Month: July 2011

Financial analysts and investors seem to have decided that networking as a sector is in trouble, but most seem to have missed the point on why that’s the case.  Yesterday, the markets sent Alcatel-Lucent down about the same 20% that Juniper fell on the day before, suggesting that they believed both companies faced identical headwinds.  In point of fact, Alcatel-Lucent’s revenue line was good but the company had higher costs, reflecting among other things expanded R&D (Juniper’s stock continued to fall yesterday, over 3%).  Today, the pundits are mostly focusing on how both companies need to “cut costs”.

If a company faces temporary outside forces that limit buyer interest, then it makes sense to cut costs while those forces are acting, and to then expand when they disappear.  The problem is that networking isn’t facing “temporary outside forces”.  Let me quote from Credit Suisse, one of the research firms that’s gotten it right:  “We expect the ongoing disconnect between revenue growth and bandwidth economics to drive an ongoing shift in carrier capex to specific projects focused on revenue generation or cost savings—such as wireless backhaul, cloud/data center build-outs, and extension of VoIP infrastructure—that will benefit certain product markets and vendors while posing challenges to others.”

We’re seeing a fundamental problem with bandwidth economics.  Bits are less profitable every year, and people want more of them.  There’s no way that’s a temporary problem; something has to give, and it’s capex.  In wireline, where margins have been thinning for a longer period and where pricing issues are most profound, operators have already lowered capex year over year.  In mobile, where profits can still be had, they’re investing.  But smartphones and tablets are converting mobile services into wireline, from a bandwidth-economics perspective.  There is no question that over time mobile will go the same way.  In fact, it’s already doing that.

To halt the slide in revenue per bit, operators would have to impose usage pricing tiers that would radically reduce incentive to consume content.  If push comes to shove, that’s what they’ll do.  To compensate for the slide, they can take steps to manage costs but most of all they can create new sources of revenue.  That’s what all this service-layer stuff is about, of course.

The three big network vendors who have done badly in their quarters, from Street perspectives, are Alcatel-Lucent, Cisco, and Juniper.  Others in the network layer like Ciena and Tellabs, have also taken a hit.  Produce bits and you don’t support profit, you only help operators provision to a new level of ROI marginalization.  In contrast, we have players who are winning, like Acme Packet who have held on to some pretty decent share prices by focusing on things that fit the more-profit-justifies-more-spending mold.  Session border control and deep packet inspection are hardly unique to them, but the big vendors are big because they have big bit-pushing gear commitments.

Alcatel-Lucent deserved a better fate from Wall Street because it was able to grow its IP business by 30% or more, which demonstrates that it was able to leverage higher-layer differentiation into the IP layer.  That’s what everyone in the IP and lower-layer networking equipment world needs to do, but in order to do it you have to get that higher-layer differentiation, and nobody seems to be taking that seriously.  So Wall Street may be right here, or it may be pre-judging.  They’re doing the latter if the vendors will get their heads out of the bitpipe and see reality.  They’re doing the former if vendors stay the course.  Ironically, the Wall Street cry to cut costs favors the wrong path, because you can’t innovate in the service layer without any R&D to innovate with.

 

 

Alcatel-Lucent announced its numbers this morning, and while their results met expectations on the revenue side they fell short of Street estimates on the profit line.  That sent their shares skidding pre-market, making them another telecom equipment casualty.  The financial analysts are calling this a second-half market weakness, but of course it’s more than that.  Some of the big research firms correctly pointed out a couple weeks ago that capex was in decline and that the only redemption would be improved monetization.  A few even pointed out that monetization was the focus of those projects most likely to get funding.

What makes Alcatel-Lucent interesting is that they are one of the strategic-influence winners.  Their revenue line suggests that their mobile services strength was indeed enough to get them good engagement.  The thinner profits suggest that they need a better and broader monetization link to sustain margins in competition with the increasingly credible and aggressive Huawei.

The concept of Application Enablement that’s been a foundation for Alcatel-Lucent positioning for several years is a good one; make the network a partner to applications and you provide a means for operators to monetize new services by creating new network-enabled applications.  The company’s work on the API and developer end of the story has also been strong; they have in fact the strongest and most credible developer program aimed at creating developer-enhanced high-level services.  Their issue has been that they lack an articulated framework for providing the authoring of those enabled applications.  This is the same problem that everyone else in the space has been grappling with, the one we said that Juniper had to solve in our blog on them yesterday.

