Google and Apple TV, RIM and Microsoft Phones

It’s the last workday of 2011 and everyone seems to be doing a retrospective, but I’m not going to do that!  What’s the point of blogging if you rake up the past anyway?

There are more stories today about both Apple’s and Google’s possible plans in the TV space.  One of the popular ones (for both vendors) is that they’ll include broadcast TV services and also personalization, meaning channel-by-channel subscription.  I have serious doubts that either of these is true, and I think the fact that they’re likely false makes the notion of a serious TV play harder for either company to justify.

Without broadcast TV channels, anybody’s “TV” is just super-Netflix at best, and the problem is that broadcast IPTV is a black hole.  Look at U-verse; the Microsoft/AT&T/Alcatel thing.  It takes special infrastructure that has a high complexity and cost, not just a box that’s stuck at the end of a broadband connection.  Without special features in the access network, the streaming process will create hiccups even in decent broadband areas because of increased traffic and congestion.  Operators have no incentive to fix these; they’re not part of the revenue stream.  With lower-bandwidth connections, there will be a lot of hiccups, and what happens to Apple or Google (or their dealers) if somebody moves to a place where Internet is slower or poorer?  Nothing like built-in customer support problems to create negative incentives.

The point is that IPTV is more than the TV part, it’s a whole system of content management, QoE management, and delivery optimization and neither Google nor Apple control anything like enough of the pieces to make this sort of thing work.  Thus, I think an attempt by either to get into the broadcast TV space would be a major technical/QoE black eye for them.

And then there’s the question of whether anyone would even license the material to them.  There is no legal obligation for a content owner to permit OTT streaming of their video, as we all know.  Sure, some of the off-brand networks might go along with Apple and Google, but here again the rumor mill sticks a wrench in the spokes.  These networks would be the very ones hurt by any trend toward a la carte channel selection.  That was the point that was made when the FCC was pushing the notion that channelized TV operators of all types should allow consumers to select a la carte.  Thus, the two rumors don’t even go together.

The truth here, I think, is a lot more pedestrian.  It’s becoming clear that streaming video fits into personal viewing primarily to fill gaps in traditional programming.  Everyone has such gaps, and given the nature of network broadcast TV (seek the lowest common denominator), there are likely to be more gaps and particularly so in key higher-income demographics like young professionals.  There’s a good opportunity there, and that’s a demographic that both Apple and Google want.  I think both companies want to integrate the viewing experience, to manage how content is presented.  They’d really like to be in control of the “Guides” and to be able to use subscriber behavior and history to suggest things to fill the empty spaces.

There are also more stories today about phones and tablets and Microsoft and RIM.  It’s pretty obvious that RIM has left the path of wisdom and is now going to have a very hard time getting back.  The question is whether they get smart and accept the notion of M&A.  With whom?  My suggestion is Microsoft.  Here’s a phone with a brand that can’t get OS right.  Here’s an OS that can’t get a phone right.  A match made in heaven.  OK, it throws Nokia under the bus, but they’ve been down there for a couple years anyway.  I think the only way Microsoft can save WP7 is by buying a big handset brand, and who else is out there?  I think the only way RIM can avoid vanishing to a point is to sell itself to somebody who needs brand more than anything, and who else is out there?

The truth is that the phone market is ripe for a major change anyway.  We’re talking about “superphones” now, smartphones with two or three times the screen resolution.  For what?  Unless you look at your screen through a jeweler’s loupe it’s going to be hard to tell the difference.  The point is that we’re into the gilding-the-lily phase here, which means that the competitive focus is going to shift.  I think it’s going to shift out of the phone and into the cloud, which is something both Apple and Google are preparing for.  Microsoft could be a player in that kind of shift if it had a good handset strategy, and Nokia is never going to give it one because Nokia and Microsoft don’t want the same thing, really.  Nokia needs phones to be strong and expensive; Microsoft needs phones to be a part of a consumer ecosystem that includes PCs and the cloud.

Happy New Year!

Is Microsoft Teaching Network Vendors a Lesson?

