Alcatel-Lucent’s quarter was far from happy, but there were still happy signs in a small increase in revenues and continued improvement in margins. The sales of IP products were also good, and all of this seems to indicate that the “Shift” plan the company outlined (and whose restructuring costs killed the bottom line this quarter) has a chance of success. The question, of course, is whether that indication is real.
One thing that the Shift recognized is that there are too many low-margin things hanging around the bottom line. About two-thirds of the company’s revenues come from what would be considered commodity or commoditizing products, and even the IP and mobile space are under margin pressure. Some of this stuff is likely never going to see the high-margin light of day again, and the fact is that Alcatel-Lucent needs to shed that part of its business ASAP. They will lose on price to Huawei every time, and where features can’t be made meaningful price competition is inevitable. And even cutting stuff that needs to be cut won’t make the rest a safe haven.
It would seem logical that the service layer of the network is where Alcatel-Lucent would look for the value pot of gold, and in fact no company has done as much to build a coherent technical strategy in services. Their strength in mobile ecosystems and content delivery give them two of the three monetization pillars operators are looking for, and that’s more than many of their competitors have. Arch-rival Juniper, for example, has no convincing strength in any of the three. I think that you can argue that Alcatel-Lucent’s technical coherence has been totally dissipated by an almost complete lack of effective articulation, but there’s also the matter of that missing monetization pillar—which happens to be the cloud.
Of all the monetization project categories operators generally recognize, cloud computing is the run-away winner. Cloud monetization projects have advanced to trial-or-later in about 50% more cases than any other monetization project type, and content or mobile monetization projects that involve the cloud move faster and further than those that don’t. In the cloud, Alcatel-Lucent has a problem because it has no servers, which market-leader Cisco has and is winning deals with. What Alcatel-Lucent needs to do is to create a software-driven vision of the cloud and make it compelling.
CloudBand is obviously an attempt to do that. Their Nuage SDN position is a good one (one of the best, perhaps even the best), and a marriage of the two would be a helpful thing for carrier-flavored cloud computing. Alcatel-Lucent has just launched an NFV ecosystem inside CloudBand that could have great promise, but there isn’t much information available on it and that’s not the foundation for a compelling position.
I have to wonder whether there’s not a little of Bell Labs paranoia creeping in here. Remember that Bell Labs is an innovation giant, even if sometimes it seems a lot of the scientists are studying where their laps go when they stand up. With what is arguably their most politically powerful internal constituency aimed at creating intellectual property, could it be that Alcatel-Lucent is so afraid of having their thunder stolen by others (perhaps Huawei?) that they keep everything under wraps? It’s hard to get buyers to purchase things you won’t describe. At any rate, I’ve got a discussion scheduled on CloudBand, and it will be interesting to see how much gets revealed and what its impact might be.
Meanwhile, there is an important truth that Alcatel-Lucent needs to consider, cloud-wise. I’ll call it the “commutative property of cloud”. If I host virtual functions as cloud components, and if I host SaaS application components as cloud components, and if I can deploy and manage them with the same tools, then are they not the same thing? And if SaaS and NFV are really the same under the skin, could it be that CloudBand’s NFV processes are actually steps toward a rational position for Alcatel-Lucent in cloud computing? Remember that my CloudNFV initiative has always had the goal of supporting NFV and SaaS equally in both deployment and management/operations. It’s possible to do that with the right approach.
Sprint also released numbers, and their subscriber losses are truly appalling. Mobile services are a game for giants, and as soon as you lose the advantage of scale you fall into that murky category of being too big to be specialized and too small to be interesting to the masses. Sprint, clearly, has a lot to gain from a stronger cost-and-services balance, and just as clearly something like a complete carrier cloud story would be helpful to them. Inside, though, they seem to have some of the same challenges that Alcatel-Lucent has. They need a big, bold, vision of the future and not just a mechanism for slowing the bleeding. Cloud-based mobile/behavioral symbiosis would be the best, even the ideal, answer, but mobile monetization has the lowest rate of advance to trial-or-later of any of the three monetization classes. This, despite the fact that it now has the highest priority and the highest level of “potential” revenue gain according to operators.
Sprint is considering the future. Alcatel-Lucent is considering the future. Both have to realize that the future is the cloud, for a bunch of reasons. Huawei isn’t strong there. Feature differentiation is good there. Cisco is threatening to seize it, so everyone needs to get their turf staked out. Operators are deploying cloud even where cloud computing isn’t the focus. It’s a concept that cuts across the operator Tiers and the market geographies. So the message for both Alcatel-Lucent and Sprint? Think cloud before it’s too late.