What is interesting is that we KNOW that at least one of Alcatel-Lucent’s competitors has such an architecture, but the question is whether it’s been “articulated”.  NSN did a preso at the Dublin TMF World meeting, and in it they showed the outline of a service-layer approach that’s completely consistent with the picture we draw and completely compatible with the content and mobile monetization frameworks we’ve published over the last two month in Netwatcher.  They even fit the cloud monetization model that’s scheduled for publication this month.  What’s missing there is first an open and public release (analyst material isn’t public unless we’re told it is, and in any case buyers may or may not have seen the material), and second the details on how the architecture can be used to build services.

It almost seems like we’re in a race to tell people about something we’ve already done rather than in a race to do it here, and I’m confused over the “why” of that one.  I know from both surveys and from project reviews of operator content monetization activity that Alcatel-Lucent’s details aren’t making it to the buyer level, and in most cases the buyers don’t know NSN even has details to share.  I guess the guy who sings first is going to win this one.

Alcatel-Lucent’s 28% growth in IP revenue should be of concern to its competitors because it seems to me a pretty convincing indicator that you can sell more routers if you can show buyers how routers make money and not just carry traffic.  Routers out-grew their mobile stuff, in fact.  If this growth trend continues, then Alcatel-Lucent poses a major threat to any of Cisco’s back-to-basics intentions.  It would also put Juniper on notice that loss of influence in services could translate to loss of market share to Alcatel-Lucent, who in my view is already Juniper’s biggest threat.

 

 

Well, Juniper reported its numbers yesterday after the markets closed, and they booted their quarter and their guidance in a performance reminiscent of Cisco’s last quarterly call.  Nothing matched Street expectations, and the stock was down by 17% in the after-market.  Part of the issue may have been that the stock was actually up during the day, showing that the consensus view of the Street was positive.  The Street, writing yesterday, said “The company should continue to gain ground due to solid demand for its networking products- driven by growing network traffic.”

Earth to The Street; demand for routers is created by profitable carrier operation, and virtually all the major research firms have been saying that capex is now captive to monetization.  Juniper’s performance should not have come as a surprise; it didn’t to us.   Monetization means revenue, and revenue is driven by the higher layers of the network; services and wireless.  If you look at my most recen tsurvey data, which we’ve digested in detail in our Netwatcher journal in June, you see that Juniper’s challenge was simple; continued service-layer disconnect that created monetization disconnect.

CEO Kevin Johnson essentially acknowledged my point on the earnings call, noting that carriers were spending capex on the RAN.  Well, gosh, you can’t sell wireless services without radios, which is why RAN-level engagement is a higher-level engagement than pushing bit pipes.  Wireless is a key priority for operators in making more money, so Juniper is at risk by not having wireless components.  They could mitigate this problem only by focusing on the service layer.

The potential in Junos Space has never been realized.  Instead the company worked on developing operations tools built on Space, to play to a theme that seems to have arrived at Juniper with Kevin Johnson; Total Cost of Ownership.  The TCO push is one I hated from day one because it seems to admit that there’s nothing important about the network; it’s just a place where you minimize costs and hope for the best.  For a company that has prided itself—and rightfully—on engineering excellence, that seems not much short of surrendering your differentiation.

Ironically, Juniper just announced a new exec, Robert Muglia, formerly from Microsoft where he had broad experience with servers, developers, and the cloud.  Muglia will run the new Software Solutions Division.  Software, of course, is what the service layer has to be.  It’s what Space already is.  It’s what Juniper has needed to exploit since 2009 at least, to get a position astride at least one of the three key carrier monetization priorities (content, mobile/behavioral, and the cloud).  So this is good, right?  Maybe.  The problem is that in one interview, Muglia is quoted as saying that he’s excited about the job, which will involve the software that runs on routers to improve management.  Oh, no, this sounds like the old, tired, Juniper theme of Total Cost of Ownership!

