IBM, Juniper, and Jumping at the Right Time

You all probably know how I love blog topics that present a contrast, and today we have a nice opportunity for one with the quarterly results from IBM and Juniper.  The former disappointed the Street and the latter made them happy.  The former has touted transition and the latter seems to be staying the course.  What might be unifying them is partly a timing issue; Juniper might be staying too long and IBM may have jumped too soon.

I’ve admired IBM longer than any other tech company, in part of course because they’ve been around longer.  IBM has in the past weathered some of the most dramatic transitions in IT.  They’ve retained a high level of account control and strategic influence, but they’ve lost a bit of both in the last decade.  Their challenge has been a lack of marketing.  The IBM brand was iconic all the way through the 90s, but in the current century they’ve lost touch with the broad market.

Nobody thinks PCs are the profit engines of IT, but getting out of the PC business had the effect of taking IBM’s label off the piece of gear that most professionals carried with them every day.  It also disconnected IBM, in a product sense, from the wave of technology populism that swept us into the era of the cloud.

The cloud, or hosted IT in any form, is an automatic issue for a company like IBM who relied on controlling IT planning with sales presence.  The line organizations could either bypass the IT organization or beat them up with cloud threats, and in either case cloud marketing was having an influence on buyers that IBM’s sales people could never hope to call on.

IBM’s cloud strategy seems driven by the notion that the cloud is an alternative infrastructure for IT professionals.  They’ve discounted the populism of as-a-service delivery, and they’ve expected the IT organizations to embrace the cloud and drive it through their line departments in spite of the fact that the cloud was unfamiliar to these IT professionals.  They saw the commoditization of hardware, replaced by the demand for cloud platform and development tools.

Eventually they may well be right in their vision, but the problem is that they acted on the presumption that the shift to the cloud would occur in their way, and fast enough to offset the loss of hardware revenue.  Instead, the cloud overhung IT budgets and projects and the new stone IBM hoped to jump on as it tried to navigate the river crossing was less stable than the one it left.

If IBM is an IT incumbent who got out of IT too soon, Juniper is a networking incumbent who may have stayed too long.  It started as a router vendor, got into switching way later than it should have (and switching is now its strongest area), and under the leadership of an ex-Microsoft executive tried to make a transition into software that’s never really gelled.  They made acquisitions in the mobile, voice, and content delivery spaces and none of that paid off.  It’s hard to say whether Juniper was wedded to the past big-box glory or just couldn’t figure out how to get out of it.

Juniper has marketing issues too, but their marketing challenge is posed by their reluctance to embrace any form of networking other than big-box networking.  Under the previous CEO they couldn’t get SDN and NFV straight, and even though Juniper talked about cloud computing before any other network vendor, they never got a tight positioning on it even when they had product announcements that clearly favored cloud trends.

SDN is now perhaps Juniper’s big success; their Contrail strategy is a good way to build VPNs on top of legacy infrastructure.  I like Contrail and the approach, and yet I think it’s still a conservative view of an aggressive market opportunity.  Juniper can succeed with conservative SDN positioning, as it can succeed with big-box strategies, as long as someone else with a more aggressive take on the evolution doesn’t step up and say convincing things.  Alcatel-Lucent, with Nuage, could in my view present a much more futures-driven picture of SDN and its evolution from legacy networking, but they’re also mired a bit in the past.

So Juniper took a safe position with their big-box story, a position that could win only if everyone in the SDN and NFV space booted their opportunity.  Well, that’s what happened.  Telcos want to invest in a new infrastructure model, but there’s no such model being presented as yet.  NFV and SDN are just a bunch of disconnected projects.  That favors evolutionary approaches that focus more on the starting point than on the ultimate destination.

There’s the critical common element between our two vendors in a nutshell.  Both IBM and Juniper were impacted by the inertia of past practices.  IBM hoped for change and didn’t get it, and lost ground because they moved too quickly.  Juniper feared change, and buyers apparently feared it too, or at least feared jumping into an unknown.  Juniper gained ground by being behind.

One obvious conclusion here is that we’re stuck in a legacy IT and networking model because we can’t demonstrate significant benefits to justify transitioning to a new one.  In the past, productivity improvements have fueled major tech transitions but we don’t have that today.  Focusing on cost reduction tends to limit the ability of buyers to tolerate mass changes.

IBM needs to get its IT professional base, the people it has influence on and regular contact with, embarked on an effective campaign for internally driven application agility and worker productivity that’s centered on the cloud.  It also needs to get its marketing act in order, and provide its sales force cover for the effort needed.

It should also consider the question of whether telco cloud and NFV could be a good Greenfield opportunity to drive changes in a space where the upside is very large.  The telco universe, with its low internal rate of return, should be a natural place for cloud services to emerge and that’s not happened.  Part of the reason is that operators aren’t particularly strong marketers, but it’s also true that they’re not particularly excited about getting into another low-margin business.  NFV principles applied to cloud services could reduce operations costs and improve margins.

It’s harder to say what Juniper’s response should be, and perhaps it’s also a waste of time given that Juniper is doing OK while doing what it wants to do—for now at least.  Maybe they’ll be right and both the SDN and NFV revolutions will fizzle, creating nothing more than eddy opportunities that won’t threaten the big-box story.  But even if that’s true, Juniper will lose margins and market share as operators respond to the situation by pushing on product pricing.  With, of course, Huawei eager to respond.

Is the future unrecognized and upon us, or is it perhaps just that it’s no different from the present?  IBM bets on the future, Juniper on the past, but any bet is a risk and it may come down to execution.  I didn’t care for the Microsoft crowd at Juniper, but the new CEO (Rahim) seems to have a much better handle on things.  He may be able to jar Juniper out of past mistakes.  IBM on the other hand has past successes it needs to recapture, not by turning back but by harnessing the agility they exploited through all the previous technology earthquakes they’ve endured.  Do they have the leadership for that?  I’m not so sure.