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The most interesting set of tech developments today relates to cloud computing positioning and services.  At the Enterprise Connect conference, Salesforce and Global Crossing both made cloud announcements, and both had what I see as a common thread; create a SaaS cloud service and build a platform-as-a-service offering around it.  Salesforce did this based on a social-network-integrated customer service platform (Service Cloud 3) and GC did it based on an integrated UC-friendly model that bundles the cloud with SIP trunking.

We don’t need more cloud acronyms (or hype) but there’s some substance here in the trend, at least, and possibly both offerings as well.  Enterprises and SMBs have sharply different appetites for cloud services, with the former preferring IaaS/PaaS services targeted at backup and overflow management and the latter preferring SaaS.  The primary reason for the difference is that most enterprises already run most applications they need internally, and so there’s an issue of tossing one model and embracing another, something that gets assigned a high risk premium in cost-benefit terms.  But UC and social customer service aren’t typically implemented internally at this point, so there’s less pushback.  That could converge the sales models for all business sizes, and not only create a better total market picture but also create broader reference accounts to accelerate deployment.

There were also a number of service provider cloud announcements this week, beyond the GC one, and it’s becoming clear that the providers plan to be major contenders in the cloud space.  IBM and Microsoft are both positioning actively to support provider cloud plans, with the former stepping up their game in what we’ve called the “Symbiotic Cloud”, the model of provider cloud that combines internal IT (OSS/BSS), feature hosting and monetization, and cloud service offerings into one infrastructure.  Obviously this trend, and the fact that GC is already calling its cloud “network-centric”, means that network vendor cloud plans will have to mature in a hurry if they want to be doing something other than holding the coats of the IT giants.

The SaaS model is interesting to operators because it displaces more cost and thus justifies a higher price (that’s also true of PaaS versus IaaS).  Early indications are that operators are most interested in getting into SaaS via partnerships or through services like UC/UCC, where they believe they have a natural market.  Our research consistently shows that network operator cloud services are more credible when presented through a sales force than when presented through a retail portal.  It appears that some of the portal disadvantage could be overcome through effective marketing, but of course “network operator” and “effective marketing” are hardly synonymous even in areas where the operator has some incumbency.  Partnerships thus seem likely to rule here.

Most infrastructure players are not looking to partner in the cloud, largely because it reduces the profit margin.  Where operators have a potential advantage is that their internal rates of return are low, their ROI expectations are more easily met, and thus they can be profitable on a relationship with tighter margins.  Operators can also normally create what’s perhaps the best economy of scale in capital infrastructure and operations of anyone in the market, particularly if they involve their own applications to build up their cloud base.

Economic recovery is going to help the cloud market, I think.  We’re going to see demand grow faster than confidence, and that means that there will be at least an early tendency to take a service-based solution to incremental computing demand rather than to commit to a capital project.  In total revenue, this absolutely will not be the “Year of the Cloud” but it may be the “Year of the Cloud Paradigm” for those who want to sell the services.  Positioning an offering is likely to get a lot harder in 2012.

 

Juniper made a second major announcement in two weeks, this time its PTX MPLS-optical supercore switch.  The product’s roots probably lie in early interest (“early” meaning the middle of the last decade) by Verizon in a new core architecture for IP networks that would eliminate the transit routing that was common in hierarchical IP cores.  Since then, everyone from startups (remember Corvus?) to modern players like Alcatel-Lucent, Ciena, and Cisco have been announcing some form of optical-ized core.  What makes Juniper different?

Good question, and it’s not easy to answer it from the announcement, but I’d say that the differentiator is the chipset.  Junos Express appears to be the same basic chip used in the recently announced QFabric data center switch.  Thus, you could say that the PTX is a based on a low-latency MPLS switching architecture that’s more distributed than QFabric.  Given what we perceive as a chipset link between the products, I’m creating a term to describe this; Express Domain.  An “Express Domain” is a network domain that’s built using devices based on the Express chipset.  A PTX network is an Express Domain in the WAN and QFabric is an Express Domain within a data center.

