Out With the Old…

An industry is an ecosystem, a cooperative economic unit that shows its directions and signals its changes in many ways, through many channels.  Today we have a set of signals that add up to something very interesting, very disturbing to many.

Cisco reported their numbers, which the Street characterized as “solid” but with “disappointing guidance”.  The net of the numbers is that Cisco is leveraging its position as a market leader in a market that’s not going where Cisco wants it to.  I think that one of the most interesting comments on the Cisco call is where Chambers says “we are winning the SDN battle with application-centric infrastructure.”  What Cisco is doing, of course, is winning against the pure notion of SDN with something designed to reduce the gap between what legacy networking could do and what SDN promises.

What SDN promises is lower costs in networking, which is why Cisco doesn’t like the pure notion.  We have a really simple truth developing here, developing in fact for almost ten years in the network operator space and half that in the enterprise.  We have not developed new benefits for networking, therefore our applications of networking are less profitable, less beneficial.  That means we have to spend less.  QED.  SDN is interesting to buyers because it would achieve that goal, but it’s in the vogue to talk about all the things SDN could do rather than that big unpalatable thing it would do.  Unpalatable because no vendor wants their market to get smaller.

What Cisco’s numbers demonstrate is the consequences of simply wishing away problems.  Cisco’s stock is off, people are disappointed with guidance, because in the end Cisco isn’t developing a new value proposition for networking, one that would raise benefits and thus help raise spending and margins.  And Cisco isn’t alone.

At the end of last month, before Cisco’s earnings and before Juniper’s sudden change of CEO, Juniper’s chairman and CTO did a Wall Street talk in which he said the networking industry was “confused” and that he proposed to end that confusion.  It had comments like “Less than 15% of the market is subject to commoditization”.  Wrong; with no real new benefits and buyers 100% focused on cost, all of networking is at risk.  Or “the market is coming to us” because traffic is essentially all IP over Ethernet.  Wrong.  The market already came—the success of the past is due to the shift toward IP, “convergence” which was also cost-driven.  And the operator revenue per bit has fallen through that whole shift.  The market is coming to Huawei, the price leader.  And how about “All networks need routers”.  Wrong.  It’s not even true that all networks need routing.  80% of all profitable traffic never needs to be “routed” at all.  You could do it with a metro aggregation network and a giant BRAS.  And eventually we will, unless vendors get smart.

Juniper’s solution is more boxes, more ASICs.  Cisco’s solution is to trap just enough of the projected features of SDN to obscure the fact that its notion of winning the SDN world means sustaining product price and margins in a market that is expecting reduced costs.

The third big vendor, Alcatel-Lucent, announced yesterday that it was joining the virtual router fray.  But the company was careful to say that despite the fact that it’s touting the performance of its own approach (done in concert with Intel for the hardware side) this new virtual router is really suitable only for edge missions.  That’s not much of a concession given that data center routing is clearly moving toward virtualization given the cloud and hypervisor trends.  A new conception of IP services, as I pointed out with Juniper’s virtual router announcement, could offer the network operators something agile and less expensive, but of course cutting costs isn’t the goal for vendors anywhere.

Except, perhaps, “vendors” who are not network vendors.  Also yesterday, HP announced a partnership with Nokia to provide Nokia mobile functionality as VNFs to an HP NFV platform.  You might see this as yet another of those “NFV billboard” announcement where somebody joins someone else’s ecosystem so they can both issue a press release, but there’s more to it.  The “more” may spell the big story in industry change.

NFV’s success depends on being able to run a bunch of stuff as virtual functions.  Ideally, as I said in both my CloudNFV and ExperiaSphere initiatives, you should be able to run anything that runs in a virtual machine/container or in the cloud, or on a popular host platform as a VNF without changing the software being run.  The thing I think is important about HP/Nokia is that VNFs created by one vendor are being framed for deployment on a platform of another.  While that doesn’t promise my utopian vision of “run-everything”, it at least addresses the problem of “VNF silos”.

Remember IP convergence?  Well, as one operator put it, “I didn’t converge on IP infrastructure to create service-layer silos on top if it.”  The network equipment vendors have proven virtual function resources they can deploy, and most of them intend to deploy them on their own NFV platform.  They also want to deploy their own “SDN” on their own “Controller” platform.  All of this is great at supporting prices and margins for those network vendors, but again it defies the buyer’s interest in controlling costs.  The only people who can break the logjam are the IT vendors.

What makes HP particularly interesting here is that the Nokia thing is the second partnership—the first was with Wind River.  With the Wind River deal, HP acquires all the tools to build an industrial-strength platform for NFV execution, something that can provide services that an operator could guarantee and for which the buyer could contract an SLA.  Now they frame the first explicit signal of VNF populism in the market.

And they are cloud people.  Saar Gillai, who is the GM of HP’s NFV business, is also the COO of HP’s cloud business.  As far as I know, he’s the only NFV head who is a cloud guy.  That’s important because the only path for SDN and NFV to add value instead of just cutting costs is to extend both notions across both carrier infrastructure and information technology for the enterprise—public and private.  We’d never accept a cloud platform that runs only applications from one vendor, after all.  We’d never accept a data center connectivity solution that works with only one class of switches and locks us into that vendor forever.  We won’t accept NFV or SDN to create new kinds of silos instead of breaking silos down.

If network vendors were the only source of SDN and NFV functionality, we might see the technologies roll out in anemic form in five years or so, once the vendors had figured out how to protect their turf.  IT vendors like HP can break that pattern because their entry into the market introduces a player who has nothing to lose in abandoning the past.  And while the lesson will surely be painful for the network vendors to learn, the fact is that it’s just as much the market teaching it as HP.