Earnings from A to Z

Alcatel-Lucent reported its numbers, and as was expected based on their earlier profit warning, the results were disappointing, with the company experiencing a revenue loss and swinging to a loss on the bottom line.  “…we must embark on a more aggressive transformation,” according to CEO Ben Verwaayen, referring to a restructuring plan that would cut costs and jobs.  I agree that an aggressive transformation is needed, but not that cutting jobs is the answer.

Remember the songs of the ‘60s and “Blowing in the Wind”?  How many times must we hear “macro-economic” and “competitive pricing” before we understand that spending on networking is below par because we’re not creating enough value in the network?  Whether we’re talking about enterprise or service provider spending, the “I” part of ROI is dependent on generating the “R” part of it.  What’s frustrating to me is that Alcatel-Lucent has a very strong portfolio of very good stuff, things that could boost operator revenue.  The problem is that they just don’t seem to be able to make anyone understand it.

This is why I get frustrated by things like the SDN and “network virtualization” stories.  Tuning network behavior to applications fits under a broad category buyers would like to call “application networking”, and it includes performance management, security, virtualization, etc.  All of this can be managed from the network side upward, and I’d argue that the management of that stuff is the provenance of the SDN movement.  Some of it, and here we need to read that qualifying “some” very emphatically, can be managed from the network middleware side downward, using stuff like Nicira makes and VMware now owns.  So why have network equipment vendors not been leading the charge here?  At least two vendors I’ve had detailed briefings with (Ericsson and Juniper) have pretty decent SDN strategies.  We need to hear more from them in how these strategies actually advance application networking.

The “competitive pricing” problem that Alcatel-Lucent talks about is a problem vendors like them have created, a problem that arises from a steadfast refusal to develop or promote meaningful features that can become meaningful differentiators.  Bits, guys, are either one or zero; not much differentiation there.  And all of this at a time when buyers tell me in my surveys that they’re crying out for value-based justifications to build their network business case.  I can explain SDN to them in a half-hour.  I can explain why networking and SDN are a better way to get to application networking than a top-down approach.  I’ll be releasing an SDN video series within the next ten days to prove that.  So why can’t vendors with thousands of employees and billions of dollars in revenue do that?  It’s not lack of skill, it’s lack of will.  Fix this problem, vendors, or you’re all going to restructure yourself into a vanishing point.

Another tale of quarterly woe came from Zynga, whose costs exploded far beyond its ability to cover them with revenue growth.  The blow-out was so significant it impacted Facebook’s stock, and the big question is whether Zynga might be a harbinger of future Facebook woe.  There are two reasons it might be.

Reason number one is that Zynga, like all social-linked activities, is fad-driven.  I’ve drawn the analogy to one song in this post; why not two?  Remember “New Kid in Town?”  Youth likes to experiment with life, and so they’re drawn to novelty.  Eventually, another “new kid” shows up and to paraphrase the Eagles, “he’s all they want and you’re still around”.  That kind of instant up and down makes it hard to capitalize on something, particularly to capitalize on an IPO.  Facebook use seems to be plateauing, and many who have used it are now just checking in occasionally.  So it’s fair to ask whether people are bored with social networks.  Yes, perhaps, because they’re probably so overexposed to the updates about acquaintances that they’re bored with THEM.  Social networks stand or fall on socializing.

Which brings us to reason number two.  There has always been a question of just when an online user would see an ad.  Most of us (I sure have) learned to tune out display ads of all types long ago, and so I can honestly say I don’t recall a single ad that’s been presented to me in a year, at least.  Given this, how much real commercial engagement can come from social networking?  It has to come out of the “like” and “friend” and “follow” type of processes, and even there the problem is that the more you “like” the more you’re inundated with junk and the more likely you are to either “unlike/unfriend” or to simply ignore everything.

Don’t get me wrong.  I think social processes are vital to online experience.  The question is what kind of process, and we probably should value platforms to support flexible socially framed services more than the services themselves.  Most of them will simply dissipate with time.

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