Is Microsoft Teaching Network Vendors a Lesson?

Microsoft continues to have problems with Windows Phone; the Street is reporting that the first releases by Nokia will be delayed a quarter according to a leaked roadmap.  As I noted yesterday, both Apple iOS and Google Android devices had record activations for the holiday, so it’s hard not to say that Microsoft’s strategy with phones has been doomed from the first simply because they’re too far behind the curve.  But as some have pointed out, other players like Amazon (with Kindle Fire) have launched gadgets that have succeeded despite being rather late to market.  Is there a double standard for Microsoft, and if so how might it impact other tech players?

The smartphone market is quite mature at this point.  Sure, there are people who are don’t have one at this point, but all the early-adopter-trendsetter-social-magnet types have been equipped with one for years.  Entering the market with a splash at this point is harder simply because the pool of new capabilities you can splash in is shallow.  What could be said about a smartphone today that would break both the habits and the service plans of the past?  WiFi tablets like Kindle Fire don’t have service plans and they have penetrated a much smaller portion of their TAM.  The point is that Microsoft’s big mistake with Phone was to have tried it before they tried tablets.  They really needed to let the phone space go fallow and focus on getting a Windows 8 tablet OS out there, then leverage that product to back-door into the phone space.  They didn’t do that; they were stuck in incumbency issues with laptops.

I looked at the stock performance of the network vendors this morning, going back to the beginning of 2011, and it’s an interesting picture.  Cisco has dropped perhaps 8% in that time, Ericsson around 13%, and Alcatel-Lucent and Juniper are virtually tied for the bottom with a drop of about 46%.  If you look at the super-hot announcements the firms have made (judged by the media, at least) it would appear that the two who had the least did the best.  In our strategic influence surveys this year, Ericsson and Cisco did better at sustaining their position in the key areas of cloud, content, and mobile than Alcatel-Lucent or Juniper did, and again it would be fair to say that both these latter vendors had announcements that the media believed were more strategic (LightRadio and QFabric, respectively).  What gives here?

The answer is that network equipment is a downturn market at present, I think.  You can get people excited about change if there’s a market trend that validates the notion that changing is taking place.  Whether LightRadio or QFabric were strong products, they were products in a space on the defense.  What changes a defensive game isn’t more defense, it’s shifting to the offense.  Neither of these two network announcements did that.  Both, perhaps, could have done it, just as Microsoft could have made its Phone 7 launch exciting.  That neither did is in my view linked to the essentially defensive nature of the positioning the companies did.  Here’s the next generation of something that is under pressure in the current generation.  There has to be a paradigm shift to make networking an exciting market again, and none of the announcements that were made in 2011 were anything like a paradigm shift.  Absent that shift, the “new” stuff seems more a letdown.  Could that be a factor in the decline of Alcatel-Lucent’s and Juniper’s stock?  Not the only factor, but at least one of the factors, I think.

So who then can articulate a major change here in network equipment?  The two companies who tried in 2011 will have a higher hurdle to jump in 2012, just as Microsoft will with Phone 7.  The two who didn’t announce?  Well, what’s Ericsson going to announce—a new type of human to provide professional services?  That leaves Cisco, who has in the past demonstrated that it can be extremely charismatic.  Cisco, who has the broadest technical collateral in the cloud space.  Cisco, whose stock has stood up the best of all so far.  Maybe the Street is smarter than it thinks it is.

The point here is that nobody is going to care about how well-groomed you are while you’re falling into a well.  You need to demonstrate that your vision of how you’re going to arrest the slide and get out is compelling, not your form in the dive.  So far, network vendors haven’t done that.  Neither has Microsoft.



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