The parade of misses continues, so it seems, with Acme Packets, Amazon, Apple, and Ericsson joining in. One might think this proves that economic conditions (those “macro” factors I blogged about yesterday) were to blame after all. I still don’t buy it, and if you look at these companies you see a mixture of root causes. Yes, more sales would have covered them all, but it’s in getting more sales that companies distinguish themselves.
Amazon clearly can’t expect to own all of retail, or even all of online retail, and its moves into tablets demonstrates that it realizes that. The company is spending more now, including acquiring a share of social-coupon player LivingSocial, and that’s reflecting on the bottom line. Even without LivingSocial considered, they’d have posted a net loss this quarter. That’s a signal that Amazon, cloud included, isn’t growing top line at the same rate as costs. Economic improvement would likely have pushed facing reality out a couple of quarters, but either some of these new ventures start paying off handsomely for Amazon or they’re going to start disappointing regularly.
Apple is in somewhat the same condition. How many iPad models or iPhone models can you put out when your baseline business model is to sell to a relatively closed community? The pricing on the iPad Mini proves that Apple isn’t trying to steal share from Google or Amazon, they’re trying to defend their current Apple Basketers. Yuppies apparently are born and not made and that confines Apple to a limited TAM. Do they realize this and are simply milking the last buck out of the traditional fan base before cutting prices and foregoing the “coolness” angle, or will they do the same thing in tablets that they’ve done in PCs and phones—surrender the real market to another player?
Ericsson, I think, is a victim of itself pure and simple. The company has incredible assets in the space, it’s the largest equipment player in networking (for how; Huawei is waiting in the wings), and it is actually doing good work in all the hot market areas like the cloud and SDN. But the company is so far from self-promotion it’s bordering on being self-effacing. The best example of this is the fact that a bunch of operators have now stepped up to drive the Network Functions Virtualization model of NGN service architecture, even taking the venture to live inside ETSI. Ericsson could and should have launched that initiative and made that ETSI proposal. You don’t have to market to win as a price leader, but you do if you aren’t. The reduced margins this quarter show they’ve surrendered positioning advantage and are now butting heads with Huawei, a battle they cannot win. So fight the one you can! Learn to sing.
Acme Packets has no economic problem at all, they have a major positioning problem. There is absolutely no hope that voice services can ever be truly profitable again unless you have a cost model that lets you give them away like Skype. Acme is hoping that LTE and VoLTE is going to ignite their business, but the voice business MUST shift to app-based voice, as I’ve said many times before, because no mobile device vendor is going to be able to keep cheap voice apps off their devices. Furthermore, if Apple and Google decide to become MVNOs (which I think is a given) then they will exercise OTT voice because that’s their best option in a profit sense.
OK, here’s the straight dope. Service providers are not growing capex even if they increase profits (Verizon said that explicitly) because ROI on transport/connection infrastructure is falling. Instead they’re focusing on building service-layer stuff where ROI is higher. Five years ago, they’d have KILLED for a proprietary strategy in the service layer as an alternative to what they got from their network vendors, which was no strategy at all. Today they’re going their own way. Telefonica Digital bought ANOTHER software player this week.
Enterprises have driven their budgets for three years on virtualization, which is first a cost-savings strategy and second a strategy that has a natural end-point. When you’ve virtualized everything, unless you’re an idiot in project management, you’re now running a lot less servers. Even normal “refresh” is now going to cost you less. You can’t EVER grow a market through cost management. Enterprises can make real benefit cases for the cloud, but we’re pushing more cost management instead. Cost management vanishes to a point—zero cost. That means zero spend. The next time a vendor tells you that their strategy is to manage your costs or TCO, check their passport and if they’re not from China you’re wasting your time.
A recovery won’t recover sanity for vendors who are still mired in the old world. Even a flush buyer is smarter than a stupid seller.
