A number of interesting but small new items have emerged in the tech world, and so we’ll do a quick analysis of them before tackling the ugly economic picture. We’re going to range from network capex to virtualization, but perhaps in the opposite order.
VMware has decided that maybe its pricing was more of a problem then it believed. As I said in our blog on the change, our analysis showed that most users would expect to pay quite a bit more, particularly users who had just designed virtualization-ready data center architectures. The new model doesn’t penalize virtual memory as much as the old.
I think that customer angst here was expected; the big driver is likely to be the sudden softening of the economic picture, attributable to the political deadlock in the US and the sovereign debt problems in Europe. Virtualization is a cost-management approach and could see a pick-up in bad times, but people want to save money on the means of saving money, so a price increase at the wrong time could hurt VMware’s market share. Our model suggests that while some users will still see higher prices, the critical new-data-center players will likely find the new pricing model neutral to even slightly favorable versus the old.
DirecTV’s US subscriber numbers were disappointing to say the least (though its profits were up on Latin American growth), and the company has admitted it does have an interest in Hulu, thus in the concept of using OTT streaming as a means of augmenting a channelized model. Comcast has said that for its part it’s not interested in using OTT to extend its service reach, and the difference in perspective here is what’s interesting.
DirecTV is fighting the natural disadvantages of satellite delivery, which is the lack of personalization and interactivity. But that disadvantage set arises out of the fact that they don’t supply broadband Internet. An OTT supplementation for them is a logical step because it could help address their limitations while at the same time consuming somebody else’s bandwidth. Comcast, like all cable operators, has a market-share limit set by the FCC. It can grow only through something like OTT, but trying that would validate a model that might create a kind of OTT explosion, which works against any broadband provider.
Credit Suisse has issued the third of its operator capex reports, and there’s really nothing new in this most refined prediction. They think that 2H11 numbers will generally be up over 1H11, and there’s the only place I part company. My sources are suggesting that there will be a serious hold-back now because of economic conditions, and I’m tentatively modeling 2H11 as just slightly over 1H11 and down significantly from the 2010 levels. They continue to stress that the ROI on capital projects will be the determinant; money will flow only to where it earns provable returns.
In that regard, I still see the operators’ big problem as the lack of solution-oriented vendor positioning of their wares. Operators struggling to get “new money” can’t expect to do that by deploying boxes under old paradigms. That’s pretty obvious, but if it’s true then vendors have to offer some new ones. What raises ROI? How does it do it? Some of my clients are getting so poor a set of monetization-project responses that they can’t even cost out the build-out needed because they can’t find any reasonable assumptions on what products can do now, what they will do in the near future, and what it will cost to augment that to meet monetization goals.
Well, we’ve avoided the point as long as we can so let’s take up the economy. The big stock dump of the last couple of days (depending on what time zone the exchange is in) shows first and foremost the problem I predicted in our 2008 analysis. Europe has common currency and divided government, and so it was unable to mount an effective stimulus program. That led to reduced economic growth, and that in turn led to lower tax revenues and higher safety net costs. The sovereign debt crisis is the result of that, pure and simple, as I’ve said all along.
What’s now changed is that the US now has the same thing. If we didn’t see a classical example of divided government in a unified economy, I couldn’t suggest where one could be found. The impasse, even when corrected at the last minute, has sapped the confidence of both consumers and business, and that’s enough by itself to slow economic growth. It did. It’s not over. Slower growth here means less support for EU growth through exports to us, and that exacerbates their growth problem, which exacerbates their sovereign debt problem. Which reduces their ability to buy our exports, which makes our growth slower. You get the picture.
The Washington Post said it beautifully yesterday: “The forecasts and models created by agencies such as the International Monetary Fund emphasize the point: Miss a revenue or spending target and the numbers look a little worse; miss the growth forecast and debt spirals out of control.” Our debt fight simply guaranteed our loss of control, and we now join Europe in playing catch-from-behind on a problem we had control over. The committee to implement the debt compromise hasn’t formed yet, but the politicking is already underway. Do you think this is going to go better? If it does, it will only be because politicians on both sides are staring into that death spiral the Post described. The employment numbers today were unexpectedly good; the confidence crisis isn’t pushing us to disaster quite yet. We have perhaps two months to fix this, and then we’re in another recession that could easily be as bad as that of 2008. Remember, doubters; I bucked the positive trend early in that crisis and said it would be the worst since WWII. I could be right here too.