Monetization isn’t about cost reduction, guys.  It’s about driving revenue up.  Even if the whole TCO thing was provable (which it’s not) the operators are first of all looking at the top line and second convinced that the best way to cut TCO is to buy from Huawei.  Their strategic influence, by the way, was UP by 14 points in the service layer (more than double), and up by five points in the IP layer (33%).  They were up in both in the last survey, while Juniper was down in both.

So now it’s Earth to Muglia time:  If your strategy for Juniper is to use software to manage routers better, then you’ve made a tragic decision picking Juniper over the other choices you talked about in your interviews.  And for Juniper, if you let that choice be made, then you have probably made a fatal decision.  So it’s time, RIGHT NOW, to prove otherwise.

 

 

Netflix has become the face of OTT video in terms of the opportunities and problems it presents, but the company now obviously has some challenges of its own to face.  The latest quarterly numbers for Netflix were actually very good; they beat analyst estimates handily.  The problem is the price hike they initiated recently, a plan that raises costs for some customers by 60%.  The stock was hammered in after-market trading and it’s off this morning in pre-market too.

I commented when the change was made that Netflix faces a problem common to all OTT video streaming plays, which is that they have to rely on getting content from others.  Everyone realizes that video and movies are a multi-tier distribution system, and that any time a new option is added it necessarily impacts the revenue stream of the others, particularly adjacent ones.  So streaming impacts DVD sales, sales of movies to TV syndication, and possibly even the “long tail” of the material, the latter by increasing near-term exposure.  Since all these channels compete, the price for content to stream is under pressure.  Netflix could at first pluck some low apples, but inevitably it will need to move closer to the high-value end of the chain where acquisition costs are the highest.

Another player who demonstrated a fall from grace was RIM, of course, whose PlayBook has been a market failure of the first order.  Some surveys show that “tablet” buyers rate Barnes & Noble’s Color Nook as highly, and that speaks volumes about a tablet from a player whose Blackberry smartphones were the darling of the leading-edge mobile world just a few years ago.  HP, now promoting its WebOS tablet line, is facing its own challenge; can any non-iOS, non-Android, tablet even gain traction today?

These two announcements are related in an important sense; the consumer market in tech is a tiger caught by the tail, and barely.  Everyone who finds consumer success does so in part at least because they were favored by public tides, and everyone in the market continues to be at the mercy of those larger-scale movements.  It’s the classic butterfly-flapping-in-Japan analogy, and there are some very big butterflies entering the market.

Amazon’s tablet is the one that has the greatest potential for disruption, both in the tablet space and in the video space.  Everyone has heard the rumors; the device will be big and pretty and Android—a true tablet.  The latest rumor is that it will also be less expensive, subsidized in part by ebook revenues.  Ironically, Apple may have created this monster itself by refusing to allow ebook reader apps to support purchases from the retailer’s own store directly; Apple wants their cut.  Nobody can pay 30% to Apple on the sale of an ebook; the margins are too thin already.  So Amazon will be a tablet player this fall, and B&N will certainly upgrade its Color Nook, at least in terms of Android functionality if not in terms of a new or higher-end model.  That generates a big new dynamic in the tablet space, particularly if the gadget is cheap.  Surveys suggest Amazon would be the most credible tablet player, in fact.

That then has a video impact.  Remember, Amazon has its own movie service, one that includes a massive number of free titles to Amazon Prime (free shipping for a modest annual charge) customers and a good selection of other movies.  While the service hasn’t caught on like Netflix, would a beautiful tablet help the penetration?  I think so.  And of course Amazon has a lot of ways to leverage its tablets beyond video.  Does Netflix then follow Amazon in becoming a tablet player?  You see the problem.  The model of Netflix is vulnerable to the pressure of giants like Amazon who can step beyond streaming into what you’re streaming TO, and then step again out of video into books, software, and a full retail product inventory.  That combination could even challenge Apple.

 

Financial analysts have noted that US carrier capex was soft in the first half, a trend that’s somewhat consistent globally, and also that there appears to be a shift of focus toward projects that are perceived as being direct revenue generators.  This information backs up our survey results, which have shown that monetization projects are seizing management attention at most operators and that it’s increasingly difficult to fund “upgrades” to networks where no improvement in ROI can be demonstrated.