Microsoft continues to have problems with Windows Phone; the Street is reporting that the first releases by Nokia will be delayed a quarter according to a leaked roadmap.  As I noted yesterday, both Apple iOS and Google Android devices had record activations for the holiday, so it’s hard not to say that Microsoft’s strategy with phones has been doomed from the first simply because they’re too far behind the curve.  But as some have pointed out, other players like Amazon (with Kindle Fire) have launched gadgets that have succeeded despite being rather late to market.  Is there a double standard for Microsoft, and if so how might it impact other tech players?

The smartphone market is quite mature at this point.  Sure, there are people who are don’t have one at this point, but all the early-adopter-trendsetter-social-magnet types have been equipped with one for years.  Entering the market with a splash at this point is harder simply because the pool of new capabilities you can splash in is shallow.  What could be said about a smartphone today that would break both the habits and the service plans of the past?  WiFi tablets like Kindle Fire don’t have service plans and they have penetrated a much smaller portion of their TAM.  The point is that Microsoft’s big mistake with Phone was to have tried it before they tried tablets.  They really needed to let the phone space go fallow and focus on getting a Windows 8 tablet OS out there, then leverage that product to back-door into the phone space.  They didn’t do that; they were stuck in incumbency issues with laptops.

I looked at the stock performance of the network vendors this morning, going back to the beginning of 2011, and it’s an interesting picture.  Cisco has dropped perhaps 8% in that time, Ericsson around 13%, and Alcatel-Lucent and Juniper are virtually tied for the bottom with a drop of about 46%.  If you look at the super-hot announcements the firms have made (judged by the media, at least) it would appear that the two who had the least did the best.  In our strategic influence surveys this year, Ericsson and Cisco did better at sustaining their position in the key areas of cloud, content, and mobile than Alcatel-Lucent or Juniper did, and again it would be fair to say that both these latter vendors had announcements that the media believed were more strategic (LightRadio and QFabric, respectively).  What gives here?

The answer is that network equipment is a downturn market at present, I think.  You can get people excited about change if there’s a market trend that validates the notion that changing is taking place.  Whether LightRadio or QFabric were strong products, they were products in a space on the defense.  What changes a defensive game isn’t more defense, it’s shifting to the offense.  Neither of these two network announcements did that.  Both, perhaps, could have done it, just as Microsoft could have made its Phone 7 launch exciting.  That neither did is in my view linked to the essentially defensive nature of the positioning the companies did.  Here’s the next generation of something that is under pressure in the current generation.  There has to be a paradigm shift to make networking an exciting market again, and none of the announcements that were made in 2011 were anything like a paradigm shift.  Absent that shift, the “new” stuff seems more a letdown.  Could that be a factor in the decline of Alcatel-Lucent’s and Juniper’s stock?  Not the only factor, but at least one of the factors, I think.

So who then can articulate a major change here in network equipment?  The two companies who tried in 2011 will have a higher hurdle to jump in 2012, just as Microsoft will with Phone 7.  The two who didn’t announce?  Well, what’s Ericsson going to announce—a new type of human to provide professional services?  That leaves Cisco, who has in the past demonstrated that it can be extremely charismatic.  Cisco, who has the broadest technical collateral in the cloud space.  Cisco, whose stock has stood up the best of all so far.  Maybe the Street is smarter than it thinks it is.

The point here is that nobody is going to care about how well-groomed you are while you’re falling into a well.  You need to demonstrate that your vision of how you’re going to arrest the slide and get out is compelling, not your form in the dive.  So far, network vendors haven’t done that.  Neither has Microsoft.



Android Could Slip on its Ice Cream Sandwich

With a record number of activations for iOS and Android devices, it’s pretty clear that the mobile appliance is here to stay.  Given that Microsoft has been little more than a kid with nose pressed to the candy store window in the holiday race, I think it’s also likely that the giant software firm has booted yet another opportunity.  If, that is, there ever was an opportunity for somebody starting as late as Microsoft did.  But despite this, there’s still one thing that could save Microsoft’s phone and tablet strategy; Ice Cream Sandwich.

