I noted yesterday that HP’s decision to break itself into two companies would likely increase pressure on Cisco to fragment as well, pressure that began more than a decade ago. Even then, the Street saw that switching and routing were low-growth businesses, which meant they’d tend to tie better product segments to the ground and hold back share appreciation. This theme is continuing today with a report on CNBC where a VC said he expects “every large tech company” to split within five years. He’s exaggerating, I think, but not by much. Most will split; a few will remain intact.
All of this can be traced to something I’ll call the “Novell Syndrome”, named after the fabled star of local networking in the ‘80s. Novell seemed to be on the cusp of explosive growth, and yet suddenly it fell from grace. What caused it was simple; there are only so many features a buyer values enough to make a favorable purchase decision. When you run out of new ones you can’t drive expansion in total market opportunity or refresh cycles, and your days of growth are ended. I’ve called these factors “enablers” for years now.
In networking, the product of all our technology is bits, meaning transport/connection of information. I remember (and a few of you likely do as well) when simply accessing a 45 Mbps pipe through your LEC would cost nearly ten thousand per month. In round numbers we’re talking about access costing about $230 per megabit. Today we can buy bits for about three bucks per megabit, often even less. The point is that the Internet age made social networking, online services, and more possible by making it cheap. We assumed a static value proposition—people wouldn’t pay more for something better—and focused on making bits cheap enough to be justified without a lot of revolutionary assumptions. Networking went populist the easy way.
This is what created the OTT space. Cheap bits meant capacity to exploit to deliver new experiences, and telcos didn’t do much to create those experiences. Some of that was inertia, some was regulatory, but overall the result was the same—the “value” part of networking separated from the commodity part. You could make the same argument about IT, where hardware is the commodity and software the value. All a computer is good for is to run something, after all. And many computer companies never got the memo that it was really software people wanted, which created software companies like Microsoft.
Suppose pundits are right and all tech breaks up. The same forces are still operating; bit cost won’t be more tolerable. What happens is that companies can’t provide naturally integrated portfolios because they don’t sell all the pieces. That means that we’ll have to somehow put together the services and applications that are creating the value, the things that Novell lost for themselves decades ago.
The reason I’m mentioning this as we consider the ultimate commoditization of tech is that the very act of transformation that’s been driven by short-sighted moves is also creating an opportunity to be “long-sighted” again. SDN and NFV are a lot of things depending on your perspective, but one is surely that they’re a technical mechanism for fusing the value and commodity pieces of networking and IT. We aren’t really arguing about cost-based hosting of features or services here, no matter what people think. Just as it was with computers and networks of old, we’re arguing about how the value is created, how those enablers are defined.
A lot of this industry is dedicated to resisting the loss of the “good old days”. So was Novell, and it didn’t work, nor will it work now. Cisco may well be one of those. A decision to reorganize away from product silos for both hardware and software can be given an innovation-driven slant, but it’s probably more likely to be driven by a desire to eliminate redundant work and reduce costs. That facilitates, not prevents, commoditization. Some are also dedicated to applying SDN and NFV principles directly to cost reduction—both SDN and NFV organizations tend to do that now. That gets you to that same bad place even quicker.
Our hardware and network transformations have created the same kind of imbalance between capability and ability that microprocessors and consumeristic bit pricing created. We’re looking now for how to harness that to create stuff that’s not just a cheaper way of doing something we already do, but rather a new way of doing something we’d like and value. But we’re not going to get there the way we’re going now, by forcing everything new and revolutionary about or best new concepts to fit the mold of old services and experiences. How far would the Internet have gone if all we did with cheap bits was to make traditional point-to-point T3 lines cheaper?
If all the big tech companies were to break up, we’d have an industry with no leaders, but that might not be a bad thing if the leaders won’t lead us to the Promised Land. Absent a Cisco or HP or IBM as a single point of purchase, we face the basic problem of integrating technical elements around needs. We could expect users to get smarter (resulting in a TAM implosion since smartness is never a growth industry), we could expect them to pay for the services of integration (a non-starter given that users think everything should be free), or we could figure out how to architect the services, features, applications, and experiences in a way that would allow for easy assembly and deployment. That, my friends, is what SDN and NFV should be about, and what both have steadfastly refused to face.
We’re asking where our inventors are, where the “innovators” of the Valley have gone. There’s a better question. Where are our visionaries? I can tell you where they need to be, they need to be doing something rich and vibrant and exciting with SDN and NFV, because that is our last great hope of taking both networking and IT out of the doldrums and into a new age.