Uncommon Wisdom

May 17, 2011  1:54 AM

Cloud reality: IT budgets trump number of adopters

Tom Nolle Tom Nolle Profile: Tom Nolle

A recent research report on cloud computing says that small and midsized business (SMB) buyers prefer to get their cloud applications from a single provider rather than to mix and match. That’s not surprising given that for over a decade, SMBs have cited difficulties in sustaining strong technology talent as being among their top three tech problems. But it also shows that “the cloud” means different things to different people.

In my own research, SMBs have consistently said that a “cloud service” is any Software as a Service (SaaS) offering, meaning that SMBs equate the term to “hosted.” Interestingly, while 100% of enterprises know what Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) mean, only 31% of SMBs do, and almost a quarter of those who say they’re interested in or consuming SaaS ask to have the term defined before answering.

If you strip out the “hosted” applications of the cloud, SMBs currently spend less than 3% of their IT dollars on cloud services, bordering on statistical insignificance. If all hosted services are considered, the number is about 6% for midsized businesses and about 11% for small businesses, the latter being higher primarily because of hosted Web presence, email and backup.

There’s a moral here. All the surveys about the cloud success or the cloud explosion are dodging a hard reality, which is that it’s not the number of companies that use cloud services but the percentage of IT budget moving to the cloud that matters. “Cloud penetration is doubling” just means that twice as many people are trying the cloud, not that the cloud’s role in IT is increasing that rapidly. Further, since most of these surveys target SMBs more than enterprises, the results are biased first by the differences in the SMB space and second by the lack of understanding on the part of SMBs of what “cloud computing” really is.

May 16, 2011  2:30 PM

Battle for the data center — where are the vendors?

Tom Nolle Tom Nolle Profile: Tom Nolle

The big takeaway from Interop so far has been the battle for the data center, which is no surprise given that particular item has been on top of my surveys for both enterprises and service providers for 18 months or more.

Interestingly, the financial analysts aren’t seeing anyone decisively winning that battle—at least, not right away. I agree, but the reason why is more important than the factoid itself. You can’t fix an outcome; what is, is. But in theory, at least, you could mitigate a cause.

Data center networks are migrating because data centers are migrating, and the drivers of the IT side of the migration are obviously most likely to be giant server and/or software companies. If you want a buyer to approve an eye-popping cost, and if you want to keep most of the money that’s changing hands, you’ll tend to exalt the benefits of your own gear or software and underplay the other component requirements—the ones you can’t fill on your own. Why is IBM doing OEM deals for network gear and not making the stuff itself?  Because it wants to lance any objection boils at the network level, but focus on the IT side. Continued »

May 16, 2011  2:05 PM

Service layer moves: Carriers eye cloud/hosting customers, revenues

Tom Nolle Tom Nolle Profile: Tom Nolle

There are rumors that the telcos might sweep up some hosting companies the way they’ve swept up cloud providers. That’s a reasonable guess, but not because they need the servers.

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.

May 16, 2011  1:50 PM

Do Verizon’s new programs signal a move toward service partnerships?

Tom Nolle Tom Nolle Profile: Tom Nolle

Verizon’s Digital Media Services initiative (VDMS) has been somewhat of a yawn to the press, but it’s of great interest to other operators and also to some vendors. Verizon is now launching another program, called the Verizon Strategic Initiatives Council, that could be even more important. Perhaps the most significant thing about it is that it brings into the open something that’s been happening behind the scenes at most of the larger network operators.

Light Reading is reporting that the early efforts of the council are focused on things like wellness, security, home monitoring, and smart home and energy management. All that appears to be true, but these also seem to be the flagship applications that are expected to bring focus to a larger question—how to create “services” in an age where the network isn’t enough. Dare I hope that this might bring some long-needed clarity and impetus to service-layer planning by vendors? Hope, I guess. Assurance is still another matter.

What’s so interesting about the Verizon move so far is that it’s being brought to market through a partnership, at least in its wellness manifestation. Given that VDMS is also a partnership strategy, it sure looks like Verizon at least has decided that the wholesale-feature route is the way to go to market.

That would create an interesting new model of services that doesn’t pit operators against over-the-top (OTT) players, but rather creates a partnership in the feature area. Telcos and cablecos might offer wholesale features in a growing variety of flavors, which OTTs would roll into an even-more-diverse set of retail offerings. Of course, this is all predicated on other operators following Verizon’s lead. I think they will.

