I always think it’s interesting when multiple news items combine (or conflict) in a way that exposes issues and market conditions. We have that this week with the Cisco/Microsoft cloud partnership, new-model servers from HP, a management change at Verizon, and Juniper’s router announcements. All of these create a picture of a seismic shift in networking.
The Cisco/Microsoft partnership is a Nexus 9000/ACI switching system with a Windows Azure Pack (a Microsoft product) to provide a hybrid cloud integration of Microsoft Azure with Windows Server technology in the data center. The software from Microsoft has been around a while, and I don’t frankly think that there’s any specific need for a Nexus or ACI to create a hybrid cloud since that was the mission of the software from the first. However, Microsoft has unusual traction in the hybrid space because Azure is a PaaS cloud that offers easy integration with premises Windows Server and middleware tools. Cisco, I think, wants to take advantage of Microsoft’s hybrid traction and develop its UCS servers as a preferred strategy for hosting the premises part of the hybrid cloud.
This is interesting because it may be the first network-vendor partnership driven by hybrid cloud opportunity. Cisco is banking on Microsoft to leverage the fact that Azure and Windows Server combine to create a kind of natural hybrid, and that this will in turn drive earlier deployment of Azure hybrids than might be the case with other hybrid cloud models. That would give Cisco street cred in the hybrid cloud space. The IT strategy drives the network.
One reason for Cisco’s interest is the HP announcement. HP has a number of server lines, but Cloudline is an Open Compute compatible architecture that’s designed for high-density cloud deployments, and would also be a darn effective platform for NFV. HP has a cloud, it has cloud software for private clouds, and a strong server position (number one). If HP were to leverage all its assets for the cloud, and if it could pull hybrid cloud opportunity through from both the public cloud provider side (through a hybrid-targeted Cloudline positioning) and from the IT side (through its traditional channels) then Cisco might see its growth in UCS sales nipped in the bud.
A Microsoft cloud alliance won’t help Cisco with NFV, though, and that might be its greatest vulnerability to HP competition in particular. Even before Cloudline, HP had what I think is the best of the major-vendor NFV approaches. Add in hyperscale data centers and you could get even more, and my model still says that NFV will generate more data centers in the next decade than any other application, perhaps sell more servers. I’d be watching to see if Cisco does something on the NFV side now, to cover that major hole.
NFV’s importance is, I think, illustrated by the Verizon management change. CTO Melone is retiring, and the office of the CTO will then fall under Verizon’s CIO. Think about that! It used to be that the CTO, Operations, and CMO were the big names. The only people who called on the CIO were OSS/BSS vendors. Now, I think, Verizon is signaling a power shift. CIOs are the only telco players who know software and servers, and software and servers are the only things that matter for the future.
Globally, CIOs have been getting more involved with NFV, but now I think it’s fair to say they may be moving toward the driver’s seat. That’s a dynamic that will require some thinking, because of the point I just made on what CIOs have historically been involved with. OSS/BSS vendors have more engagement with CIOs and OSS/BSS issues have taken a back seat from the very first meetings of the ETSI ISG. Might this shift impact the vendor engagement? It won’t hurt HP because they have a strong operations story, and obviously Ericsson and Alcatel-Lucent do as well, but Cisco will have to do a lot more if operations is given a major role. Of course, everyone will have to address OSS/BSS integration more effectively than they have if the guy who buys the OSS/BSS systems is leading the NFV charge.
Speaking of network vendors, we have Juniper. Juniper has no servers, and they don’t have a strong software or operations position either. They can’t be leaders in NFV because they don’t have the central MANO/VNFM components. I think they represent what might be the last bastion of pure networking. Cisco, Alcatel-Lucent, Ericsson, Huawei all need more bucks and more opportunity growth than switching and routing can hope to provide. All of them, as contenders for leader status in network equipment, will have to expand their TAM. Juniper is likely hoping that with the rush to servers and software, there will be opportunity remaining in the network layers.
Will there be? Truth be told it won’t matter for Juniper because there are no options left. They can’t be broader players now; time has run out. The union of IP and optics, at least part of the focus of their announcements, is inevitable and it will inevitably cap the growth of IP and Ethernet alike, working with virtual routing and switching driven by SDN and NFV at the technical level and by operators’ relentless pressure to reduce capex and opex. It’s hard to see how a switch/router company only recently converted to the value of agile optics can win against players like Alcatel-Lucent or Ciena or Infinera or Adva, all of whom have arguably better SDN and NFV stories.
There are other data points to support my thesis that we’re moving toward the “server/software” age of networking. Ciena already announced an NFV strategy and so now has Adva. Alcatel-Lucent’s CEO said that once they’re done “shifting” they will likely focus more on services. Logical, given that professional services are almost inevitably more important as the rather vast issues if the cloud and SDN and NFV start driving the bus. Few vendors will field comprehensive solutions and operators want those. They’ll accept consortium insurance where specific vendor solutions just aren’t available from enough players to give the operators a comfortable competitive choice.
All of these points demonstrate the angst facing network vendors, but adding to that is the fact that Huawei is running away with the market, racking up 20% growth when almost all the competition is losing year-over-year. It’s Huawei that in my view renders the pure networking position untenable for competitors; everyone else will lose on price and network equipment differentiation is now almost impossible. For five years now, vendors have played Huawei’s game, focusing their attention on reducing costs when the price leader in the market is sharpening their blade. It may be too late to change that attitude, though Cisco at least is certainly trying.
We have a true revolution here. It’s not the platitudes we read about, it’s the relentless march of commoditization driven by that compression of revenue/cost curves. It’s the shift in approach to hosted software with greater agility, from monolithic specialized network hardware. We are moving to an IT-driven future for networking and there is no going back now.