If you look at the PTX that way, then what Juniper is doing is creating an Express Domain linked by DWDM and running likely (at least initially) in parallel with other lambdas that still carry legacy TDM traffic.  It becomes less about having an optical strategy than it is about creating a WAN-scale fabric with many of the deterministic features of QFabric.  Over time, operators would find their TDM evolving away and would gradually migrate the residual to TDM-over-packet form, which would then make the core entirely an Express Domain.  The migration would be facilitated by the fact that the latency within an Express Domain is lower (because packet handling can be deterministic, as it is with QFabric) and because the lower level of jitter would mean it’s easier to make TDM-over-packet technology work.  Overall performance of the core would also improve.  In short, we’d have something really good for none of the reasons that have been covered so far in the media.

This (if my interpretation is right) is a smart play for Juniper; create an MPLS-based virtual domain that can be mapped to anything from a global core to a data center.  Recall that I noted in the QFabric announcement that Juniper had indicated that QFabrics could be interconnected via IP/MPLS.  Clearly they could be connected with PTXs, and that would create a supercloud and not just a supercore.  What would make it truly revolutionary, of course, would be detailed articulation of cloud-hosting capability.  I think that capability exists, but it’s not showing up at the right level of detail in the positioning so far.  In any event, if you add PTX to QFabric in just the right way, you have a cloud—probably the best cloud you can build in today’s market.

If Juniper exploits the Express Domain concept, then the PTX and QFabric combine to create something that’s top-line valuable to the service providers.  Yes, there are benefits to convergence on packet optical core networks, but those benefits are based on cost alone and cost management isn’t the major focus of operators right now—monetization is.  You can’t drive down transport cost per bit enough for it to be a compelling benefit in overall service pricing, nor enough to make low-level services like broadband Internet profitable enough.  Furthermore, achieving significant capex savings for the operator means achieving less total sales for the vendor.  That’s the old “cost-management-vanishes-to-a-point” story.  But you can do stuff at the service layer that was never possible before, drive up the top line, and sell more gear overall rather than less.  Or so I think.  We’ll be asking for clarification on these points, and in our March Netwatcher we’ll report on what we find.

The big news today is Apple’s new iPad announcement, an event whose usual Apple drama was upstaged by a surprise visit by Steve Jobs.  The essence of the announcement was familiar; iPads are making us smarter, healthier, richer, better looking, and so forth, and that’s from the first version.  Now look what’s going to happen!

What is going to happen?  Well, 2011 is the “Year of the Copycats” according to Jobs, but Apple isn’t resting on its laurels.  The iPad 2 is based on a new dual-core chip that’s twice as fast, with new nine-times-faster graphics, front-and-rear-facing video cameras, built-in gyro, 33% thinner (thinner than an iPhone 4)—you get the picture.  The new model will source HDMI at up to 1080p, which makes it a logical companion to HDTVs and probably presages more Apple work there.  Network-wise, it’s not breaking any ground yet—still 3G and WiFi and no LTE or WiMAX.  Pricing is the same; starting at about five hundred bucks.  Overall, it’s a major upgrade in performance and a modest improvement in features—the improvement being the dual cameras.

The new iPad 2 will certainly make things harder for the Android guys, particularly those who like Motorola have just announced their own tablets.  The current Android lot are just about equal at best to the iPad, though most are significantly heavier/thicker, and the new iPad 2 trumps that form factor.  There’s a lot of clever engineering in the gadget, even to magnetic catches on the cover that are sensed by the device and used to trigger a power-up when the cover is removed.  But you really don’t expect to see a cover demonstration on video at a launch event.  Apple is rising to the challenge of competition, but it’s also showing that even its own dramatically innovative culture can’t create a revolution every year.  The biggest bison can still be dragged down by a large pack of even little wolves.

But in the meantime, we do have a clear trend to follow.  Appliances are going to get lighter and more convenient but also more powerful, with better and better video.  That’s going to make enterprises look even harder at using tablets for worker empowerment, and it’s going to make tablets a more and more attractive way to consume video, making multi-screen strategies all the more important.  And most of all, we’re seeing yet again that the market is in the hands of the consumer device vendors.  Nobody else is making any real progress being exciting.  Without excitement there’s no engagement with the media.  Without media engagement there’s no ability to market.

