Segmenting the Vendors for the Network of the Future

Over the past several months, I’ve talked about the evolution in networking (some say “revolution” but industries with 10-year capital cycles don’t have those).  Along the way I’ve mentioned vendors who are favored or disadvantaged for various reasons, and opened issues that could help or hurt various players.  Now, I propose to use the last days of 2014 to do a more organized review.  Rather than take a whole blog to talk about a vendor, I’m going to divide the vendors into groups and do a blog on each group.  This blog will introduce who’s in a group and what the future looks like for the group as a whole.  I’ll start at the top, the favored players with a big upside.

I want to open with a seldom-articulated truth.  SDN and NFV will evolve under the pressure of initiatives from vendors who will profit in proportion to the effort they have to expend.  A player with a giant upside is going to be able to justify a lot of marketing and sales activity, where one that’s actually just defending against a slow decline may find it hard to do that.  We might like to think that this market could be driven by up-and-comings, but unless they get bought they can’t expect to win or even survive.  You don’t trust itty bitty companies to drive massive changes.

And what’s the biggest change?  Everything happening to networking is shifting the focus of investment from dedicated devices toward servers and software.  It follows that the group with the biggest upside are the server vendors themselves, particularly those who have strong positions in the cloud.  This group includes Dell and HP, with a nod to Cisco, IBM, and Oracle.

The strength of this group is obviously that they are in the path of transition; more of what they sell will be consumed in the future if current SDN and NFV trends mature.  The reason we’re nodding to Cisco and Oracle is that neither company is primarily a server player.  Cisco’s network device incumbency means it’s at risk to losing more than it gains.  IBM and Oracle are primarily software players, and thus would have to establish an unusually strong software position.

The second group on my list is the optical incumbents.  In this group, we’ll count Ciena, Infinera, and Adva Optical, with a nod to Alcatel-Lucent.  The advantage this group holds is that you can’t push bits you don’t have, and optical transport is at the heart of bit creation.  If we could learn to use capacity better, we could trade the cost of capacity against the cost of grooming bandwidth and operating the network.

Optical people can’t stand pat because there’s not much differentiation in something that’s either a “1” or a “0”, but they can build gradually upward from their secure base.  The pure-play optical people have a real shot at doing something transformational if they work at it.  Alcatel-Lucent gets a “nod” because while they have the Nuage SDN framework, one of the very best, they still see themselves as box players and they will likely stay focused on being what they see in their mirror.

The third group on the list is the network equipment second-tier players.  Here we’ll find Brocade, Juniper, and Extreme, with a nod to other smaller networking players.  This group is at risk if money is shifting out of network-specific iron to servers as bigger players do, but they don’t have the option of standing pat.  All these companies would die in a pure commodity market for network gear, and that’s where we’re heading.  Brocade realizes this; the rest seem not to.

What makes this group potentially interesting is that they have a constituency among the network buyers that most of the more favored groups really don’t have.  They could, were they to be very aggressive and smart with SDN and NFV, create some momentum in 2015 that could be strong enough to take them into the first tier of vendors or at least get them bought.  They could also fall flat on their face, which is what most seem to be doing.

The fourth group is the network incumbents, which means Alcatel-Lucent, Cisco, Huawei, and NSN with a nod to Ericsson and the OSS/BSS guys.  The problem for this group is already obvious; any hint that the future network won’t look like the current one and everyone will tighten their purse strings.  Thus, even if these guys could expect to take a winning position in the long run, they’d suffer for quite a few quarters.  Wall Street doesn’t like that.

Ericsson and the OSS/BSS players here are somewhat wild cards.  Operations isn’t going to drive network change given the current political realities among the telcos and the size of the OSS/BSS upside.  Ericsson has augmented its operations position with a strong professional services initiative, and this gives them influence beyond their operations products.  However, integration of operations and networking is a big issue only if somebody doesn’t productize it effectively.

Virtually all of the players (and certainly all of the groups) are represented in early SDN and NFV activity, but what I see so far in the real world is that only three vendors are really staking out a position.  HP, as I’ve said before, has the strongest NFV and SDN inventory of any of the larger players and it’s in the group that has the greatest incentive for early success.  Alcatel-Lucent’s broad product line and early CloudBand positioning helped it to secure some attention, and Ericsson is taking advantage of the fact that other players aren’t stretching their story far enough to cover the full business case.  In theory, any of these guys could win.

That “business case” comment is the key, IMHO.  SDN and NFV could bring massive benefits, but not if they’re focused on per-box capex savings.  If all we’re trying to do is make the same networks we have today, but with cheaper gear, then Huawei wins and everyone else might as well start making toys or start social-network businesses.  Operators now say that operations efficiency and service agility would be needed as the real drivers.  The players who can extend their solutions far enough to achieve both these benefits even usefully much less optimally will drive the market in 2015 and 2016.  If one or two manage that while others languish, nobody else will have a shot and the industry will remake itself around the new giants.  That could be transformational.

Starting next week, I’ll look at these groups in detail and talk about who’s showing strength and who seems to be on their last legs.  Check back and see where your own company, your competitors, or your suppliers fall!