The challenges of ROI aren’t going to be easy to meet, and nothing demonstrates that more clearly than the fact that very little has been done over the last year to meet them.  Operators have had monetization projects underway for almost four years at this point, and they’ve articulated their needs fairly clearly.  There has been little in the way of meaningful vendor progress, and we asked our survey operators why they believed that was the case.  Here are their top responses.

Number one on the list was that vendors are pursuing their own profit goals without regard for the operator business case. The second issue was that vendors lacked the understanding of the monetization problem and thus had no real idea of how to approach it.  The third view was that the problem lies outside the realm of the network; it’s IT’s problem to solve and networks are less relevant.  The final view is that the operators themselves are not prepared to plan and drive the projects, which means that they can’t really make the vendors do what’s needed because they don’t know what that is.

This last point is critical because it points out where we are today.  Operators need to improve ROI, period.  Until they can, capex is going to soften.  What’s at issue isn’t this basic truth, but rather the “how”, or maybe more accurately the “who”.  Are operators going to drive the projects, or force vendors to step up?  What seems to be the deciding factor is the timelines.  Most operators say that they have about a year max left on the mandate for their monetization projects, after which they either have to be into a trial or they need to get renewed executive direction and approval.  Most would admit privately that they don’t think they can drive at that pace without outside support, so unless vendors step up the mandates will expire.  I think that if those mandates DO expire, the OTTs will have won the service race decisively before the projects could mature, and networking will be forever commoditized.

 

 

And we thought Wednesday’s business-level announcements created tumult in the market!  Thursday was even more complicated, exciting, and potentially disruptive, and in addition may present even more widespread impact.

The story that Apple may buy Hulu is certainly the most disruptive of all.  Apple has been the major disruptor of the broadband market, by being the major driver of change in mobile broadband.  The company has also been the master of the “fenced garden”, the product ecosystem that’s closed enough to give Apple considerable control over leveraging all aspects of its revolutionary products without being blatantly anti-competitive.  So Hulu is clearly an intersection of these things, and to understand the problem it might pose we need only look at AT&T and Verizon, both of whom have reported.

AT&T and Verizon both demonstrated that their profits, revenue growth, and future depend not on wireline telephony, not on wireline broadband, but on wireless and television services.  The two companies gained in the last quarter totally on the strength of these two areas.  Apple could threaten both the areas, and at the same time, with a Hulu deal.  Where would Apple be likely to promote Hulu given Apple’s fenced-garden approach?  With iPhones and iPads, of course, but also with the hope of reigniting its Apple TV initiatives.  Mobile video not only generates more traffic for operators, it also represents a key element in any operator content monetization strategy.  If Apple, who is the largest single provider of appliances capable of delivering mobile video, launches its own approach it makes it much harder for the telcos to monetize video.  If Apple creates a strong multi-screen strategy around Hulu, i-stuff, and Apple TV, then there’s no real ground left for the telcos to attack.

But while Apple might logically push Hulu hardest within its chosen profit ecosystem, it can do other stuff too.  Hulu would almost certainly be added in some way to iTunes, even if the site also remained available independently.  That could promote iTunes more broadly for non-Apple users.  Apple could supplement the premium Hulu offerings with what it already has in the iTunes portfolio, too, and it would have more leverage to become a major provider of streaming video, and thus a major broad-level proponent of cord-cutting even for wireline users.  If Hulu does in fact become a foundation for a multi-screen approach, screen-switching could be added to Apple’s iCloud features, binding video and iTunes to the cloud.  Of course, Hulu apps would bind both to the iPhone and iPad.  Get the picture?  We have a growing media-based service complex.  We have what the operators hope to get with their own service-layer approach, but we have it quickly—which operators have been unable to realize.

Telco responses to cable competition were built around a simple principle; take the fight to the enemy’s homeland.  U-verse had one of its best gains ever in the last quarter, for example, and FiOS is a poster-child for telco TV.  Without these TV properties to value the access network, it’s hard to see how either company could sustain investment in consumer broadband—so it gets carried on a platform it could never hope to justify alone.  What then in the mobile space?  What’s the service that will make mobile profitable?  After all, telcos can’t expect at this point to become handset and tablet manufacturers to compete with Apple, so they can’t threaten Apple’s core base.  The truth is that services are all they have, their last hope.  The news yesterday only makes it crystal clear; without a service layer no access carrier can hope to show long-term revenue and profit gain.  There are no low apples left, only one high-flying one!

