Microsoft and Juniper both reported their numbers yesterday, and when I looked at their stocks pre-market it happened that both were up exactly the same percentage. Interesting because both companies’ future literally depends on the cloud, and neither company is fully exploiting that reality.
Microsoft’s Windows numbers were up for the quarter and off for the six-month period, their Server and Tools numbers were up both quarterly and six-month, as was their online business. Office and Entertainment were both off slightly. It’s hard to get a detailed picture of the lower-level breakdowns, so we don’t know exactly how well Microsoft is doing in the cloud (Azure) and we don’t know how RT and Phone are doing either.
I think Windows 8 was a big gamble that has yet to pay off, and I think the reason is that they didn’t gamble right. First, they were playing the wrong game at the Market Casino, and second they were betting too little.
Microsoft sees the future as PCs-versus-tablets, and that’s wrong. It’s locally anchored computing versus cloud computing. Tablets are useful to the extent that we conceptualize future experiences as being hosted and network-delivered. If we really don’t have a future in the cloud we don’t have a future for cloud appliances. Microsoft is missing the real opponent. You can’t win by fighting Goliath’s retainer, you have to kill the giant.
You also can’t win by wrestling the giant to death. Microsoft had a chance to redefine computing as a completely symbiotic device-to-cloud relationship, one where power migrated to where it was needed and where resources were hosted where they worked best. The key product in this proof point was the Windows 8 RT, because it was the most different appliance Microsoft offered. But even Phone could benefit from this notion, and so could Azure. The problem is that RT is the worst of the Windows launches, and there’s now a danger that Microsoft’s tablet strategy will reduce to offering a detachable keyboard.
In business/enterprise software Microsoft is still strong, but there they should also be stronger. Again, the cloud is the key issue and the Microsoft cloud vision is still tentative and inconsistent. The most significant thing Microsoft has done in the cloud is to begin to open Windows clouds up to third parties, and to accent the value of PaaS in hybrid clouds. Where do they say that, and to whom?
Here’s the thing. If you want to be a success in the cloud you have to offer three things. First, a cloud service of your own, to serve as an on-ramp to a broader customer commitment. Second, a platform that’s available to other cloud providers and that will federate with any of your platform customers or your own cloud on demand. Third, a platform that enterprises can buy to join the federation as a hybrid cloud user. Microsoft has the first and the last in the bag, but they’ve been soft-pedaling the middle one. Only in the last year have they had sanctioned third-party cloud capability. Weak bet, because it weakens Azure, and what weakens Azure weakens Microsoft.
Juniper also reported their and the result was a kind of tactical good and strategic bad. Juniper’s execution has clearly improved and they’re getting some traction with their new products (QFabric, PTX), but Street analysts are still a bit in a quandary on the strategic side, and so am I.
The issue for Juniper, in financial terms, is that they have about a 40x P/E multiple in an industry where the average is about 10. Put in simple terms, that means future earnings are expected to just blow the market away. The challenge is figuring out how that’s going to happen.
Routing and security products were down on the full year versus 2011, and switching and security down in the quarter versus last year. Software was down y/y and q/q. The service provider sector was a bit stronger and enterprise a bit weaker, but Juniper beat most estimates and their guidance was a bit above midpoint as well. If all they’d done was numbers it would have been hard to get much from the call at all. You could say that Juniper needs to get security moving, because that’s the sector they get the most enterprise traction with.
They talked about security too, but in (not surprisingly given it was an earnings call) a more financials-and-execution model. What I think was missing from the discussion is what’s also missing from Juniper’s security positioning. Security changes radically with the advent of what I’ll call the “cloud trio” of cloud hosting, SDN, and network functions virtualization (NFV). I think a stronger cloud story would have helped Juniper in both spaces, and I also think it would be easy for them to tell it based on nothing more than the unification of what they have.
Juniper also mentioned SDN, which I find interesting because SDN technology isn’t going to have a major impact on spending in 2013, though SDN positioning is critical for 2014 and beyond. The problem, as I noted in my blog on their SDN story, is that they don’t have one yet. I’ve looked at a couple of Juniper presentations on SDN besides the Partner Conference pitch and I think it would be easy to cobble elements from those stories to build a really nice SDN picture. I also think that the Partner pitch, which was really about NFV as I’ve noted, could have then been combined to create a truly powerful positioning. That wasn’t done, and the SDN introduction in the call seems out of place given that. Is Juniper countering Cisco’s SDN stuff next week? Are they trying to answer Street concerns about margin pressure from SDN?
This gets back to the 40x P/E multiple thing. If you’re going to explode in earnings in the future you have to get a revolutionary paradigm to put wind in your sails/sales. Technically, Juniper is fully prepared for the cloud, for SDN, for NFV. But when they say they’re “well positioned” I have to disagree; they’re not positioning at all. What should the position be? “The Cloud changes EVERYTHING!” Juniper is so much better than they sing, and that’s a challenge when they’re facing Cisco, a vendor who often balances those two in the opposite direction. Suppose Cisco actually DOES something?