Android 4.0 is, according to pretty much everyone who’s seen it, a major step forward in the open-source OS.  Not only will it resolve the differences between tablets and phones (or most of them) from a software perspective, it elevates the whole user experience significantly.  Given all this joy and love, then, how does it create an opportunity for Microsoft and Windows?  By not being offered.

There are already a host of Android phones and tablets out there, and arguably the key Android tablet buyers and phone buyers have already committed.  These people have earlier versions, some all the way back to the Android 2.3 and most in the “Honeycomb” version 3 collection.  The question for the companies who supplied these gadgets is whether to offer upgrades to Ice Cream Sandwich on their older devices or to try to sell new ones.  Do they present users the choice of perpetually out-of-date and increasingly app-incompatible Android versions or scrapping the gadgets they just bought and getting another?   The wrong choice—force a new buy—is the easiest to make from a business perspective, but it could kill then whole Android community.  Alienate all your early supporters; a great marketing strategy.

Apple’s iOS is going to stay up-to-date on older models of the iPhone and iPad.  Microsoft would do the same with its phone and tablet OSs.  So Android could be on the cusp of being the only popular OS that strands all its early adopters.  Google, Android’s biggest supporter, could do little about this unless it took the dramatic step of building its own Ice Cream Sandwich versions for all those old tablets whose vendors walk away from updates.  If Google does that, of course, then no tablet or phone vendor will bother to spend money on an upgrade.  Watch the progress here; it’s the big test for Android.


Why Wi-Space Isn’t White Space!

One of the things trying hard to be a fad these days is the “super-WiFi” that could utilize the TV broadcast spectrum white space.  The technology, regulatory position, and usage of this spectrum is still very much an open question, in my view, and there may be no more difficult question than whether it’s going to have much play. That question is what role WiFi or unlicensed spectrum might play in the future service dynamic.

Mobile broadband demands mobility, obviously, and the classic approach to that is to use 3G/4G services to a device.  This model worked fine with phones because cellular telephony was the primary service goal of phone buyers.  With tablets, everyone quickly realized that the primary goal was Internet access; voice was almost a non-issue.  Everyone also realized that tablets with WiFi were cheaper than those with cellular service, and of course had no ongoing service plan costs.  As a result, probably more than 90% of all tablets in use are WiFi-based.

Operators have had a love-hate relationship with WiFi all along.  In the smartphone market, most use WiFi offload to reduce the data traffic load generated by users in hospitality locations where they’re free to stream video and engage in more traffic-intensive activities.  Many operators run their own hot spots for a fee.  However, the tablet is opening a new question for them, which is whether tablets and WiFi might create a wave of opportunity that could undermine the value of their (expensive) 3G/4G networks.

There have been many experiments in municipal WiFi, nearly all of which have failed.  The problem there was that the goal of universal coverage could only be met through mesh configurations that had limited overall capacity and high operations costs.  The new WiFi model is to forget the user on the move, or even the “average” user at home, and focus only on hospitality.  If every store owner, every coffee shop, felt they had to deploy WiFi to keep customers in their facility, then these owners would bear the cost.  This would then create this enormous pool of “mobile” broadband that users could tap, continue to skew tablets toward WiFi, and perhaps eventually create a whole market based on unlicensed spectrum.

Some operators tell me that their interest in smaller cells for 4G arises from the need to address the problem that tablets and hospitality-Fi could create.   A femto- or micro- or pico-cell is still a cell, still licensed spectrum, still billable to the operator.  The problem is that the horse has left the gate here; tablets are already out there in growing numbers and the number will continue to grow.  Anything that makes WiFi more pervasive will make this underground broadband network more important.  Super-WiFi might be such a thing, but I don’t think so because it would need new RF chip technology to work, something tablets won’t be equipped with for years.  It’s the old-fashioned WiFi that may change things.


Is Akamai/Cotendo a Sign of a New CDN Age?

