Lessons the Fiber Market Can Teach Networking Overall

We already know that fiber technology can be divided into families based on features—long-haul versus access, passive optical versus point-to-point or active reconfigurable.  We might be seeing signs that it is dividing at the business level, into what might be called “tactical fiber” and “strategic fiber”.  If so, that could have major implications on the networking market in general, and for L2/L3 vendors in particular.  Finally, if all this is true, then the quarters reported by fiber firms Ciena and Infinera may demonstrate the state of market recognition of that tactical/strategic difference.

There has always been a tension between the strategic and the tactical in technology.  Do you see the future as something that develops slowly from the present, or something that responds to radical new technologies and opportunities in a totally new way?  Sales people generally don’t like strategy—it takes too long.  Over the last decade, strategy has fallen a bit out of favor even with senior executives and the Street, because the financial markets live quarter by quarter.  However, there are times when tactics won’t get you to where you need to be.

Look at Infinera, whose future according to the Street is subsea transport and data center interconnect (DCI).  OK, we have oceans to cross.  We have data centers to connect.  However, neither application is the operator goal; it’s not like subsea fiber is a migration path for data or that data centers demand interconnection.  There’s a business model lurking here somewhere, or there should be.  There are tactical fiber roles within that model, but if you’re an operator with business problems to solve, do you look for those tactics, or for the strategies that address your problem?

The bellwether quote from the Infinera earnings call (CEO Fallon) is “Looking to the future, we see opportunities in the horizon stemming from architectural evolutions that are at the beginning of their planning phase, particularly around fiber densification in the metro for cable operators and 5G for mobile service providers. Additionally, the enormous growth in cloud services is likely to persist, which will increasingly require the most scalable and cost-efficient transport networks.

During this period of architectural evolution, our technology approach will allow us to deliver the most reliable, high-capacity, power-optimized solutions in form factors that our customers want to deploy, both as integrated solutions and purpose-built platforms.”

The statement says that the future is a product of strategic initiatives by operators, which will develop into tactical opportunities for Infinera.  They’ll supply the elements needed by the buyer to fulfill buyer needs, and that’s a tactical mission.

Ciena serves the same overall markets, and they sell products tactically, but they position themselves much more as a strategic player.  If you look at the transcripts for the current-quarter earnings calls of the two companies, you find a stark difference.

The focus quote from Ciena’s earnings call (CEO Smith) is “…we also introduced Liquid Spectrum, our approach to redefining really how optical networks are fundamentally built. This software driven platform combines our Blue Planet software, WaveLogic Ai chipset and a reconfigurable Photonic Layer. This is a truly unique offering in the market. It is the first dynamic capacity on demand solutions that does not require pre-deploying hardware for peak periods of traffic. And I want to be very clear, our success to-date in the market does not take into account the technology advantages yet to come with WaveLogic Ai, which when combined with our global scale and deep customer relationships positions us extremely well to capture additional market share globally.”

This says that Ciena has a strategic vision for fiber networking, has built symbiotic product elements to support that vision, and is reaping the benefit of the strategic vision in deep customer relationships.  A “unique offering” is something that requires context to plan, context to sell.  It’s not a tactical vehicle at all.

The day after its quarterly announcement, which was a miss on revenue, Infinera’s stock dropped almost 10%.  The day after Ciena’s quarterly announcement, which was a beat on revenue and backed up with strong guidance, its stock gained about the same amount.  So, the obvious question is whether the difference in outcomes was created in large part by the difference between tactical market behavior and strategic behavior.

Do you think there are any major network operators anywhere in the world who believe they can continue with infrastructure plans as they are today?  Are there any who see the future as just a somewhat refined version of the present?  I don’t talk to any with those views, and if that’s a reliable indicator then I think you have to presume that operators are looking for dialogs with vendors who can tell them what the infrastructure plans for the future should be.  Yes, we’ll have submarine cables, metro fiber, data center interconnect.  They’ll fit into a different network and service model, though.

So, we are back to context.  The fiber tactic of the future has to fit the context of the future, not the one of the present.  Vendors who position their wares in such a way as to demonstrate understanding of the future are more credible positioning for that future context.  Even in an earnings call, and even at the CEO level, Ciena wins in that regard.  That’s especially true given that I think Ciena could have done even better in strategic positioning, and gained even more.

Is the context lesson one that should be learned other classes of vendor?  Certainly, server vendors or network software vendors should take the issue seriously.  I’ve seen literally half-a-hundred major pitches on “transformation” from vendors that define the term as “transforming your purchase of a competitor’s gear to your purchase of mine.”  Just because the network of the future might need “billing” doesn’t mean that you start your transformation off by buying billing software, or that just buying billing software transforms you.  Operators tell me they value a vendor’s vision of next-generation infrastructure as much or more than they value individual products.  Another vote for strategy.

How about those L2/L3 vendors I mentioned at the opening of this blog?  At one level, understanding the truth is always helpful, so they could benefit in that sense by understanding the strategic context of their buyers.  On another, facing it often isn’t helpful at all.  Fiber is the strategic lingua franca of the future network, because you can’t have a network without it.  Fiber vendors have a lovely positional advantage because they have a position.  Same for server/software vendors; if you want to have virtualization in the future, then servers and software is inescapable.  For the rest of the network, the other layers, there is no such certainty of mission.  A switch/router vendor might be arguing for a strategic future designed to work without switches or routers.

If we could create a full-optical mesh between users at an affordable price and using low-touch technology, nobody would want an electrical layer at all.  What the electrical layer does is aggregate and distribute traffic to build a service footprint larger by far than a practical fiber footprint.  If you make the optical layer cheaper (in particular, reduce the marginal cost of fiber capacity so fatter trunks aren’t disproportionately expensive) and improve optical-layer connectivity, you reduce the need for the electrical layer.  If you add SDN virtual-path grooming to optics, you reduce things further, and still further if you add hosted instances of switching/routing and SD-WAN technology.  That’s what makes strategic positioning of L2/L3 products difficult; you may be positioning for absence as much as for change.

However, the story of the two fiber families can have a happy ending.  Suppose, just suppose, that it indicates that buyers are starting to look past the ends of their noses, and that some sellers, at least, are seeing the change in focus.  We then have the means and the opportunity to think about that strategic future, and shape it.