Some of my readers likely think I spend too much time on business issues in networking, preferring that I talk about revolutionary technology. Well, if the Founding Fathers had been stranded on a desert island through the late 1700s all their revolutionary precepts would have done is inspire birds, fish, and maybe turtles. Revolutions depend on revolutionary ideals, but also on a real framework for those ideas to operate. Business, in networking, is that framework and we have more proof of that today. We also have proof we’re hiding in the basement of networking’s future instead of basking in the penthouse.
I probably get a dozen emails or comments a month from people who tell me that Google is the next networking giant, and they often get pretty upset when I blow off the viewpoint. Google, they say, is branching out into selling handsets, selling broadband, bidding on mobile services. Hold onto your hats, Google is taking us to the stars. Baloney. I said when Google bid on the mobile licenses that it was just pressuring the operators, and they were sure to cast their bid not to win. I said that Google’s vaunted broadband was carefully dodging any major commitment, and no such commitment has been made. Now we see, in the latest story, that Google is looking to get out of the handset business. What can we learn here, besides perhaps taking everything we hear with a grain of salt?
That business drives things in the business world, is what. Any good business-school student can analyze the handset players, the network operators, and Google side by side and they’ll tell you that Google has a very low financial tolerance for making investments that generate a small return or a high “first cost”, meaning the investment needed to get to break-even on something. Google is in the ad business for the same reason that Facebook is in the ad business, which is that consumers like free stuff, the Internet is incrementally free to ride on, and return on investment is relatively high. Network operators, even handset vendors, aren’t in that kind of business so it would be terminally stupid for Google to jump into such a space. Wall Street would punish them when the truth was known.
Which it is now. Look at IBM selling its x86 server business to Lenovo. Look at the reports of “sales war” in Oracle driven by the need to build profit on a per-product basis. What we are seeing in the business of tech is continued signs that companies are being driven to create near-term financial success even if it means courting longer-term collapse. Business units would happily grow their own revenues and profits by 5% even if it cost the company 25% overall. The tech ship is sinking and everyone’s stepping on the others’ heads to get into the lifeboats.
Look at the VC space. We can raise hundreds of millions to fund a social network company despite the fact that every single one of the companies of this type have boomed and busted. People used to ask who would be the next Cisco, but today nobody cares because success in actually building network equipment would take too long. We have a universally short horizon on expected returns and it’s hurting.
There’s a story here beyond business, though. What is happening is that appliances are commoditizing. Apple is under pressure, Google is under pressure, so are Dell and HP and everyone else on the hardware side. And it’s not going to stop because at the end of the day, hardware either runs software or pushes bits and neither of those things are highly differentiable. What’s happening is that we’re marginalizing all the low items on the tech food chain in favor of the higher items.
Which are? Well, they’re experiences. The Internet isn’t a network it’s hosted experiences. The cloud is the same thing. NFV is about hosting experiences cheaper, SDN is about connecting hosted experience elements cheaper. There is a distinct technical polarization taking place, between an experience-driven service layer and a commodity resource pool. You’re on the top (business-wise) if you’re on the top (layer-wise).
Virtualization is the trend that’s driving the bottom layer, and it’s a trend that makes all the hardware in the world into a blank slate that something else writes on. The “something else” is the question. We have created experiences so far by exploiting connectivity—the OTT model. We now have to think about experiences that exploit networking more broadly and that utilize not only connection resources but also IT resources more effectively. What is this? It’s not “the cloud” or “SDN” or “NFV” but something higher up, something that can translate goals into experiences and experiences into profits.
An “experience” in a tech sense is simply a cooperative set of resource relationships that create and sustain something valuable. People are now calling the creating part of this “orchestration” and the sustaining part “management”, and so you can align experience creation with many of the atomic trends we see, including trends in SDN and NFV and the cloud. But the notion that we build the future experiences by manipulating a bunch of specialized tools flies in the face of the need to make the experiences cheap enough to be useful on a mass-market scale.
We are in an age where operations drives everything, because we are in an age where cost drives profit. The mass market doesn’t get bigger very fast. We have to offer it stuff at lower cost, or offer it different good stuff at acceptable cost. One way or the other, how we create and sustain those experiences is the key.
Google needed to dump handsets. Even Apple needs more than handsets, as I said earlier this week. Dell doesn’t need white-box network switches, it needs valuable stuff that sits on top of those switches and does that experience-creating. We are trying to transform the tech world from the bottom up, and in doing so we’re exacerbating commoditizing forces and delaying ecosystem-building that’s essential to the real mission.
Oracle now, and Alcatel-Lucent before, and also Juniper, have been renown for pushing products over ecosystemic solutions. The reason that’s bad is that only ecosystemic solutions can create experiences and only experiences can be the future of our industry and the vendors in it.