I’ve blogged several times in the past about the decline in new-project spending by enterprises, and how that portends for the industry. This is a good time to look at another impact of that new-project starvation, which is the magnification of the benefits of incumbency. Could current network spending patterns be reinforcing the “stay the course” mindset? Cisco’s results suggest that it could well be. While they weren’t great, they were better than some feared.
A total of 221 companies told me they’d had a competitive choice of vendors to consider in the last six months. Of that group, 198 said they’d stayed with the incumbent vendor, and of the 23 who did not, 18 said they’d had a “major change” in network requirements. Looking at that specific issue another way, 34 buyers cited major changes, and of this 18 changed vendors on this specific deal. Note that these were buyers who made a choice, not buyers who fork-lifted their entire network; none reported that. So incumbents win decisively when no major changes in network requirements are contemplated, and competitors win slightly more often when a major shift is a part of the deal.
Overall, 455 companies said they’d done some network equipment purchasing in the six-month period, and less than half were competitive, meaning that in most cases the incumbent won by default. To me, it’s logical to assume that a small orderly modernization decision would favor the incumbent, and it does. As the size of the change increases, is it scope alone that induces buyers to consider another option, or is I why the scope increases that matters? Among the 198 buyers who said they made a competitive decision, 101 said that they were driven by the nature of the change more than the scope. In fact, of 31 buyers who changed out a quarter or more of their gear, 8 changed vendors, and 7 of the 8 said that it was not how much of the network was changed, but why it was changed, that drove them to rethink their vendor strategy. None said they did so for “leverage”, or in the name of openness, by the way.
I tried to take a look at the vendor changes to find some common thread in what basic requirements were driving it, but there doesn’t seem to be any single compelling factor in terms of technology. What I did find was an indication that the incumbent vendor practices and responses themselves were the root cause of the change. The incumbent might well have had a better strategy, but their either were unable or unwilling to present it. They threw the deals away.
Of the 23 buyers who changed vendors on their deal, 20 said the incumbent vendor “resisted” the notion that a change in network approach or technology was required, and all 23 said the competitors embraced it. This, again, is hardly surprising; most incumbents will work to protect the value propositions that created their incumbency in the first place. Competitors will embrace anything that gives them another shot at winning a role for themselves. In another sense, though, protecting something at the expense of losing the deal isn’t an example of successful protection.
What seems to be at play here is not just incumbency, but a large dose of intransigence. In 17 of the cases, buyers said that even when it was clear that they were not going to abandon an indicated shift in approach, the incumbent vendor insisted in proposing just that, in addition to proposing a compliant response. Buyers in all these cases believed that the incumbent vendor favored the stay-the-course approach, offering more detail and in 11 cases, better discounts, on the approach that denied change.
Why? In four of the cases I was able to get some insight from the vendors involved. In three of the four, the incumbent vendor thought that a competitor had driven the desire to change approaches, even though the buyers in all four cases said that was not true. I think that in at least two cases, another vendor did influence (at the very least) the decision, so you could argue that the incumbent was fighting competition who were “wiring” the deal to the disadvantage of the incumbent. However, isn’t it logical that the incumbent would bid the change once it was clear that the buyer accepted it? In many cases they did not.
In these competitive deals, Cisco was the incumbent in almost two-thirds of cases, and Cisco was also the vendor who was most likely to resist adopting a new network paradigm. Does this mean Cisco is making a mistake? Not likely; Cisco is a sales machine, and I’ve rarely seen or heard of them making a sales-level mistake. So what’s going on?
A sales strategy is tuned to results, and my own data shows that the best strategy for an incumbent is to resist change, meaning in general, put it off. That’s what’s happening here, and Cisco is gaining more than it’s losing with their approach. The big question, to me, is why resistance is such a good idea. Is it all in the fundamental truth that you should, as a seller, promote what you’ve already won on? I think there’s more.
The fact is that a major project is the thing most likely to promote competition. You can see that in my data, and see that when it does happen, competition is most likely to result in a vendor shift. Over the last two decades, the portion of network spending arising from major projects has fallen sharply, which means that modernization is now the big budget contributor. Cisco didn’t create this, but they’ve been smart enough to accommodate it.
So what we can say here is that in networking, people who want to gain market share on Cisco will have to influence major-project initiatives. This may be why HPE’s Juniper acquisition is smart; project impetus really comes from the IT side, from application changes that drive productivity gain and business practice shifts. My data has long shown that these changes then influence network needs, and thus create those major projects.
This isn’t all beer and roses for HPE/Juniper, though. In the first place, the deal may not close by the end of 2024, and if it does not, competitors like Cisco get a free shot. Second, major projects are strategic shifts, which take time to plan. Chances are good that any major network projects not already underway, or likely to evolve this year, will not hit till 2025. That means that HPE/Juniper planning for these opportunities will have to be in play by this fall, and that may be hard to bring about even if the deal closes. Finally, Cisco can use the time to create defensive incumbency in areas like the Splunk deal, and any near-term investment a buyer makes will lessen the “major-ness” of future projects in those areas, making it harder for competition. It also adds, according to some analysis, $1.4 billion in new Cisco revenue, which pays for more sales account presence and control.
But while Cisco is sales-smart, that may not be the same thing as being long-term-business-smart. They didn’t post great numbers, and it’s pretty clear that what’s behind that is the fact that, absent new projects with new benefits to harness, network spending is going to be stagnant for quite a while. Cisco is addressing this, in the near term, by branching out via M&A. That works, in the near term, but all of IT has the same risk of benefit starvation, a risk that a competitor (even HPE/Juniper) might exploit. Is Cisco looking to defend its position at the strategic level? We’ll see.
