appears from our sources that Cisco really is entering that market and will be making the announcement fairly soon.

The move is obviously a gutsy one. On one hand, Cisco seems to understand better than any of its competitors that if bits are commoditizing, you better be in a business that commoditized bits will stimulate if you’re going to keep pumping out bit-producing products.

The other side of the issue is that servers per se aren’t exactly an exploding market, and margins there are typically low. IBM and HP will really hate Cisco for competing and will likely counter-move. The risk for Cisco in being an ordinary IT server is so large it’s hard for us to believe the company would do it, and so we think Cisco may be trying something very smart, which would be to create specialized server appliances for feature hosting, linked intimately with Cisco switches and routers and creating a service ecosystem. Given Chambers’ announcement of service mashups or API harmonization at Cscape, this could get really interesting.

IBM financials strong despite economy

IBM reported a solid quarter in any times, and a sterling one in the present economy, with profits up 20%. IBM also reaffirmed its full-year guidance, a move that sent analysts into a feeding frenzy and boosted stock futures today.

We believe that IBM’s numbers reflect two truths:

• Economic issues are more likely to impact future capital projects and spending than current ones
• Companies with strong service businesses can sustain project momentum better by establishing stronger account control and thus aiding in the project justification process.

We believe that trusted strategic partner firms like IBM, HP, Accenture, and Oracle will generally do well even in the conditions to come.

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.

Cloud computing on the rise in 2009

nbsp;Salesforce.com is heading for the clouds, if not in the eyes of Wall Street. The company posted good growth (almost 50% y/y) but said third-quarter numbers would likely reflect slowing growth, though they guided up for the year. Significantly, they made a big deal of cloud computing and the creation of an ecosystem for developers and application owners.

We have also heard from our enterprise survey base that cloud computing is getting a lot of attention suddenly. One said “Cloud Computing is really making a paradigm shift…The entire concept of Virtualizing Data Centers has caught massive attention all across the industry and now even Financial Services seem to be nodding to this concept that will potentially save huge amount of $$$ plus provide a highly reliable, top of the line Data Center capability plus the capability to provide aggregated services which was just a notion before is turning into reality now.”

The cloud computing wave could have a major impact on 2009 planning for just about everybody, with the possibility that enterprises would turn to cloud-based services as an alternative to building out more in-house data center capacity. So far, however, there is no sign this will impact the sales of the IT giants like IBM and HP.