This week’s activity seems to me to be pointing to the future course of network equipment. On the one hand, we have Huawei reporting $32 billion in sales, good growth year over year, and demonstrating that networking from their perspective is a value market. On the other hand, we have Cisco making moves (including its acquisition of ClearAccess, a home-network-gateway-management company) that suggest that they believe there’s still a place for features. How that particular dynamic plays out will decide whether the US has any future as the kingpin in network equipment.
I think Cisco’s been making smart moves for the last year. The first thing they did when their credibility numbers started to slip in our survey was to beef up their strategic sales engagement, and it’s been working exceptionally well. They then started in on programs to add value to the higher layers of their offering—the NDS buy and the recent ClearAccess deal. This would boost their ability to engage network operators to help them with profit growth, which is what every equipment seller needs to be doing. But does Cisco have this figured out? Not yet.
The networking budgets of the future are going to consist of layers of inexpensive stuff that pushes bits around, topped by a veneer of service intelligence that creates something profitable out of the bits. Cisco knows, more than any player in the market except rival Huawei, that it is not possible to be even a decent-margin competitor in those low layers over time. Thus, if you want to sell the bit-pushing stuff that creates the revenue but not the profit, you need to think VERTICAL INTEGRATION of your service veneer and your bit-pushing. And that, friends, is what’s been hard—for Cisco and for everyone else.
Talk to a network guy about service-layer integration and it’s like pulling the string of a ventriloquist’s dummy—the words “QoS” come out automatically. The best thing that could happen to network vendors today would be for the Good Market Fairy to waive her wand and make their tongues cleave to their palates when they tried to utter the words. Vertical integration between network and service layers has to be via something that’s directly merchandisable, or it’s not going to do any vendor any good—because it won’t help the buyer make money.
Curiously, none of the vendors seem to get this. Everyone in the marketplace sees this (except the vendors) and so everyone is waiting for some big stumble and fall, looking for the Lilliputians who will fell Gulliver. That’s what’s behind the current notion that OpenFlow switches are going to rise and smite the mighty. Wrong. OpenFlow is just a concession to commoditization, and there’s no smiting in commoditizing markets, it’s more like death from erosion. Where the real risk of a sudden loss exists is in that critical binding of network to service. A success there, by ANYBODY, could create a real market wave, because we’re entering a future that redefines the relationship between consumer and network service, and the magnitude of that relationship’s impact is simply incalculable. There are trillions of dollars in service revenues at stake, and the total infrastructure impact could run into hundreds of billions of dollars, enough to make anyone a real contender.
Everything we talk about in networking, whether it’s online advertising or streaming video or even QoS, is aimed implicitly at a cost-driven evolution. That’s not going to build the network of the future, it’s going to undercut the network of the present. The solution to industry stagnation and infrastructure commoditization is the same no matter what the industry is, it’s RAISE THE TOP LINE. That’s what somebody is going to do; it’s just a question of “who?” and “when?”