Akamai has won a reputed battle with AT&T and Juniper over mobile-content-optimizer Cotendo, a company that gets described as a “cloud” player by the media in keeping with the current notion that anything that’s not cloud is not newsworthy.  This is interesting, not for the “cloud” aspect but for the fact that it speaks volumes for the dynamic in video.

First, this demonstrates that everyone in the industry realizes that there’s a fundamental tension between OTT delivery and ROI on bandwidth-creating infrastructure.  They realize that growth in video is going to generate network congestion unless operators put usage caps and premium overages in place.  That will bridle the unbridled expansion of OTT, so nobody really wants it.  The use of specialized techniques to optimize video might either reduce the problem through compression or dodge it in some way (the latter, I think, is unlikely).  Net-net, we need to use capacity smarter because we’re going to pay for it incrementally eventually.

The second thing this demonstrates is that Akamai and other content networks are under enormous profit pressure on their own.  Everyone who wants to be a content player needs to have a CDN component in their story, which makes the current market a breeding ground for Akamai competitors.  The network operators are going into CDNs at record pace, at least in terms of launching a record number of CDN projects in 2011.  These guys are going to be formidable competitors, particularly because they have a tolerance for low ROIs.  Akamai needs secret sauce, and Cotendo might have it.

Finally, this demonstrates that CDNs’ scope is expanding.  I recall a meeting I had a couple of years ago with a major competitor of Akamai regarding trends in the space, and I mentioned that the CDN of the future would likely have to run applications.  They weren’t impressed.  Bet they are now.  Operators have been saying that all their content strategies revolve around CDNs but that means traditional CDNs aren’t sufficient.  That’s good news for others who might have wanted Cotendo, because even they aren’t truly on content’s leading edge.  There’s still room for innovation here, and a LOT of deals to be done.  We’ll be talking a bit more about CDN dimensional change in January’s issue of Netwatcher.

Is Verizon’s Outage a Symptom of Service-Layer Tension?

Verizon’s network suffered another of those large-scale outages, and there’s no official word on just what created the problem.  One story I’ve heard is that it’s the same last time, which is an IMS-based signaling system overload.  If true, the problem illustrates one of the major challenges for both vendors and operators.

IMS has been seen by telephony purists as the natural utopian goal to which all mobile networks aspire.  To web guys, it’s kind of like innovation with both arms and legs tied up.  Underneath the religious war is a simple truth, which is that modern broadband services based on the web model are provably scalable and that’s not yet true with IMS.  Many believe they can’t be, some (myself included) believe we shouldn’t be trying to find out in the first place.

IMS is based on a session-managed notion of communication where connectivity is authorized.  I remember seeing a diagram of the signaling to be proposed to access a website via IMS, and it made ISDN call setup look like blowing a kiss to a passing car.  The issue with IMS is less with IMS for how it works, then, than IMS for how it’s applied.  For broadband web-like apps, we need a web model.  However, web guys have been just as intransigent as IMS guys.  The latter refuse to come up with a logical web-service model, and the former refuse to come up with anything that’s useful for pay-for services.  Operators don’t want to give mobile broadband away, and they don’t want to kiss off their current mobile voice revenues, so they need a transition strategy.

Vendors have implicitly divided themselves on this issue, with traditional players like Alcatel-Lucent, Ericsson, and NSN taking a pro-IMS stance and IP players like Cisco and Juniper taking a pro-web stance.  Note that I didn’t say “anti-IMS”; it’s risky to put yourself in the path of a carrier cash cow heading for the monetization barn.  Both camps seem frozen into functional immobility.  My view is that the future will be a kind of “IMS-plus” world, where IMS manages voice and registration and data services are handled another way.  What way?  That’s what vendors and operators need to hammer out.  Verizon’s problem may stem from trying to accommodate a transition nobody really wants to face.