May 10, 2011  4:01 PM

Microsoft’s $8.5 billion for Skype: The road to an ecosystem?

Tom Nolle Tom Nolle Profile: Tom Nolle

Skype and Microsoft? There have been rumors swirling around a buyer for Skype for a week or more, but they’ve been just rumors. A deal with Microsoft is a lot more than that—Microsoft confirmed it at about 8 a.m. today. So now, the question is why?

From what’s been said, the big reason appears to be the creation of a communications ecosystem built to envelope Microsoft’s gaming and mobile products, and I think it’s clear that it would be extended to Microsoft desktop products as well, and could even offer an attractive reason for hardware vendors to offer a Microsoft-based tablet.

Skype is two things: 1) A community that already includes tens of millions of active users worldwide, and 2) A technology that can create a “behavior-centric” communications framework around any activity that’s persistently interesting to users and that has a social dimension.

Gaming is surely such an activity, and so is unified communication and collaboration for the enterprise. I think it’s clear that Microsoft is aiming at this. But I also think it’s clear that Phone 7 and Microsoft’s smartphone fate is tied up with this deal as well…and that’s complicated.

Technologically, this might be an interesting time to make a Skype-based play. Mobile operators are transitioning rapidly to LTE, which is pure IP. While there are ways to tunnel TDM voice over LTE networks, a quick migration of mobile users to LTE would mean that an all-IP calling community would develop quickly. That would call into question the whole IMS voice evolution, because without much interconnect between TDM and IP voice, a lot of IMS is redundant. If you don’t believe that, reflect that Skype already inter-calls without IMS. So might Microsoft put Skype voice on its handsets instead of conventional voice? It would depend on the operators.

Voice services are clearly not going to be profitable in mobile any more than in wireline, but they do sustain some revenue from non-broadband customers and justify at least part of the investment in wireline copper loop. They’re also still a big source of mobile revenue, if one that’s clearly in decline.

P2P voice is the cheapest way to offer voice services, which is why you can offer free Skype. Given that universal broadband will create a universal framework for something Skype-like, it’s hard to justify spending bigger bucks to create another voice model. Yes, the carriers have low IRR and can win a race to the bottom, but their horse in a future-voice race is more likely to be P2P-based than central-mediated and server-based. Remember that signaling issues were what was supposed to have brought down Verizon’s LTE network. Why create more of it?

May 10, 2011  1:02 PM

OpenFlow concept embodies challenges to Cisco’s resurgence

Tom Nolle Tom Nolle Profile: Tom Nolle

It’s hard not to wonder at the way a company that was once a model of tech success (“I want to be the next Cisco”) is now seen as a model of a transition failure. The idea of breaking Cisco up into pieces so that valuable parts can grow faster than “legacy” parts has been raised again on Wall Street and in the media.

There are a lot of questions about whether Cisco can recover its past glory. That’s the wrong question, and if competitors keep asking about the past, they’re going to be looking back on it from their own virtual retirements.

The challenge Cisco faces is embodied in (but, I hasten to point out, not caused by) the notion of “OpenFlow”. This is a concept of switch and router control that definitively separates the forwarding and control planes of network devices, centralizing the latter. The separation concept is far from new, and truth be told, the notion of central network control arguably goes back to IBM’s SNA. Thus, there’s nothing conceptually revolutionary about OpenFlow. There may well be something commercially new, though, and even revolutionary.

Focus on the “Open” part here for a moment. We’ve long had open-source software in networking, and the Berkeley Software Distribution (BSD) component of UNIX was the source of much of the networking software during the 80s and even early 90s. That includes software running in “routers” or network nodes.

OpenFlow is making open-source fashionable again in networking, at a time when pushing bits as a differentiator is highly unfashionable. Continued »

May 9, 2011  1:04 PM

Red Hat OpenShift cloud platform highlights cloud-enabled apps

Tom Nolle Tom Nolle Profile: Tom Nolle

Red Hat is releasing a beta of its OpenShift cloud platform. What’s interesting here is that OpenShift is a Platform as a Service (PaaS) framework that’s designed to support development of cloud-enabled apps, not a virtual machine framework like an Infrastructure as a Service (IaaS) service would be. This could be a way of dodging big incumbents like VMware, but it might also be a recognition that cloud computing based on cloud-enabled apps is far more efficient and performs better than cloud computing based on non-enabled apps, no matter what the framework of the cloud.