In the mobile space, Verizon has decided to eliminate its unlimited-usage iPhone plan in favor of usage pricing, and if anyone thinks that usage pricing isn’t going to be universal for mobile broadband now and wireline broadband soon, they’re delusional.  Already the media is lamenting the death of the “bandwidth fairy” and beating their breast about the impact this will have on consumers and on the Internet.  Hey, I want a free iPad, and a nice Audi A8 for twenty bucks, and I could really use a Nikon D3 with a 70-200 VR lens (just ship it; no need to send a note to see if somebody already sent one because I can use as many as you provide!)  The market’s not made up of wants but of exchanges of goods or services for dollars.  There has to be a willingness to exchange.

AT&T, who has been into usage pricing for mobile broadband for some time, is also becoming a major carrier proponent of cloud services, and announcements are expected from other providers through the spring.  Cloud computing is a perfect space for network operators because they’re experts at providing services with a low ROI, and that means better pricing and faster market uptake.  In fact, it’s a testament to the problems of revenue per bit on broadband access and Internet services that cloud computing is considered a profit opportunity.  Cloudsourcing applications have to be significantly (22-35%) cheaper to be credible.  What makes network operators so interested is that their own cloud infrastructure (for OSS/BSS and feature/content hosting) will create formidable economies of scale if they’re done right.  That makes the operator a cost leader in a cost-driven market.

You have to wonder everything technical is going to become either a consumer plaything or a service of a giant telco, simply because we’re losing the ability to communicate with the market.  Jobs, even on medical leave, has more star power than anyone else in tech, maybe more than everyone else combined.

 

The Internet has proved disruptive to a lot of traditional business models, and possibly none more than the retail model.  Recent numbers from Forrester say that online retail sales will hit nearly $280 billion by 2015, and I think they could easily top $350 billion.  While this is small potatoes in absolute terms, the online model has also changed the pricing and margins of retailers.  Anything that’s expensive-ish and that has a model number is going to be priced online even if the consumer comes into the store to see it first.  That changes the whole way that buying behavior has to be manipulated, or it sets retail storefronts as involuntary live catalogs for people who use Amazon to visit.

The role of the Internet in buying stuff combines with social media to generate about 80% of all online time spent by consumers, with video making up nearly all that’s left.  People do little or nothing, comparatively speaking, to further their education, manage their finances, improve their health, or any of the other things that broadband proponents say are the reasons why everyone needs better/faster/some broadband.  With the exception of video (which, remember, is only about 20% of online time) none of these applications are bandwidth-intensive.  Mobile video is a bandwidth hog in mobile terms, but a mobile video stream is small potatoes in the spectrum of wireline broadband, where nearly everyone who has broadband at all can get at least 6 Mbps.

The question of how much broadband you need has implications beyond public policy.  Vendors would love to visualize the future as one where video-greedy consumers demand more and more capacity while network operators draw on somehow-previously-concealed sources of funding to pay for the stuff.  The fact is that’s not going to happen, of course.  Recently the cable industry offered us some proof of that.  If you cull through the earnings calls and financial reports of cable providers, you find that they like the telcos are focused on content monetization and not carrying video traffic.  The difference is significant; monetization means figuring out how to make money on content, where traffic-carrying is simply providing fatter pipes.  For cable, the difference is whether they utilize DOCSIS 3.0 to provide some new video services or to expand broadband capacity, and they’re voting to do the former.

The fact that all kinds of network operators are looking for monetization beyond bit moving may explain why the big IT vendors like IBM are working to be seen more as a cloud partner to these players than as a cloud service competitor.  Microsoft alone of the big vendors seems focused on going their own way with their Azure cloud offering, and that’s likely because Microsoft is focused on competition from Google.  I’ve been hearing rumors that Oracle has decided against a hosted cloud offering and decided instead to focus on service provider cloud opportunities.

The complexity of the cloud market is shown in the latest IDC numbers, which give IBM the leading spot again.  What’s interesting is that IBM outgrew the x86 commodity server space, and in large part because of its strength in mainframe and mini-frame non-x86 products.  In fact, growth in that area doubled the server industry average.  What this shows is that enterprises were telling me the truth when they said that there were really two models of IT evolution; virtualization-centric (based on x86 and Linux) and service-centric and largely based on other OS platforms that used SOA for work distribution.  IBM’s strength could be its ability to harmonize these two worlds, though so far that’s not how they’re positioning themselves.  But then the media’s not understanding the existence of the two groupings, so what can we expect?