Reading Oracle’s Results

Tech giant Oracle reported, and it wasn’t pretty.  For the first time in a very long time, Oracle disappointed in both performance and guidance.  Pretty much every aspect of its business was weaker than the Street expected, but the hardware guidance (off next year 4% to 14%) was considered dreadful by many.  This is one of the hottest players in tech, so the question that everyone is asking is “Is this a sign?”  Yes, obviously; but of what?  In my view all of this is due to the deadly combination of “structuralism” as a driver and uncertain economic conditions.

Hardware sales were the problem; in guidance as I’ve already noted but also in current-quarter performance.  Software was not stellar but certainly in range.  The thing about hardware is that it’s  just something you run stuff on.  There’s no “benefit” in a business sense; only the ability to realize a benefit created by something else.  So in times when economic conditions are uncertain, hardware is the deal that gets put off or called off.  Even “consolidation” projects spend cash in the present to get overall reductions in future cost.  Right now, pushing off realization of value doesn’t look like a prudent step.  And it’s all because we can’t create PRESENT value.

I’ve noted before that tech is evolving without any significant increase in total benefits.  It’s like we’ve wrung what we can in the way of productivity enhancement and this is where we’re at forever.  Under those conditions, only changes in tech that lower the cost line can be promoted, and of course the problem with cost-based change justification is that buying lower-cost stuff always looks more expensive than staying with the stuff you have.  Structural change demands more stability on the business side, in other words.  We don’t have that these days, so Oracle and other tech players face the challenge of justifying change when staying the course looks safer.  It looks safer because there’s no upside; the best you can hope for is that the future costs are no higher than the present.  Benefits are off the table.

The other challenge that Oracle has is that in a structurally driven market under economic pressure, the broader you are the harder you fall.  It’s impossible to shield the broad market from broad impact.  Think about it; replacing one specialized product in bad times can be justified more easily than replacing everything.  If you’re Oracle and make everything, you’re going to get wet when the negative economic tide comes in no matter how artfully you try to dodge.

If this is all true (and I’m convinced that it is) then there’s a collateral issue everyone faces, which is market share.  Obviously in a market under pressure to stay the course there’s no meaningful market-share gain; you make less even if you gain something in a market that’s contracting.  However, it’s also true that without benefits to increase overall spending it’s hard to have structural expansion of tech without favoring incumbents.  The guy who needs benefits the most is the guy who wants to gain share on competitors.  It follows that if you are incumbent who wants to put away your opponent forever, then figuring out new benefits to drive spending is the way to do it.  They’re locked out of their best chances…forever.


What Now: For AT&T and for the Cloud

AT&T has decided to drop its attempt to acquire T-Mobile, citing regulatory opposition.  Some on the Street are putting a good face on the deal’s breakup, saying that it will encourage AT&T to spend more on infrastructure and help vendors.  Alcatel-Lucent is up in early trading in Europe as an expected recipient of all this extra spending.  I’m not sure about this one across the board.

There’s not much question that conditions in the mobile industry favor consolidation.  ARPUs are expected to peak late next year, for example.  Generally, a reduction in the number of competitors improves overall economics.  But on the other hand, it does appear true that the second-tier players in US wireless have been more competitive in price, and AT&T’s customer satisfaction ratings have been on the bottom for several survey seasons now.

What DT is going to do now with T-Mobile is unknown, and that creates my uncertainty with the prediction of vendors sitting under the money tree.  If T-Mobile is going to have to be buffed up cost-wise in order to be dealt away, their capex could drop and offset any gains AT&T might have (which are speculative).  It seems pretty likely to me that DT would try to arrange another US deal, but a merger with Sprint is about all that would be left on the table.  Regulators would like a Verizon merger perhaps even less than one with AT&T.

It would be helpful for mobile evolution if we could get all of this out of the way, though.  Carriers in an industry tend to be more conservative with capex during periods of M&A and consolidation; they want to see how the deals will shake out and also to hold back some cash just in case.  Management is also preoccupied, which tends to delay projects that are driven at the executive committee level, including all of the monetization stuff.  Hopefully that doesn’t happen this year with the US operators and they may be immune because their own projects have advanced more than the global average.

