It’s a kind of day of change in technology, particularly if you believe some of the speculation that’s floating around. Certainly 2011 has been a challenging year for vendors, and it may be that the challenges will be only more formidable in 2012. Given that, it wouldn’t be surprising if we saw some dramatic market shifts, and vendor actions.
Microsoft’s move with Verizon to make the Xbox into an STB is pretty obviously a move to make the box more populist. Kinect has certainly made it into a leading game platform but there’s a limited market for games, particularly in terms of demographics. Microsoft wants the Xbox to be an entertainment hub, something that would validate the fond hope of everyone in the PC space that a computer would become a fixture in every living room. A big part of this move is that Microsoft knows that gaming is shifting more to portable devices and Microsoft certainly has its own aspirations with phones and tablets. Why create cross-currents that could erode you own product lines? Get one product family safely out of the way of evolution for the other.
Staying with tablets and cross-currents for the moment, Dell has dropped its Slate family after having laid a tablet egg with it. The problem I think Dell had (and continues to have) is that it’s so worried about its PC sales that it’s apologetic about positioning anything that might impact the PC even a little bit. On the one hand, it didn’t want to miss the tablet revolution, but on the other it didn’t want to overhang its laptop business. So it fumbled with both hands, I guess. They never really did anything with Slate other than say they had it, which was hardly an inspirational marketing tactic. Now they’re out of tablets and they’ve called their marketing into question. They also are looking a bit like HP in terms of fumbling, which isn’t a role model I think they wanted to adopt.
I’m hearing a lot about how network vendors might be facing their own future changes this week. NSN started a broader reconsideration of strategy with its decision to pull itself into a kind of marketing spear focused at the heart of mobility. That aligns the company with the current capex focus, at least on the network equipment side. Ericsson has arguably been gradually doing the same thing for years, focusing on mobile and professional services where margins are higher. Now at least some Street analysts are suggesting that maybe Alcatel-Lucent is going to have to follow suit.
Ciena is kind of a poster child for the current issue set, ironically; it’s not a broad player but rather a player who adds capacity to a world that’s supposed to be starving for it. So why then is it getting dissed by the Street? Because margins stink, meaning profits. Yes users want more Internet bits but they won’t pay for them, which means that there’s enormous price pressure on the producers of those bits and on the equipment they use. The trend in networking, as I recount in more detail in the Annual Technology Forecast issue of Netwatcher this month, is to push traffic handling and capex downward to the lower layers because it’s cheaper there. The whole of networking, in fact, is commoditizing. Ciena, already in a spot that can’t be eliminated—you need bits—can’t be as profitable there. So that’s why Alcatel-Lucent and Ericsson, and NSN can’t be bit-pushers either.
For Alcatel-Lucent, this could mean a spin-out of some of the lower-level technologies that are building revenue and engagement but not profit, but the problem with that is that Alcatel-Lucent’s strategic influence with buyers has literally been in a class by itself because of its product breadth. Can they sustain that influence in the face of a constriction of product offerings?
The cloud is the common ground in this story. NSN, by focusing on mobility, may have effectively abandoned it. Ericsson has abandoned it. Alcatel-Lucent just embraced it, but not as fully as I believe they need to. The cloud is likely to be the first new capex focus in networking, but it’s a focus that’s not as much on network equipment as on IT—servers and software and storage. Network vendors need to have a place in the cloud or they all end up squabbling over RAN scraps, and mobile bit-pushing will commoditize as inevitably as wireline has.
While Alcatel-Lucent’s cloud strategy could be interesting, Cisco and Juniper are really the players to watch here. They’re the guys with the most at stake, after all. IP, the mainstay of both companies, is commoditizing and traffic is migrating downward in terms of handling, toward Ethernet and optics. Something has to be done for these guys. Cisco has servers and all of the pieces of the cloud, and so could be the vendor who manages to create a cloud story that’s network-empowering. Juniper has no servers and it has the narrowest product portfolio of all of the network vendors. That’s hurting the company in terms of strategic engagement. In our most recent survey, Juniper stands alone at the bottom of that chart. So the question is first whether a network-friendly vision of the cloud can be created at all. If it can, will Cisco have a better shot given that it has all the pieces, or will Juniper have a better shot given that it has all the motivation (or should)?