As some things change, others stay the same. That’s about how I see things fresh from two weeks in Brazil, a place on which I’ll also comment here. We’re seeing changes in the networking business space as Google vies anew with Facebook and Twitter, and yet the moves raise the same issues we’ve faced all along. In the economic world, it almost seems like Groundhog Day.
Google+ is definitely a revolution, a step toward social networking as many believe it should have been all along. Because it avoids most of the privacy problems that seem inherent to Facebook’s simple model of “friends”, it could potentially be used more effectively without putting its members at risk. Because it’s built around communication, it would establish Google not only as a social network leader but also as a player in the web-based communications space that will eventually displace the old PSTN we’ve come to know. And behind it all looms the old Google/Microsoft face-off, this time regarding the Microsoft acquisition of Skype.
Make no mistake, Google wanted to counter the Skype deal probably as much or more as it wanted to be a social networking player. Skype, in Microsoft’s hands, could become a powerful force to integrate Microsoft cloud software into people’s lives. Skype could also be the foundation for social communities, of course, and having Microsoft in a position to exploit Skype at its leisure wouldn’t serve Google’s interests.
The fact that Facebook went running to Skype for a deal is interesting too. They can’t now expect to buy the company after all, and they’ve admitted that they have either never thought of the communication-based social network (unlikely) or that they can’t toss money and time at creating one to counter Google’s move. Facebook’s weakness, as I’ve pointed out, is its off-market trading and correspondingly high valuation. They can’t afford to keep going to the well for more capital and they can’t be perceived as losing ground—though they are.
All of this comes at a time when the Street is newly aware of the eroding credibility of carrier capital budget planning. To quote Credit Suisse, “We expect the ongoing disconnect between revenue growth and bandwidth economics to drive an ongoing shift in carrier capex to specific projects focused on revenue generation or cost savings”. Network spending focused on cost is an open invitation to Huawei, and spending on revenue generation is clearly not going to focus on creating more of the low-value bits that have put carriers in the disconnect to begin with. This is the issue that raised our concerns about Alcatel-Lucent’s FP3 chip announcement. The world doesn’t need a way to push more bits until we can figure out how to make bits pay, and right now everything happening in the industry is disintermediating the operator more. Alcatel-Lucent, we’d note, continues to champion IMS as the basis for mobile broadband “services” when the Google/Facebook brouhaha makes it clear that it’s going to be tough to make even IMS voice work effectively against OTT P2P competition.
With bit-pushing going out of fashion, Cisco seems unable to break out of the bit-and-box marketing mold and is instead looking to cut costs by cutting headcount. The company’s reported early-out package expired in late June and there’s no official word of how many people took advantage of it, but we did hear that there were still as many as three thousand more jobs on review for elimination. That could push the total cuts above the 4,000 that were rumored. Cisco’s intransigence with respect to the service layer is creating an opportunity for its competitors, who could not only gain market share on Cisco’s fall from grace but also gain an early lead in the service layer. So far, though, nobody is stepping up with a good story, and we’d not be surprised to see any improved positioning saved for early September, timed to the carrier strategic technology planning cycle that will end around November first.
On the economic front, the question of whether Greece can avoid a technical default seems almost answered in the negative, but at the same time eclipsed by what Italian sources say is a speculator-driven attack on Italy’s debt. This is the issue that the EU needed to avoid; the house-of-cards attack on weaker countries generated because speculators believe that the strong (notably Germany) won’t accept a rescue package that keeps players out of default. A default would trigger credit-default-swap payments, and CDSs are the instruments of speculators.