Savvis is reporting that cloud customers are getting more demanding, according to Light Reading.  That fits with our survey results from the fall, and can be attributed to the fact that as cloud projects progress the buyers are finding more things they didn’t expect and demanding more information and clarification.  In our surveys, buyers own measure of their “cloud literacy” has followed an interesting pattern.  At the start of the process they say that they’re cloud-qualified in over 80% of cases.  By the middle of their pilot testing they rate their current cloud literacy at half the level they started, and they also say that they “knew nearly nothing” when they started, reducing their score in retrospect.

I really think that the numbers haven’t changed a whit.  Users have consistently told me that about 24% of their current IT spending could be cloudsourced.  Their battle now is first to figure out just how to accomplish that, but increasingly a second-place goal is whether it’s even true.  Cloud prospects have disqualified more applications than they’ve qualified so far, and of course they started with the application demographics that were most favorable.  They’re not throwing rose petals as much these days, which is probably a good thing.  Reality always sells better in the board room.



Is Analytics Leading Us to the New Age?

IBM is telling Barron’s that analytics is the next big thing, and they’ve got enough historicity in the “correct” column of the tech ledger that we have to take them seriously.  IBM and Northwestern are even going to have an academic program focused on analytics. The only problem I have with the statement is that I think the rest of the examples that IBM’s Palmisano used to illustrate his claim are a little behind the curve.  The intelligence that lets computers win Jeopardy, so the theme runs, makes better decisions for us all.  The truth is more complicated.

There is an issue in drawing actionable conclusions from masses of data, to be sure.  There have been a number of recent stories on how various strategies for recognizing correlations might move us in new directions.  As somebody who’s been modeling market behavior for three decades now, I’m well aware of the fact that finding patterns in data is complicated.  Certainly we could use improvements here, and certainly we could make better business decisions if we had better answers to the old questions.  Isn’t that what Jeopardy is about, after all?

The question is whether the old questions are the right questions, I think.  Paradigm shifts often don’t really shift paradigms, we just say they do.  The business data we’ve collected may not be the right data; the business framework that applies the decisions may be less than optimum.  In these cases, have we shifted the paradigm?  Analytics may solve the wrong problems faster, but if they are the wrong problems there’s a limit to how helpful that will be.

And help is needed if tech, in business applications, is to resume its normal trajectory of growth.  We have been a full decade now without a new kicker in tech spending, without a new paradigm to help us link IT and productivity in some novel way that would free more benefits to justify more costs—meaning more computers and networks.  It would sure be nice if IBM were right and it was only a matter of diving into our facts a little deeper and finding new meaning.  But I think we’re beyond that.

We never had a ten-year period when IT spending growth was pegged at the bottom of its historical relationship with GDP growth.  We always swung up immediately after we turned down…always until ten years ago.  I think the fact that we broke a pattern that’s lasted through the whole computer age is an indication that looking deeper, meaning looking backward, isn’t the complete solution.  To create a new dimension in business technology we need to empower the worker in more insightful ways.  Fortunately a vehicle is presenting itself.

I think the new paradigm has more to do with Apple than with IBM.  If everyone has a gadget that’s their literal window on the world, then we can see a lot we could never see before.  We can do things we could never have done.  That’s the key transformation.  Yes, that will open a need for a new vision of analytics because we’ll be asked questions that, like a Jeopardy match, demand an immediate answer.  Why?  Because those questions will be asked at the instant the answer is needed.  If tech is integrated into our lives, then it advances at the pace of life, and life’s pace is relentless and accelerating.

We here at CIMI Corporation are entering our third decade, as a company, as a source of strategic market insight, and as a publisher of a network strategy journal.  Truth be told, I’d never have guessed that I’d see a Netwatcher with a Volume 30 designation.  But if you’d have told me that a computer would eventually have beat a Jeopardy champion, I’d have believed that even thirty years ago.  There’s a lesson here.  The things that are hardest to touch are the things that touch us personally, regularly, daily.  Technology’s real revolution, the one that’s underway now, is the revolution that makes tech and us into a virtual and real world that coalesce in a thousand wonderful ways.  That new world will empower new analysis, but analysis won’t be the driver of that world.  We will be, and from us the drive will extent through our personal tech appliances/windows and change every aspect of how we live and work.  Right beside us, right in our pockets, is the leading edge of that new age.

