Rumors: Cisco, Juniper, and Apple

Cisco is said to be announcing a new white-label managed service offering that’s designed to be resold by network operators (presumably Cisco customers) to rebrand for the SMB space.  Cisco would provide the actual remote management resources.  The move is yet another interesting slant on how Cisco thinks it can help operators, make more money for itself, and perhaps pull through more equipment sales.  The question is whether it will work, and as you’ll see below we may have to wait for the precise details in order to tell.

It’s not that managed services is a bad idea, or that having vendors provide a white-label service or take a cut somehow from transactional services is untried.  Alcatel-Lucent, for example, has promoted its Open API program as a means of supporting developers across provider boundaries without special per-developer-per-provider relationships being needed.  It takes a cut of the fees associated with the APIs that the developers use.  And managed services are on the rise, particularly for SMBs who can’t possibly retain a skilled staff with there’s so much competition for network experts.  The problem is whether the operators see this as helping or competing.

Most operators have their own plans for managed services for SMBs, and many have already offered them.  They may well see Cisco’s offer as simply a way for Cisco to grab a piece of the revenue stream, a revenue stream the operator is fronting in retail terms.  Cisco is likely to say that the deal will reduce operator costs and improve time to market, but the real question will be whether the reduction in costs justify the reduction in revenue, and whether the selling issues with the service overcome the time-to-market benefits.

The challenge here is that everyone wants to make more money in a market where both services and products are commoditizing.  Services are a way to do that, but the buck starts (to play with words) with a single buyer.  Users don’t build networks to consume products or services, but to fulfill their needs.  Network vendors have been much worse than IT vendors at figuring out how to support the users’ value propositions in a way that’s also profitable for them.

Another network vendor news item today is that some financial analysts (Stifel, for example) are predicting Juniper’s having a soft quarter, and that part of the problem is some glitches with Junos.  Juniper, they say, has always touted the stability and singular version control of Junos as assets relative to Cisco’s IOS, and there are now reports of problems with stability after a recent release and of the need to supply a custom version to some operators.

The Big Problem for Juniper, in my view, isn’t the rumored version discipline problem with IOS but the fact it doesn’t have any solid mobile story.  In the operator survey I just completed, those vendors who had a strong mobile services slant in their products and experience gained in strategic influence uniformly.  Those who did not (including Juniper), lost.  What I think is happening this quarter is that operators are finally thinking about the future.  You can see that in Verizon’s public announcements on content and the cloud.  As they do, they’re less receptive to the usual “How many boxes can I put you down for?” sales positioning.  They may be reacting faster to changes in strategic influence instead.  Typically our rating in that area has been a leading indicator of change—a tell on next year’s behavior.  Might Juniper’s dip in influence be hitting already?  Cisco had an even larger credibility drop in the operator influence ratings, and its SEC filings are suggesting it’s having softness problems too.

If network vendors are asleep in the telco world, Apple’s happy to be wide awake.  The latest public rumors on next year’s iPhone model is that it’s multimodal in that it works on both CDMA and GSM as well as LTE, and also that it’s going to be “SIM-less” and can be soft-configured to work with any operator network.  That seems a pretty clear indication that Apple is looking to break the traditional link between handset providers and operators created to use service-plan subsidies to reduce phone prices and increase sales.  But Apple knows darn well that they can’t sell unsubsidized iPhones at higher prices and they don’t want to commoditize them either, so what are they up to?  I heard from a Silicon Valley contact that Apple was planning to introduce an iTunes-subsidized iPhone, or rather an iCloud-subsidized one.  The idea is that Apple would have a term membership in a subscription cloud music and video service that would include a reduced-price iPhone.

This is a major shift in market dynamic, if true.  The operators have had a lock on subsidies before, and if they’re losing that to a giant market machine like Apple, then they have good reason to be worried about vendor support for their transformation plans!


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