Apple — and Steve — gave us the current market revolution. By marrying portable power with ubiquitous broadband he ushered in a new era where the average teen can have, literally at their fingertips, computing power that dwarfs what was the world’s computational supply just a few years ago. We’ve yet to see where this can take us, and I’m personally saddened that we’re not going to have Steve to help guide us in the journey.

The Carrier Cloud Forum at Interop New York this week is grappling with some of the issues that Steve Jobs created. Appliances demand back-end services to support them, and the way those services are created and the identity of those who offer them may well be one of the major issues in networking. I’ve noted that operators in my surveys have been steadily promoting the cloud services opportunity among the monetization projects they have been running, and it looks like it could be the top of the list this fall. It’s not that the cloud offers operators the largest opportunity — mobile/behavioral services and content both outstrip it — but cloud infrastructure is what’s likely to host those content services and mobile/behavioral services. Appliances have coalesced all of the opportunities of the future into one delivery point—what the user is holding. The cloud coalesces all the technology options into one, admittedly fuzzy, vision.

I think CCF demonstrates that we’re still shadowboxing with the issues, though. The fundamental truths of cloud computing remain as they always have been. SaaS displaces the most cost and therefore offers the greatest benefit to buyers and profit to sellers. IaaS is the most flexible, but it presents both benefit-case and profit barriers to wide adoption. All the “-aaS’s” will face a common issue of service- and application-level integration, which is something nobody is really looking at. That integration will likely set the pace for the question of how clouds and networks get along, because the general solution at the service layer would produce a flexible solution at the service/network boundary. We’re not looking for this in the cloud computing space, but operators are looking at it in their own service-layer projects, which include both mobile/behavioral and content. Can all of this stuff be combined?  Not yet.

• First of all, the iPhone created an appliance magnetism that broke many customers away from having cellular services from their home carriers. It disproved the notion that you could create loyalty with non-functional bundles alone, and that in itself was a major factor in limiting interest in quad-play economics.

• Second, it has proved more complicated to create FUNCTIONAL bundles, active symbiosis between wireless and wireline, than was previously considered. Yes it’s possible to create apps to let you do something on or with your TV, but for the key youth market, those tools are less interesting because they’re not home anyway. And service-layer technology, an architecture or framework that would let operators (including MSOs) build sophisticated componentized services from features, has been hard to come by.
• Third, tablets are proving that if consumers have a larger form factor and a place to sit, they will consume “TV Everywhere” . On one hand, this might appear to promote a cable company’s entry into cellular, but it doesn’t for two reasons — usage costs and hospitality hot spots. You don’t have to stream many videos to your tablet to run into extra-cost territory, and in any event, why pay for mobility when you need to sit down to watch?

Since tablet vendors offer WiFi tablets at a much lower cost than cellular-equipped models, more and more consumers are jumping on that approach, and TV Everywhere doesn’t have to include that many places that don’t offer WiFi. I think we’re going to see WiFi exploding at the same pace that tablets have exploded, and I think we’re going to see less focus on “wireless” and more on WiFi. One more reason why the DoJ should let AT&T and T-Mobile merge.

Telcos know that they can provide better IT economy of scale off future service-layer IT deployments than any cloud or hosting vendor could. What they want is the customer base. Whatever the return on server investment for hosting/cloud companies might be today, it’s high compared with a telco ROI. Add to that the fact that the telcos could create the same hosting service at a lower base cost and you get a pretty nice profit picture.

The growing and more visible interest of telcos and cablecos in the service layer is creating some fear and uncertainty among over-the-top (OTT) players. Netflix, whose delivery model adds to operator costs while competing with operator TV strategies, is saying it doesn’t want to see the telcos hurt. As well it shouldn’t, but it may be too late at this point.

With revenue-per-bit declining, there’s nowhere to go but up in a service sense, and that means increased competition with the OTTs. It also means more spending on the service layer and less on the network, as well as more focus on service integration with the network as a strategic differentiator in both services and networks, capex-wise.

Make no mistake about it; Cisco cannot go back to being a switch/router company. Price-per-bit trends make it clear that telecom switching, routing and access equipment is going to be under tremendous price pressure, creating a market that not only Cisco can’t win in, likely nobody really can. To say that Cisco should divest its consumer division and get back to basics is to say that it should lay down with a rose on its chest and await the inevitable. Chambers has the germ of the right idea with “adjacencies”. The problem lies in the way that notion is acted upon.

Two developments in the market reflect the fact that there’s something more than moving bits going on; Alcatel-Lucent has announced an OpenTouch middleware package for UC/UCC and Verivue has announced a new content delivery framework. UC/UCC isn’t a big market-maker in the telecom space and certainly won’t make Alcatel-Lucent rich, but the fact that Alcatel-Lucent thinks UC middleware is important may mean it realizes (finally) that middleware overall is important. Yes, I know that its Open API program and developer stuff seems to demonstrate a middleware commitment, but the problem is that the underlying platform for developing service-layer assets is only implied by that activity and not revealed. Maybe now they’ll reveal it.

