Enterprises are uncertain. So are the network operators, and so are the vendors. In fact, if I did a word cloud from the comments I’ve gotten from everyone in December, “uncertain” would surely be among the biggest words. For enterprises, the word isthe biggest, and so we clearly need to understand what’s at the root of all this uncertainty. It’s not all bad; in fact it may be more good than bad. A glimmer of hope for 2024 after all the stories about budget pressure? Not quite yet, but perhaps….
Through November, the fall planning cycle had pretty much concluded that enterprise and operator tech budget pressures for 2024 were going to be high. As a result, there was a solid conviction that we would see a pretty conservative 2024. Not a lot of change, not a lot of innovation, fewer projects getting approval, pressure to cut costs, particularly in the cloud…you know the drill. The problem that came up in December was that things were actually looking a bit better, which meant that maybe a lot of conservatism wasn’t the right approach after all.
Yes, I know stocks were off in the first days of the year, but this was almost surely due to short-selling hedge funds preying (as usual) on individual investors. If overall economic predictions are true, it’s very likely that in the US the Fed will cut rates next year, and possible they’ll also be cut in the EU and UK, though likely a bit later in the year. The falling rates are expected to restore economic growth and boost the stock market, which provides cover for companies who have been cutting costs in order to sustain their share price. The cost cuts that have already happened could actually pose a bit of a threat for companies, reducing their resources available to address a sudden shift to growth. About a fifth of enterprises said they’re looking at “contingency budgets” to reflect how they’d respond to this condition.
Nobody wants to be caught in an economic downturn, but they don’t want to miss an upturn either. Companies who cut costs defensively face that very risk, having deferred projects and spending, laid off workers, and generally tightened controls to ensure that their profit lines weren’t too impacted by stagnant or falling revenue. Those cuts could make them vulnerable to a rapid recovery, if some competitors were more aggressive, so having a plan that can shift to a more growth-driven market would be wise.
This doesn’t mean that everyone is expecting to start singing “Happy days are here again,” though. For example, enterprises are saying that they are not as likely to increase cloud spending the way the cloud providers would hope, and interestingly nobody who planned to “repatriate” some things from the cloud in 2024 said they would reverse that decision, given the changed situation. In fact, they don’t even have that in their contingency budgets. The CIOs are suggesting that they learned that there was a bit too much cloud exuberance prior to 2023, and they’re not falling for the cloud story again, at least not without much more examination of the costs and business case. So, as a counterpoint to the chorus of “Happy days are here again” we can hear “Happy days were never here as much as we thought.” That means that we’re not going to be seeing a sudden release of a flood of tech spending. Once bitten….
Another thing that’s not expected to change is the shift toward single-source technology. The reason here is that enterprises found in 2023 that they hadn’t gained much from either the best-of-breed thinking or the notion of multiple vendors they could play off against each other. Benefits in either case simply didn’t pay off the increased integration costs and operational challenges.
Operators are in a different situation, as I noted in yesterday’s blog. There is no confidence among operators that the profit-per-bit problems they’ve had for decades are easing, nor that there’s anything on the horizon that has a realistic chance of helping. Hopes for new service revenues are still cited by many at the top, but under the CxO level, there’s no real confidence that these will result in anything meaningful because there’s no credible new services to tap. That means that operators are far more likely than enterprises to hold the line on costs, even if economic conditions improve.
This is going to combine to magnify a trend we’ve already begun to see, in network and computer vendor earnings reports. Sales to operators have been soft and vendors have focused more and more on enterprises. That’s going to accelerate in 2024 if conditions do indeed improve; vendors are hearing the same story on contingency budgets that I’m hearing, and many of them are telling me that they’re preparing for the shift.
The combination of the emphasis on the enterprise and the fact that enterprises are moving more and more away from multi-vendor networks and data centers is creating a greater emphasis on a one-stop-shop product roadmap. Again, this isn’t a new thing; vendors have been expanding their product lines to prevent leaving gaps into which an aggressive competitor could insert themselves. What’s changing is that this one-stop stuff is becoming an offensive strategy rather than a defense, and that’s going to influence a lot of things. It’s already happening on the computer/software side, with IBM and even Broadcom/VMware.
All this makes a kind of sense, but a fly in the ointment is that vendors, for tactical reasons of quarterly reports to Wall Street, have been selling point solutions to point problems. What good does it do if you have a full spectrum of stuff when your sales force can’t sell entire tech ecosystems into a market that’s still looking to beef up weak points? That’s particularly true when it’s very possible that the slot that the buyer is trying to fill is surrounded by stuff another vendor provided. And enterprises hate integration issues.
It seems likely that 2024 is going to demand some major strategic thinking on the part of vendors. Not only are they facing the need to plan for two different technology strategies, with the final decision perhaps not made until the second quarter, but also a whole new sales/marketing approach to unify the piecemeal into the full spectrum, somehow…which in my view means “through marketing magic”.
You can’t expect salespeople to play around with complex message dances and still make quota. You have to take the complex messages, suitably packaged and simplified, into the marketing domain. That means a combination of editorial reach-out and good web and collateral development. It means a more proactive approach, one that contrasted with the buyer-driven needs-focused drive that, for example, characterizes security spending. Over the last decade, the role of marketing in actually driving projects has gradually slipped, but that may have to change now.
On the operator side, it’s not that easy because product strategies rarely drive major operator budget initiatives. Most of the real money in operator equipment comes as a result of major projects driven by orderly technology shifts, like 5G. Well, that didn’t work out as most had hoped, and it’s obvious that despite what’s likely to be determined media effort, 6G isn’t exactly waiting in the wings. There is nothing in the wings that’s likely to drive a major operator spending initiative, other than some new opportunity.
Which is what, exactly? I don’t think there’s any question that the next frontier in network and IT investment is real-time applications. In some ways, it’s unfortunate that the label “IoT” for “Internet of Things” got applied to this space, because the largest piece of the opportunity isn’t really linked to the Internet and the breadth of application of the term has led to a perception that this is a massive undertaking, which means nobody wants to take it on.
Edge computing might be a better label for what could be the next unifying concept for tech advance. There are applications, missions, experiences that require a projection of resources toward the user. But edge computing, like cloud computing, is a technology that is at the same time one of a thousand missions and one in search of one. We’ve not escaped breadth, for sure. But look deeper and what might emerge (emphasis on “might”) is a realization that what we’re looking for goes back to what I’ve called “point-of-activity empowerment”, pushing tech toward the user to facilitate real-time support.
Even if edge computing describes the framework on which future positive service revenue shifts could be built, we still have to identify what the services are, who the customers and partners would be, how the business case would evolve for customers, and how that could drive an operator business case to deploy service elements at the edge. 5G hasn’t answered that, even Open RAN. It’s hard to say what will eventually answer it, and when the answer might become visible. That means that operator prospects in 2024 and beyond are still totally up in the air, and there’s not even a clear indication of what would ground them in a useful way. Or who might initiate the effort.
Vendors who think the enterprise is a better prospect in 2024 are almost surely right, and even in 2025 that’s still likely to be true. That means vendors will need to do a lot of dancing this year.