 

 

Tech earnings continue to give us some interesting data points, and possible contradictions, in the overall tech space and in the networking space.  We also had some M&A, so let’s get to it.

Intel beat Street estimates in both revenue and profit, largely on the strength of business purchases of PCs and servers.  It’s Atom chips, largely targeting the netbook space, lost ground because netbooks are being eclipsed by tablets, a form factor where Intel has essentially no presence at the moment.  Server chip growth was the brightest spot, which shows that IT investment and data centers are getting some corporate attention.

Intel’s challenge is obviously the tablet and smartphone space, where the company has been investing to create a position.  The difficulty Intel faces is that it’s behind the curve here, having not predicted the smartphone craze and not predicted that smartphones were a leading-edge indicator of a broader network-appliance model of consumer electronics.  Yes, Intel can get positioned for the mainstream of the appliance market, but it will miss the opportunity to get in on early higher margins and also the opportunity to make itself a default brand, as it has with the PCs.

Related to Intel’s success was a decent quarter from F5, the company that is most identified with “data center networking” in our surveys, more even than Cisco.  F5 shows the value of specialization, but it may also be showing its downside because the pace of growth for the company appears to be slowing.  One reason may be that the data center network implications of virtualization, server consolidation, and the cloud appear to come in a kind of “wave-then-eddy” form.  First, the enterprise re-architects to create a flattish structure that can do load balancing and fail-over.  Then, as server count grows, it populates more of the devices with ports to accommodate the new devices.  The biggest revenue kick comes in that initial phase, and for the markets F5 has focused on (financial, government, etc.) the initial phase is now passing.  The company’s more limited product scope and sales presence makes opening new verticals more of a challenge.  They may be indicators of the issue Juniper will face with its QFabric product set, as that rolls out late this year; the old verticals may not be the best ones by that time.

Dell’s decision to buy Force10 to create its own networking product line to augment/replace OEM deals with Aruba, Brocade, and Juniper raises even more interesting data center issues.  It’s pretty clear that HP and Cisco are driving this particular decision; both companies offer networking and servers and thus a stronger and broader portfolio solution for the data center.  Buyers, more than ever, want to move into a major data center restructuring with a single player providing the critical tools.  For Dell, a purchase of Juniper would be unlikely; too much of the latter’s value is in the carrier space where Dell has less presence and focus.  Brocade’s storage products may be seen as contaminating that particular potential acquisition, and Aruba was likely not seen as a broad enough strategy.  Thus, Force10.

Obviously this raises questions about what IBM will do.  IBM, like Dell prior to this deal, is competing with HP and Cisco with an OEMed networking portfolio.  Will IBM now do a buy?  If so, will they pick Brocade as a cleaner (and cheaper) data center play or opt for Juniper because the latter has a strong carrier position that would mesh well with IBM’s cloud strategy?  We don’t think IBM is under the same M&A pressure that Dell is because IBM has such strong account control and acknowledged integration skills.  It might want better margins on its networking, but it also likely doesn’t want to upset the momentum of the moment with an M&A that would alienate at least one OEM partner and potentially strand some existing and developing accounts.  I’m on the fence here, for now.

 

 

 

Apple reported truly astounding numbers for the quarter, with revenues up 82% and profits effectively doubling.  The numbers beat the Street handily and sent Apple stocks trading after hours at over $400 per share.  Apple’s upside was almost totally due to its iPhone/iPad products, with the Mac and iPod both underperforming estimates.  Given the economic pressure of the summer the numbers are a tribute to Apple’s positioning and marketing of its iOS products.

They’re also a demonstration of the growing power of the consumer and the appliance.  Apple’s total revenues are now approaching $30 billion.  That’s approaching Cisco’s numbers, folks.  It may explain why Chambers has been captivated by the consumer and appliance market, though the reorg this week makes it clear that he’s abandoned his hope there.  Apple’s success also creates dramatic evidence of a shift of power.  Even OTT giants like Google have to fear the Box, the device, and sustain a position in that space to protect their site incumbencies.  Advertising is shifting more dramatically to mobile as it becomes clear that mobile ads can better engage a consumer because there’s a better chance the consumer is in a position to execute on an ad-induced whim or decision.