Microsoft and IBM preach a more cloud-enabled app story than most vendors, and they also preach more PaaS, hybrid cloud and private cloud. This month in Netwatcher, we’ll take a more detailed look at the architecture issues here, and how enterprises are seeing their cloud plans developing.

May 5, 2011  12:54 PM

Brocade’s CloudPlex: Strong story, but architecture needs details

Tom Nolle Tom Nolle Profile: Tom Nolle

UBS released an Ethernet switching report that confirms the trends my surveys have shown for two years now—including the fact that the data center network evolution is driving enterprise network equipment spending. What my data has also shown is that enterprises are not likely to see data center network evolution in a vacuum; they link it to an IT architecture migration to virtualization, cloud computing or both. That’s why there have been so many recent announcements of cloud IT support from network equipment vendors.

Brocade has now jumped into the fray. The company has always been strong in the data center, but more on the storage side. Its Foundry acquisition gave it credentials in the enterprise WAN side of data center networking, and it has an OEM deal with IBM that’s offered it some new paths to market. Still, it’s fair to say that Brocade hasn’t kept up in this space, and more fair to say that it has lost some opportunity to steal share from its arch-rival Cisco. UBS also lowered its estimates on Cisco to reflect business-model transition, a fancy way of saying that management is distracted and things are in a state of flux.

Brocade’s strategy, which it calls the “Virtual Enterprise”, is built on an architecture that Brocade says is open and extensible, and is in turn called CloudPlex. I have to admit that “Virtual Enterprise” based on “CloudPlex” seems like an attempt to link all the right buzzwords to an announcement, and that cynical view may be somewhat validated by the fact that the new stuff associated with CloudPlex isn’t yet available.  Unlike rival-for-Cisco-market-share-castoff Juniper, Brocade didn’t tie its new architecture to a single new product, or to any specific future one either.

Spinning an architecture in advance of having specific execution to support it isn’t necessarily bad, though.  My surveys have consistently said that enterprises and service providers alike need to understand the ecosystem that a vendor’s vision represents before they worry too much about boxes, speeds and feeds.  The problem in this case is that the details on CloudPlex are sketchy themselves, and it’s not at all clear just how the concept links virtualization to the cloud. That’s particularly true when Brocade doesn’t supply virtualization/cloud software except through partnerships. I think Brocade could tell a strong story here, but they’ve not done it yet.

May 3, 2011  12:53 PM

Microsoft financials: Servers and Office shine

Tom Nolle Tom Nolle Profile: Tom Nolle

Microsoft reported its numbers, and the results are interesting for what they say about the computer market overall. The entertainment side was very strong, thanks to Kinect, but Windows licenses were lower and this trend worried investors. In the middle, the server and Office franchises both delivered strong results. So what does this mean? Let’s discount Kinect; it’s early in the roll-out and competition is still sparse. We’ll instead focus on the rest.

PCs are not seeing the growth they once did, and that of course reduces the new-system licenses for Windows. Some of the slowing is due to tablet encroachment, but most is likely due to people just not upgrading as often. Windows 7 drove a spate of refreshes, but that’s over. I don’t think there’s much of significance in this particular data point.

What’s more interesting is that the server and Office portfolios did very well. The media has Linux running rampant in the data center, and cloud productivity tools kicking Office’s butt.

The truth is apparently not quite that dramatic. In fact, both Microsoft’s server sales and its Office sales were well ahead of IT spending trends overall. I’ve noted for quite some time that Google Docs isn’t equivalent to Office, and that’s for now enough to keep the Faithful in line, Office-wise.

I do have to admit surprise at the server numbers; 11% growth is twice the industry rate. I think a decent chunk of this is SMB spending; SMBs adopt Linux at half the rate of enterprises.

May 3, 2011  12:51 PM

RIM’s hard lesson: Differentiate or die

Tom Nolle Tom Nolle Profile: Tom Nolle

RIM’s earnings statement speaks volumes. It’s not a surprise that RIM disappointed; it has been forced to accept much lower margins and has lost market share to every smartphone option out there.

This is a classic story of how not being innovative will hurt you, perhaps fatally. The iPhone caught everyone by surprise, to be sure, but it should have generated a fast and insightful feature-differentiated response.

There was at least a year when RIM could have cemented its franchise with the enterprise and then built into the consumer space. RIM worried instead about first trying to enter the consumer market, and in that period, Apple made the iPhone more competitive in the enterprise. Then we had the iPad, which even in its first release was light-years ahead of the PlayBook. Moral: Differentiate or die.

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