Three Tales of One Cloud

We had a lot of news yesterday, news that I’m going to assert all adds up to cloud-driven change.  To open this blog (since I’m a networking guy after all) I want to start with Juniper.  The company had a decent quarter and while it’s guidance was cautious, the initial reaction of the market to the numbers were favorable.  Yeah, but Juniper is still an almost-lone high-flyer in terms of P/E multiple in the space, and that implied measure of future profitability growth has to be addressed somehow.

The company’s new CEO Shaygan Kheradpir spoke on the call and the message can be condensed into two statements.  First, “To achieve this, Juniper needs to be the leading provider of high-IQ networks and best-in-class cloud builder, where the network is the most sensitive piece of the puzzle and has to be the first mover. I intend to play an active role in guiding this transition.” Second, “…I believe I can leverage my operational experience as well as my deep engineering and technology background to drive effective and efficient business operations and lead Juniper through the changes required to reach its full potential.”

This juxtaposition fairly reflects the challenge and opportunity Juniper faces.  Based on the macro trends in the industry and its current cost structure, Juniper is radically overvalued.  You can fix that by either improving revenues radically or reducing costs radically, or perhaps something in between.  I think most in the industry would agree that a pure cost-driven approach to sustaining Juniper’s current P/E multiple would result in the company quickly attaining negative size.  Some fairly significant component of new market share or new TAM is needed.  Kheradpir’s notion of high-IQ networking (meaning, I’d hope, adding smarts to dumb bit-pushing) and best-in-class cloud-builder is at least in the right ball park.

Kheradpir has spent only about three weeks on the job at this point (as he pointed out on the call) and it’s obviously unfair to expect that he’d lay out a roadmap to achieving either operational efficiency or strategic ascendency, and he didn’t.  Nobody in the industry who’s not brain-dead thinks that low IQ networks would win, so the devil is going to be in the details.  I think personally that Juniper’s litmus test will be in NFV.  SDN is hopelessly mired in the wrong stuff at this stage, and so the only network initiative that can bind network intelligence to the cloud is NFV.  So, Juniper, you will stand or fall based on what you do there, and that is the simple truth.

Microsoft also illustrates some simple truths, but not new ones.  The rumors of the death of the PC, as I’ve been saying all along, are exaggerated.  There has always been a simple economic component and a market change component to the PC space, and Microsoft’s numbers illustrate that economic recovery will, if it doesn’t life all boats, at least lift those that aren’t totally sunk.

Economic recovery will lift suppression but it won’t generate positive change.  Microsoft needs to deal with the fact that it likely will never achieve the old position it had because that old position doesn’t exist in the future market.  Like IBM, Microsoft needs to reinvent itself.  Like IBM, it has allowed itself to become positionally ossified, binding its brand to something that can’t work for it in the long run.

Like Juniper, Microsoft’s fate lies in the clouds, but not in the same way.  For Microsoft, the challenge is to recognize that its opportunity to make Azure and PaaS the way of the future has now been lost forever.  The cloud of the future will be based on an IaaS framework that runs the cheap unimportant application junk, augmented by dazzling platform service features that rise out of pedestrian development practices to exploit the cloud as it really can be.  Everything, and I mean everything, in the cloud now depends on that model and how and who evolves it.  Microsoft is going to be a player, but they booted their early chance to make PaaS the winner instead of platform services, and in doing that they’ve opened the competition to others.  Microsoft was the only credible PaaS player, and they are not even now a credible platform services player.  They have a lot of behind to come from.

The backdrop of this is the IBM decision to (finally) sell its x86 server business to Lenovo.  This has a potential impact on both Juniper and Microsoft, perhaps even a decisive one.

The cloud, including a platform-services IaaS model, is built on COTS and Linux.  Where in that does it say “on such-and-such’s server or Microsoft’s OS?”  There is no platform branding in the cloud—not hardware, not software—except in the form of visible platform services.  COTS is a commodity business now, suited for somebody like Lenovo.  For Microsoft, it’s that truth that means the company has to completely reinvent itself.

But the same truth applies to Juniper.  On one hand, the anonymity of the cloud is a profound liability.  How do you do a first-class job of building an invisible object (or at least how do people know you did it)?  On the other hand, it will be very difficult for IT vendors to exercise leadership in a strategic sense in a “cloud market” based on COTS.  And NFV is such a market.  The network operators would LOVE to have an IT giant step up and lead NFV, but while a year ago such a thing would have required nothing more than a little PR, today it would require substantial collateralization.  It would be easier, in fact, for a network vendor to lead at this point.

Juniper is one, obviously, but Juniper has the dual challenge of having no useful NFV position and no professional services group to harness the massive integration opportunity that NFV would create.  Can they build one?  Wouldn’t it be more likely that a competitor (like Cisco, who also has servers) would do that faster and better?  The cloud is a race.  Nobody has convincingly won or lost it yet, but the trends are toward creating more losers than winners.

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