Hockey Stick or Hockey Puck?

We hear all the time about how new technologies like the cloud, SDN, and NFV are poised for “hockey-stick” growth.  Most of the time that’s not true, of course.  In an industry with three to eight-year capital cycles it’s pretty darn hard for something to achieve really explosive growth because of the dampening impact of transitions.  But there are other factors too, and as we’re coming to a new year, this is a good time to look at just what does inhibit technology growth.  What is it that’s making our hockey stick look more like a hockey puck; flat on cold ice?

Most everyone knows that companies look at return on investment in making project decisions, but in fact ROI isn’t always the measure.  Tech spending tends to divide into a “budget” and “project” category, with the former being the money allocated to sustain current capabilities and the latter to expanding tech into new areas.  Most CIOs tell me that budget spending is typically aimed at getting a little more for a little less rather than on achieving a specific ROI target, largely because companies don’t require formal justification to keep doing what they’ve done all along.  Budget spending this tends to focus on cost reduction, and project spending is generally accretive to IT spending overall because it buys new stuff justified by new benefits.

The challenge we have with things like the cloud, SDN, and NFV is that they are all cost-side technologies in how they’re presented.  It’s true that you can justify a “project” aimed at cutting costs through technology substitution, but buyers of all types have been telling me in surveys for decades that this kind of project is a politically difficult sell unless the cost savings are truly extravagant.  The problem is that “status quo for a little less cost” doesn’t overcome the risk that the new technology or the transition to it will prove really disruptive.  Our waves of IT growth in the past have come from projects that created new benefits.  I’ve blogged about this before so I won’t go into more detail here.  Just remember that cost-side projects, if anything, create downward trends in spending overall.

Another factor that inhibits the growth of new technology is buyer literacy.  You don’t have to be an automotive engineer to buy a car, but being able to drive is an asset.  The point is that a buyer has to be able to exercise a technical choice so as to reap the expected benefit, and that takes some understanding of what they’re doing.  We’ve measured buyer literacy for decades, and found that it generally takes literacy rates of about 30% in order to create a “natural market” where buyers’ are able to drive things without a lot of pushing and help from others.  Right now, buyer literacy in the cloud has exceeded that threshold, and operator literacy for SDN also exceeds it.  None of the other “hockey-stick” market areas have the required level of buyer literacy.

With SDN, buyers’ problems relate primarily to the identification of costs and benefits.  Even enterprise technologists have a hard time drawing a picture of a complete SDN network.  A bit less than half could accurately describe SDN application in a data center, but of this group the majority admit that the benefits there aren’t sufficient to drive deployment.  When you get down to the details, you find that the users simply don’t understand what SDN will do differently.  One user in our fall survey said “I have a guy who comes in and tells me that SDN will save on switching and routing, but then he tells me that we’d use the same switches and routers we already have, just run OpenFlow for them.”  You can see the problem here, and isn’t that a fairly accurate picture of the net of SDN sales pitches today?

With NFV the situation is similar, but among operators there’s a lot more proactivity associated with finding the right answers.  Operators started off with a widely accepted benefit paradigm (capex reduction) and a clear path to it (replace middlebox products with COTS-hosted apps).  They then found out that 1) there weren’t that many middleboxes to replace, 2) they could achieve similar savings by pushing vendors on price for legacy gear, 3) that they couldn’t be sure what the operations cost of an NFV deployment would be.  Now they’re shifting their benefit focus from capex to opex to service velocity to service creation and OTT competition.  The problem is that they don’t have a clear idea of how these evolving benefits will be achieved.  NFV by itself targets only hostable functions and few operators believe that these would make up more than 20% of their total infrastructure.  How do you achieve massive improvements in operations or services with that small a bite?

The vendors themselves present an inhibiting impact on adoption of the new technologies.  Companies today rely more than ever on their suppliers for professional services or technology education.    If the new technologies are designed to reduce costs (and remember that’s the classic mission for the cloud, SDN, and NFV) then why would a vendor push customers into them?  Yes, you could argue that a startup would be able to step in and present the new options, but 1) the VCs are all funding new social-network stupid-pet-tricks stuff and won’t be bothered with real tech investment and 2) the buyers will say “I can’t bet my network on some company with fifty million in valuation; I need a public company worth billions.”  So we now have to look for a large public-company startup (that’s why Dell could be such an interesting player—a company who’s gone private like that is exactly what buyers would like and it can take a long-term view most public companies can’t).

The point here is that we’re on track to achieve significant cloud growth, not the pathetic dabbling we have now, in about 2016, with SDN and NFV trailing that.  All these dates could be accelerated by optimal market activity, but it’s going to be up to vendors to initiate that.  What we need to watch in 2014 isn’t who has the best technology, but who has the best buyer education process.  The current “take-root-and-become-a-tree” mindset of vendors will favor the bold; they’ll be the only ones moving at all.

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