In economic news, Fed chairman Bernanke said that he expected there would be a small but not worrisome rise in inflation, and it does seem as though the basic strategies for economic recovery are working.  Wall Street is also showing it’s less concerned about a major problem with the oil supply, though obviously oil prices are up on the risk so far.  It’s important to note that oil, like nearly every valuable commodity, is traded.  That means that speculative buying of oil contracts drives up prices even though none of those speculators actually intends to take delivery on oil, and thus there’s no actual impact on supply or demand.  They’re betting on future real price increases at the well-head or on more demand, and we pay for the profits on their bets.  It’s an example of how financial markets influence the real world, and sadly there’s more of that kind of influence today than there is of cases where the real world influences financial markets.

Image counts, in every way and at every level of purchase decision-making, and Huawei is one who knows that better than most.  From the first, it’s been tarred with its association with China at multiple levels; first as a poster child for the “cheap Asian economics” story but also often behind the scenes as a sinister agent of communism.  The company’s failure to complete the intellectual property acquisition of 3Leaf was apparently the last straw, and Huawei issued an unprecedented open letter to US officials and in parallel to the US market.  “We’re not your enemy” was the sense of the letter, and while there’s no question the message is self-serving and at the economic level inaccurate, it’s true at the political level in my view.

With China, there seems to be a combination of cultural and economic xenophobia that taints our perception of the country.  Huawei knows that, and they’re asking us to re-examine our motives. Personally, I think everyone needs to go through that exercise, but whether you do yourself is your issue.  Here, I want to focus on the industry import of the move.

Huawei needs to succeed in the US market for sure.  US (and other major national) vendors would like them to fail, because as a price leader Huawei is destructive to their margins in the near term and their market share in the longer term.  The open letter is a signal that Huawei is going to address the points of resistance to its success, and that it intends to make a more aggressive move in the US.  That has major implications/consequences in the market because the US is a proving ground for so many networking innovations.

The first is that Huawei feels that it can compete here, even in a market that’s more driven by trends and coolness and where innovation counts most.  Why?  Either because Huawei thinks it’s innovative enough to play with the big guys, or because it thinks we’re slipping into commoditization—if you demand polar extremes.  I think the truth is that Huawei thinks between the lines here.  Networking as a dynamic industry has lost its way for sure; we’re not driving the bus now in services and infrastructure as much as we are driving it in self-indulgence at the consumer level.  But we’re still the proving ground.  Huawei, I think, understands our fundamental shift of focus toward validating the demand side without any consideration of the supply.  They see an opportunity to offer a combination of a little more “transport innovation” and a lot better pricing.  They intend to exploit it.

That makes Huawei’s open letter a kind of counterpoint to the recent lightRadio announcement by Alcatel-Lucent and the QFabric announcement by Juniper.  Huawei could have offered something in both these areas; they’re engaged in the markets.  Other vendors took special steps to create special values.  They’re betting those vendors will fail.  Historically, they’re probably right because network equipment vendors have failed so tragically at articulating their value propositions that they’d almost just as well not to have bothered to innovate.  Our blatant consumerism hasn’t helped; neither the lightRadio nor the QFabric announcements received any truly insightful coverage.  Yes, the vendors needed to do better to position, but you can’t reduce all of human history to a 350-word hastily composed “get-me-online-first” blog entry.  You can reduce a market to one, or through it.  The critical media intermediary between seller and buyer is pretty much gone.  Huawei thinks feature validation will fail with the failure to understand the features, and they’re right.

The data center transformation is an IT transformation and not a networking one.  Cisco does gain credibility as a driver of the transformation because it fields server products, and we saw that in our strategic credibility survey results.  But if we’re going to focus on the data center network, then we have to focus on Cisco’s ability to transform “credibility” into signed orders.  Part of that is an ability to pull through networking with its UCS successes, and there I am not seeing the kind of traction Cisco needs to have.  The good news for Cisco is that HP is booting it, and that our survey agrees with UBS’ in saying that Oracle is still an also-ran here.  The bad news for Cisco is that QFabric could really transform not only Juniper’s position but also the issues driving the market, and that Oracle is certainly not going to finish 2011 in the same strategic data center doldrums it’s started the year in.

