Uncommon Wisdom

Apr 8 2011   2:41PM GMT

Cisco’s makeover: It all depends on execution

Tom Nolle Tom Nolle Profile: Tom Nolle

Let’s look at Cisco. The company has been a major disappointment to Wall Street for years now, and there’s been ongoing grumbling about a Cisco breakup or drastic changes in style and management. That now may be coming to a head as CEO Chambers promises a make-over, admitting that the company’s “execution” has fallen short. Interesting comment, given that any failure can be said to be an execution problem. What will happen to Cisco will depend on how it defines “execution”.

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.

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