Verivue’s announcement is more directly aimed at the service layer. CDNs are increasingly important not because they’re a good business (Wall Street is increasingly down on all the independent CDN players), but because some CDN elements are essential in an ISP content monetization strategy. What makes Verivue interesting to me is that its CDN platform is based on virtualization, which makes it cloud-compatible. Service providers and ISPs of all types tell me that their content monetization strategies have to be based on cloud technology, component re-use, and a higher-level understanding of how content distribution fits as a part of a general service-layer architecture. Verivue can answer those questions, I think. However, the cloud element of its capability isn’t the keystone of its positioning. That likely reflects the “Cisco problem”; nobody wants to be strategic when that means embarking on a longer selling cycle.

Consolidation in the vendor space is inevitable, for the same reasons that it’s happening already in the carrier space. Unless vendors step up to the reality that systemic, strategic, complicated changes are needed to create a new revenue model for operators, their fate is sealed at all levels.

There may be cloud architecture competition emerging from new quarters. F5 announced it had worked with IBM to develop a reference architecture for the cloud. The architecture clearly covers the creation of private clouds based on virtualization, and F5 promises that it will be extended to envelope public cloud components to hybridize them with private clouds. We see no reason why the architecture (which looks much like Eucalyptus, and that’s no accident according to F5) can’t be used for public cloud applications, including service provider clouds.

IBM has specific aspirations in the service provider space, and the reference architecture may be a step in helping prospective service providers clients build cloud services that can then easily hybridize with enterprises. It seems to us that the approach would also support SOA applications, but that’s not a specific part of the release.

Instead, operators have been building a bottom-up content strategy based on data center tools, servers, and server-side middleware. CMS tools like those of ExtendMedia are very close to being the binding point between the service layer and the data center, and thus Cisco has little more to do before it would have a complete solution.

For example, ExtendMedia manages metadata and asset distribution to CDNs, which is a very small step from the network itself. This could be huge for Cisco, which has already been winning early deals in the content space because of its Unified Computing System (UCS) approach. This is being portrayed as an IPTV strategy, but we think ExtendMedia’s platform could also be used to manage more traditional VoD assets, TV Everywhere, and even pure-play OTT media.

We think this is a promising step, but it’s still incomplete in our view because it provides only connectivity abstraction rather than full service, feature and resource abstraction. What we’ll be watching for is an indication that this step spurs others who have assets in the space to be more aggressive in positioning their own capabilities. An arms race in this area would be invaluable to network operators.

The deal will give NSN a position in North America (which it hoped to get by picking up some of the Nortel assets, but failed to acquire at that time) and in Japan, but it doesn’t necessarily give the company everything it needs. Our research says that neither Motorola nor NSN are highly regarded as strategic partners. In fact, NSN was better positioned than Motorola until 2009/2010.

But with this deal, NSN will get not only market access but also some CDMA assets to help with the transition to LTE, as well as WiMAX assets. NSN is connected to the evolution of some of the world’s greatest wireless markets. What it needs now is a stronger connection to what those markets are evolving to.

We think there’s good stuff here to leverage, but we also think that the deal will expose NSN’s greatest weakness, which is the articulation of an effective and strategically relevant message. Getting the ear of the customer works best if you’ve got something to say. In our recent survey, NSN lost the most ground of the major players, and we attribute this to the fact that the company has failed to create good service-layer engagement. Its strategic credibility in the service layer suffered the largest drop of any vendor in our survey, not only in the current cycle but in the history of the survey. And strategic credibility is a leading indicator of future sales and market share.

Juniper has been refining its partner processes to the point where it can add service-layer and network-layer partners quickly, and the Junos SDK strategy is maturing. The company is working to create strong cooperation between the hardware business units and the software group to ensure that the activity is symbiotic. What’s still lacking here is a strong positioning of Juniper’s service/software assets. The company did tell a service story at Mobile World Congress, but it was lost a bit in the shuffle of announcements.

It’s not that the link is rocket science; Verizon offers the same capabilities from its website already, and other companies (including satellite providers) let you use mobile phones to program your PVRs. But it’s a step in constructing a mobile service that’s a hybrid of handset and network.

We noted earlier that Verizon seemed to be taking a lead in creating service-layer components that cooperated with handset applications, and this is a clear example of how that’s done and why it could be important. In fact, we believe that in 2010 there will be an explosion of cooperative applications like this as U.S. operators in particular jump out to find new revenue/differentiation opportunities in exposing service features.