Well, Cisco made it’s “big announcement” and it was the second one in two days that fell flat, at least with respect to Wall Street. It’s my view that it also missed from a market opportunity and requirements perspective. Cisco moved the ball only a little bit, and it moved the wrong one.
What’s frustrating to me about the announcement, which is a combination of a capacity upgrade to the ASR9000 line and a virtual-device-for-management story, is that it seems to reprise a theme that I’d really resent were I a network operator. Traffic is exploding, your revenue may not be, but we’d sure like you to support the former trend by buying our boxes and don’t worry about the latter trend. After all, you’re the guy in the market who’s supposed to supply capacity to meet demand growth. We’ve shown you demand is growing, so get with it. Yet Cisco has clear assets to help operators monetize contents, and assets that could be linked to the edge and potentially to this announcement. They did no such linkage, and thus did a major ballyhoo for a minor advance at best.
All of this came along on the very day a Wall Street report said that Cisco was trapped in an increasingly competitive and commoditizing market. Well, the ASR9000 stuff sure played into that theme! More bits, not better bits, is the solution. But what’s done is done, and now the question is whether Alcatel-Lucent and Juniper will follow Cisco into the hype abyss or be bold and say that the San Jose networking giant is drinking too much of its own Kool-aid. The challenge, of course, is that for both (but for Juniper in particular) their own Kool-aid is the same flavor.
Virtualization was another news hook for Cisco, the notion of creating a big virtual router to manage, thus reducing the total management tasks to a fraction of those needed to manage boxes individually. But in truth all virtual-box strategies are little more than embedded approaches to hierarchical management, which goes back to the days of OSI and which is supported by pretty much all Cisco’s competitors in some form. In any case, the improvement in management complexity is largely proportional not to the number of boxes inside the virtual one but to the ratio between the “exterior” ports and the trunk ports within the virtual box. A hundred routers inside a virtual envelope is managed as one router to be sure, but managed as one router with the aggregate ports of the hundred. It’s typically port configuration that’s a management issue, according to operators.
So where does this leave Cisco? Their assets remain, but I’ve got to be more worried about their will, their leadership. This, following their Visual Networking Index release, seems to be playing “Chicken Little” with the operators. If Cisco has the answers they seek (and I believe that the little Cisco may not have could be solved with a wave of their massive checkbook), why rely on thinly disguised scare tactics? If this is what getting back to basics means, they’d have been better off to stay with adjacencies. The Street seemed to agree; Cisco shares were off and both Alcatel-Lucent and Juniper were up.
Perhaps they should be up, but as I pointed out earlier in this blog, the response of Alcatel-Lucent and Juniper to the Cisco move isn’t yet out. UBS pointed out in its note today that Cisco announcements had not led historically to market-share gains, which means that tactical expansion of product lines doesn’t help a company’s sales. In fact, since the ASR line came out, Alcatel-Lucent has gained share on Cisco and arguably because its own edge products are better-linked to service and monetization initiatives. Mobile and IPTV success, in short, are driving edge success. That says that you need a service revenue story to sell boxes these days, and that shouldn’t be a surprise to anyone.