If Huawei’s right, then even a success in the data center is going to be less than a full success for Cisco because it will come at the expense of margins.  If they’re wrong, it’s looking like somebody other than market leader Cisco will have to prove it.

It’s not uncommon to find a combination of good and bad news in the tech space, and we’ve got that today.  For example, on the bad side, HP’s numbers.  On the good, Juniper’s new QFabric.

HP announced disappointing results, a contrast not only to Street expectations but to competitor Dell’s recent numbers.  The problem, says the company, is softness in the consumer PC sector and the fact that HP doesn’t sell much to businesses relative to their total PC sales.  The real issue, I think, is the company’s management agony and a nearly total loss of focus on business.

I was particularly unmoved by the CEO’s promise to get something going with cloud computing.  Where has he been, anyway?  This is no time to start laying out your cloud strategy; competitors have been doing that for over a year.  HP’s decision to buy Palm is another point of future challenges; they’re not sustaining their momentum in their core markets, so how do they expect to take on Android and Apple in the tablet and smartphone space?  This is a company that’s been on a roll for years, and it’s now at serious risk to lose credibility and market share.  They have perhaps two quarters now to turn things around, after which they’re probably going to risk permanent damage.

The cloud also figures in the Juniper announcement.  The company has been talking about their “Stratus” project for several years, and they’ve finally started delivering on the new data center fabric officially called QFabric, with the nodal element, the QFX3500.  The details and the roadmap are impressive, and it’s very possible that Juniper has something here that will change the game, change some minds, and produce significant competitor angst.  We’ll cover this in detail in our March Netwatcher, but let me summarize here.

The QFabric architecture consists of three elements, the primary of which are the nodes.  These are essentially line cards in a basic case, designed to be linked to each other as an entry strategy or for full QFabric configurations linked back to the interconnect box.  The links are made with multi-homed fiber and the result is a semi-mesh of the nodes that has a large cross-sectional bandwidth.  The nodes learn the configuration and connectivity and use this to propagate a forwarding table both at Level 2 and 3, and this table then creates the full forwarding path decision so that no matter what route is taken from source to destination within the mesh, there are no further forwarding decisions needed.  The configuration has a current maximum capacity of 40 Tbps and it’s fully non-blocking, lossless, has microsecond-level delay, and negligible jitter.

The QFabric can be partitioned into virtual networks, and can host services that are created by attaching engines that perform the service processing.  Security is an obvious example of a service.  Services are created by routing data paths through the appropriate engine(s) on the way to the destination.  A director device creates a black-box virtual device abstraction for the management plane and to the outside world so the structure is opaque and opex and configuration complexity are reduced.

While it’s not possible to sustain microsecond-scale latency over WAN distances, you can connect QFabric paths with a decent-performing IP/MPLS connection and thus extend the fabric beyond a single data center.  This means that a cloud computing offering (either to support a service, a private cloud, or an operator IT application/feature hosting platform) could in theory be created and maintained as a single QFabric.  The whole process is operationally linked vertically to the Junos Space cloud feature and management platform, and you can also use Space to create applications and service features that become services of a QFabric cloud.

What’s interesting about this beyond the obvious in-data-center benefits of cost and footprint is the notion that QFabric might become the architecture for private, public, and hybrid clouds.  So far, nobody has really articulated how you’d build a service provider cloud, for example, and with the WAN extensions QFabric could be just that.  The capability could generate some really valuable cloud, content, and mobile engagement for Juniper and thus could pre-empt plans by competitors like Cisco to get a lead in defining how a provider cloud would look.  Since QFabric is also likely to be a compelling migration option for companies with two years or less of undepreciated data center switch assets,  and at least a consideration for companies with three or even four years remaining, it could boost Juniper’s market share and credibility in the critical data center networking space.  Which, obviously, neither Cisco nor HP would like.  Both these arch-rivals have their own quarterly performance issues to work through, and Cisco named a COO (Gary Moore) to help them streamline their operations processes.  There may be a window for Juniper to put the hurt on both companies while they’re distracted.