Cisco announced a broad if somewhat vague program to bind the Elements of Web 2.0 applications into a cohesive whole. The details on this vision were extremely difficult to extract, and we could find no Cisco material online to offer more insight. But it appears to us that Cisco is proposing a broad concept of service-from-mashups where APIs used by various social networks, sites, and even operators could be combined in some centralized way to create new services.
What is even less clear is exactly what role Cisco proposes to play in this. Will it offer a product set, host a service, or both? All this said, we admit that it just might be that Cisco is looking at the area of reformulating service creation—a major focus of our own interest—and also the area of using social networking and similar Web evolutions as the basis for collaboration and communication, another thing we believe to be essential in shaping the next generation of services.
In short, Cisco may be on to something and we’ll try to figure out what exactly it is.
Both publications and research companies are jumping on a story that telecom is headed for a major slump, but we believe they are all seeing too many shadows at least for the present.
In our research, we have not found any concrete spending cuts from telcos, nor any major concerns that a recession of even a year’s length would create one. Telcos, like other industries, are worried about the possibility of a major systemic collapse in banking, credit, etc., but as that risk recedes, we believe they will then move to execute on their previous plans for 2009, which involved wireline capex increases from 0 to 4 percent and wireless from 2 to 8 percent.
In the meantime, they are pushing spending out. That means that if clarity in the recovery can be achieved by late spring, two-thirds or more of the 2009 plan could still be captured. If recovery is still not convincing by late summer, we believe that spending will indeed be down by perhaps 3 percent in wireline and perhaps flat in wireless.
A panel is likely to recommend that the U.S. establish a White-House-level office of security to deal with the growing cyber-threat, something the report says that the U.S. is managing badly today. Recent attacks on the Pentagon and attacks on some countries (Georgia, during the Russian crisis, for example) suggest that cyber-war may be more advanced than many had believed. It’s likely this report will impact corporate security, as well as security services offered by providers, so this may be an indication that the security market will get hot in 2009 and 2010.
Yahoo’s board may be looking inside itself for the next CEO, hoping to get someone who can manage the company effectively without a learning curve, as well as someone who can deal with Yang, who is expected to be a difficult partner to any new CEO.
Yahoo is also still considering an AOL deal, apparently quibbling over how much of Yahoo Time-Warner would get for the deal. All the time this goes on is time lost for Yahoo, which is clearly rudderless in the period of transition and at risk in a market where display ads are becoming less relevant. That, in our view, is partly because Yahoo is becoming less relevant. Icahn, it is reported, opposes the partial sale of Yahoo (presumably to Microsoft) in favor of something he hopes would be more lucrative.
UBS and other Wall Street research firms are issuing fairly dire forecasts on tech and network spending in 2009. UBS has tech spending dropping a “minimum” of 6-11% in the year, and the consensus for networking (including the service provider space) is a decline of about 10%.
At the same time, the firms are talking about a mid-year recovery in GDP and saying that tech will lead by a quarter, which would mean this is all happening in one quarter of bad news! Wireless spending is expected to be off by 7%.
Frankly none of this makes sense.
- First, there are no credible indications from our Tier One surveys that any provider has actually planned to cut spending in 2009. What has happened is that they have decided to slow-roll projects through the end of Q1 to try to get more visibility on the impact of the economic crisis on their monetization.
- Second, there is very little chance that the spending would dip by 10% even if there were to be a protracted recovery period because operators generally spend in proportion to revenue, and nobody expects carrier revenue to decline at that rate.
- Third, we believe providers would be happy to increase capex in 2009 if they could get a handle on monetization, and it is in the mobile area where they have the best chance.
In the enterprise, we believe there may be more persistent and systemic problems, but again we doubt a dip of 10% would be likely under any set of conditions that have a reasonable probability.
Microsoft has quietly dropped its Connected Services Framework, an ambitious program that targeted telcos with a package of components that was, at some points in Microsoft’s positioning, a service and sometimes a product.
The move has been interpreted as a response to the complex telco environment, but we think the real reason is more complicated. First, vendors are finding telcos are not happy about closed platforms for services and thus are more likely to demand standards conformance. That opens the ecosystem, making it less profitable for the vendor. Finally, monetization of new services is still problematic, and as a result, the investment needed to create them has to be carefully justified.
All of this speaks against CSF. We note, however, that Microsoft has specific point products that we believe it intends to deploy to telcos. In fact, Microsoft has been successful with carriers worldwide in getting some of these into networks—as much as anyone has, in fact. It’s shedding the CSF packaging and positioning, in our view, but not the market.
The FCC is expected to take up the issue of a free wireless Internet service, must-carry rules, and other pending issues in December, the last meeting in which Republicans will be in control. The wireless Internet issue has been the most visible of the group to be discussed. The industry clearly doesn’t like free Internet no matter how it’s obtained, and privacy advocates are objecting to the proposal that the sites filter traffic to eliminate adult material. It’s still not clear how all of this would be funded, so the wisdom of reserving spectrum for it eludes us.
Tellabs is indicating it may be willing to use its strong balance sheet for some down-market M&A, something that we think might be a very good idea for a lot of the larger players in the current market.
The industry is filled with small startups, some of which have good technology and strong roles in the network of the future, but little mindshare or account control. As investor fears mount, the price of these smaller players is dropping, making them a decent buy.
We believe that the deals will have to be made before the end of 1Q09, however, because it’s likely the new administration will be able to move forward enough that a recovery (not a full one, mind you) will be visible in the second half.
Cisco plans an unprecedented shutdown for four days during the holiday period, part of a plan to achieve over a billion dollars in cost savings to help counter the impact of the downturn in IT and networking spending.
We believe the step is a kiss blown at Wall Street, something Cisco knows is likely not to be the right answer but that may be necessary to support the stock price in the near term. Even in that light, we believe the move to be unwise because it tars Cisco with the brush of a firm experiencing problems in the downturn, something competitors might play on directly but that will indirectly challenge the most basic value proposition Cisco presents to buyers—stability.
Cable companies’ efforts to create a uniform national ad market are moving forward even as some in the industry hope for an Obama FCC decision to permit further mergers and acquisitions. At the moment, the market share cap imposed on cable prevents further consolidation, and cable operators feel that this may be limiting cable’s potential to create a uniform ad strategy.
The “Canoe” initiative is being supplemented by the SCTE 130 ad platform standard that is likely to be the common mechanism for interactive advertising in cable from 2009 onward. The move is seen as essential in making cable TV more competitive with the Internet, but it will also likely put pressure on the telcos.