IBM sees a glimpse, and so does Apple.  The question for 2012 will be “Who sees enough?”  Can a company grab onto this massive wave of change and ride it to what could be a whole new level of success?  Who do you think it will be?  IBM, or maybe Apple, or Microsoft, or Cisco or Alcatel-Lucent?  Somebody off the grid?  I suspect that we’ll answer that question next year.


Knocked Over by the Winds of Change

RIM turned in a truly ugly quarter and announced its new handset family would be late.  The company is a poster child for the biggest challenge in technology, which is how a company that’s very successful under a given market paradigm can confront a major paradigm shift.  RIM was king of the smartphone when the smartphone wasn’t that smart, and they failed to recognize that the iPhone truly changed the picture.  Once you get caught behind the wave, change-wise, there is little or nothing you can do to catch up.

In the phone/tablet space, of course, RIM isn’t the only guy looking at the dust generated by the Leaders of the Pack.  Microsoft has fiddled through more firestorms in their market than I can count and only their massive market power has kept them from disaster—so far.  Interestingly, the tablet that was the proximate cause of RIM’s problems is also the cause of Microsoft’s.  Yes, phones changed radically, but it’s the tablet that really changes things.  By creating a portable device that’s less than a PC and more than a phone, you not only capture a bigger chunk of PC apps, you create behavior that can be more easily translated down-size into a phone.  Thus, the tablet provides a bridge for big-screen fans to cross to ease their way into little screens.  A tablet failure makes a phone failure all the more difficult to survive.  RIM is learning that now.  The question is whether Microsoft will learn it.

Apple, responding perhaps to Amazon’s Kindle Fire, is now rumored to be prepping a 7-inch tablet.  That’s going to put another stepping-stone on the bridge from large to small, and only magnify the extent to which the workers and consumers of the world become dependent on “point-of-activity intelligence”.  We are transforming the whole of the communications market and the evidence is literally all around us every day.

In network equipment, I’d assert we have a similar (and related) shift underway.  The value of networking can’t be expressed in “convergence” any more; we converged.  Pushing bits has become less profitable every year, and operators are naturally focusing on what’s MORE profitable.  If you harken back to the golden age of telephony, you’d recall that custom local access special services (CLASS) like call waiting were the real cash cows, and they were LOGIC features not BIT features.  UBS analyzed some recent private equity buys in the networking space and noted that there’s typically a pretty significant software contribution in their makeup.  To quote the (dry) words of their summary, those being bought:  “had a higher relative degree of software orientation vs. the broader comm equip industry, and we believe this reflected in the [margin] profiles”.  That’s because software creates features at a lower cost and a faster pace, which is just what you want to see if your bit-intensive business is trapped in the market shifts caused by things like smartphones and tablets.

UBS also downgraded Juniper, citing secular demand issues (the bit market sucks), a slow ramp on QFabric (positioning has been uninspired except in a few narrow verticals), and management defections to Cisco.  The latter point is, I think, doubly troubling.  First it’s never a good thing when your arch-rival can get good people out of your organization.  It suggests that they have a better opportunity trajectory than you.  Second, most companies face change not from the top down or the bottom up, but from the middle.  Thought leaders there can get an audience with the top people and at the same time be connected with the implementations.  That’s where Juniper has been losing most of their people, at a time when they need to have software insights that are real and integrated.  Of course, the Street being what it is, another analyst firm upgraded Juniper yesterday.  You can take your pick.

RIM took its pick, and believed the mindless supporters of the status quo.  The whole of network equipment, faced with exactly the same pressures for change from exactly the same forces, has to make a choice now, and every one of them is doing just that.  Some just don’t realize they are.  If you want to find an equipment winner, Dear Buyer, look for people who are not just standing their ground.  Soon there will be no ground for them to stand on.