Juniper turned in disappointing numbers last quarter, and it’s getting acquired by HPE. Cisco’s announced a second round of layoffs, and its stock is down ten percent for 2024. It’s sure a far cry from the heady days in the early 2000s, when every company wanted to be “the next Cisco” and when Juniper’s stock soared to dwarf even Cisco’s gains. What’s happened here, and can it be fixed?
Reuters reports that Cisco’s planning to shift its focus to security and AI, areas of higher growth than vanilla networking, and HPE had the same targets with its Juniper plans. What’s interesting is that these areas are tweaks on the edge of the network market, something like selling screen protectors rather than smartphones. The glory days of networking are not coming back by anything short of a revolutionary spending driver, and the big problem for these two companies, and for telecom and most of tech, is that we don’t know what that driver is, or how to get it activated.
I’ve been writing about this problem, and what I believed to be its solution, for over a decade. I’ve called for “point-of-activity empowerment”, first as the next logical step in a half-century trend that ties IT growth to steps in bring IT closer to the worker. Look the term up online and you’ll find a lot of references to my writing, and even some uses of the term that you’ll have to translate into English. What you won’t find is a vendor committed to the concept. The second basis for my writing is more recent and specific, citing the fact that IT empowerment has really reached only 60% of workers, and that getting to the other 40% is the biggest opportunity, the biggest set of business cases, that remain for IT.
The point here is that business spending on anything has to be justified by some benefit, some business case. The most compelling business cases are those that can deliver a specific return on investment, one that’s higher than the CFO target for project approval. That’s usually set by the company’s historic return on capital investment or “internal rate of return”. IT spending tends to be higher when some technology advance comes along to open up a new set of projects, and that’s happened three times in the computer age, the last being a wave that came along in the mid-1980s with PCs.
The first two of our waves, the “mainframe” computer of the 1960s and online transaction processing in the late 1970s, were about core business automation. The PC wave was about personal empowerment, and so I think we can fairly say two things. First, each wave tightened the bond between workers and IT, bringing “empowerment” in the form of facilitating those involved in core business processes. Second, the goal transition between the first two waves and the third illustrates that not only is it easy to “use up” a particular benefit set, it’s inevitable.
Business networking had its own wave in the early 2000s, and this wave was created by personal empowerment. Early PCs were used to make work easier, with things like word processors, spread sheets, presentation graphics, and the like. Inevitably, focusing workers increasingly on computer aids focused work in areas where core business data was needed (what goes in spread sheets or presentations, after all?) and so delivering the data and application access was a limiting factor in empowerment. The network was the mechanism for delivery, so it boomed.
What happens to spending when new benefits stop appearing? Spending doesn’t stop; companies have already built practices around the projects that were once new. The money needed to sustain previously-new business technology is budgeted, and the goal for IT organizations is to control these budgets, to get more for less. If you’re a vendor used to the happy revenue growth of an empowerment wave, a shift to a budget-driven set of opportunities is a slap in the face, or the wallet. Networking’s wave passed, network spending passed to the budget, and everything got sad and constrained.
Cisco’s strategy of cut-staff-and-shift-out-of-mainstream-connectivity is, in my view, an admission of defeat. So, IMHO, would be HPE’s Juniper acquisition, if it’s aimed simply at better economy of scale in the combined company, or even just at getting a bigger piece of that under-pressure budget pie. But as I said in a piece I did for Network World, there’s another possibility, that “point-of-activity empowerment” thing. So, HPE might pull out something significant, might see and tap into the potential driver of the next wave of empowerment benefits. Let me quote from that article:
Suppose we imagine an enormous virtual-metaverse digital twin of the real world. Suppose it’s made up of many smaller digital twins—twins of rooms, buildings, towns and cities, all connected by networks. Suppose that consumers and workers have a foot in both worlds, and that their footing in the virtual world lets us give them all the information they need to do their jobs or live their lives, right at the point and time they need it. How much would that be worth in productivity, in quality of life? Network and IT operations have gotten more complicated as workers went from getting sales slips keypunched onto cards to an age where they entered things in real time and their computer talked to their company’s computer. Imagine how complicated it would be to make this real-world-connected-digital-twin thing work? Failing globally at the speed of light is not an option. We need a superintelligence on our side.
To support point-of-activity empowerment, we need three things. One is a thorough understanding of what’s going on in the real world, and that’s something that we’ve believed (for over a decade) that IoT could give us. The second is that we need to be able to systematize, to understand, what’s going on so we can use IT to help real-world workers and consumers to get more of what they want and need. Finally, we need a way to communicate the IT information we develop to the worker, a way that works in the context of what the worker is doing. The first and third thing are direct networking capabilities, and the last is the sort of superintelligence that AI could offer us.
I think that either Cisco or the new HPE entity could provide all of these things, with some effort and perhaps some help from partners. Nokia has actually been announcing features that track along this path, and they’ve gained some sales traction according to what enterprises tell me, but haven’t gained a lot of marketing attention yet. That may be due to the fact that this whole topic hasn’t generated the buzz it deserves, or perhaps the fact that neither Cisco nor HPE/Juniper has touted this opportunity explicitly. In any event, without much publicity, broad market awareness is hard to develop, and so is the buzz in the media. That makes the current situation a sad sort of feedback look that may be holding back billions in benefits, and network spending.
You can’t sustain an industry that’s prospered on enhanced business applications if all you can add is security (that should be part of the basic services) and operational efficiency through AI. There has to be a mission enhancement to justify spending enhancement, or you end up in a consolidating market, where the product gets cheaper and the players get more monolithic. We’ve had progress in the past, and we need to move to have it again.
It’s rare that there are two different analytical slants you could take to validate the same opportunity conclusion. Networking is in the doldrums because we’re not introducing new benefits to drive it by generating new and valuable missions. There is one out there, but have we gotten too lazy or complacent to work for it? If so, consolidation has just begun.