I think that it’s also becoming clear that mobility is going to have a major impact on the cloud.  Because we have mobile broadband devices with us all the time, everywhere, we can build a dependence on what they can provide.  That induces everyone on the services side to experiment with providing more and more useful things through the appliance conduit.  Given that users of appliances aren’t really in a position to immerse themselves in an experience without being disconnected from their surroundings, that induces more “decision” and less “knowledge” in the focus of the stuff.  Apps became popular largely because mobile users didn’t find direct web searching convenient.

The next logical step in mobility is a play on a marketing tagline from the cloud space; “contextual intelligence”.  We all live on a timeline, with events around us creating behavioral and mood changes as we move through time and space.  When your appliance is a window on your “real” world, it has to be accommodating to those shifts, and that means making all sorts of correlations between who you are, who your friends are, where you are, and what you and your friends are all doing at the moment.  That’s the “context” of your moment, the situation that any ad or any request for information is linked to implicitly.  I’d argue that the major goal of mobile services in the future is to gather and exploit contextual intelligence, to take hints from all of the influences on the user to make the most accurate possible interpretation of a given request.

Apple is not only enabling this revolution, it’s arguably driving it.  Will iCloud embody contextual intelligence?  We’ll see.

 

A tale of two companies, and possibly an example of unfortunate timing as well.  Cisco yesterday announced it was laying off 6,500 workers, and IBM announced it was raising its guidance after having beat the revenue numbers expected by the Street.  Both companies ended the session yesterday off slightly, but the contrast here is interesting.

IBM, as I’ve often noted, has been a master of the twists and turns of the IT marketplace.  It’s been in, and out, of pretty much e very sector of the market in response to the changes in opportunity.  It’s managed to sustain its strategic engagement with its customers throughout all of this, and in our surveys since the early 1980s its strategic credibility has never varied by more than a couple of percentage points.

Cisco, interestingly, has gained as much on IBM’s decision to leave networking as it did on “the Internet”, maybe even more.  IBM’s networking equipment, supporting its new version of its venerable System Network Architecture (SNA) called Advanced Peer-to-Peer Networking, wasn’t price-competitive with IP and routing.  IBM knew it, and over time even sold its networking business to Cisco.  That’s what gave Cisco a big boost with the enterprise.  It’s the boost that Cisco needed to become what it was at its peak.

I’ve focused in the past on Cisco’s carrier moves, and in particular on the fact that the company failed to realize that traffic alone wasn’t going to drive carrier spending—they need revenue as much as Cisco does.  But in the enterprise space as well, Cisco didn’t read the tea leaves.  Enterprises came out of the SNA era of networking with a network infrastructure that needed more connectivity and more capacity, in part because SNA networking was expensive.  When they transitioned to Ethernet and IP, they boosted both these things based on the lower pricing, and as a result there was a boom in spending.  The addition of devices and applications through the peaking IT spending cycle of the ‘90s kept up the pace of growth.  It seemed that networking was on a roll.

It wasn’t, of course, it was on a cyclical upturn just like IT was in general.  We ended that upturn in 2001/2002, and for the first time in IT history the cycle didn’t turn up again.  The issue?  Lack of incremental productivity justification.  Service providers needed a business case to build out more capacity.  Enterprises did too.  The tea leaves were clearly readable by 2005, but Cisco missed the signs.  When they did realize the needed more justification for more spending, they hit on high-end telepresence.  Does that sound like the service-provider-space story that video is going to double (or more) network demand by such-and-such a time?

To be fair to Cisco, every one of its competitors has made the same mistake Cisco did.  The problem is that while those competitors can still hope to gain market share (particularly by taking share from Cisco), the market leader needed organic growth or greater market breadth—the “adjacencies” strategy.  Chambers was right to grab onto the latter because there was no quick way to drive the former.   But Cisco didn’t have the instant credibility in servers and other product areas, and they didn’t develop an effective strategy to develop those adjacent markets.  As a result, they’ve hit a soft patch in growth.  A big staff reduction will make the Street happy but it might well make the long-term problem worse.  The most mobile employees, the ones with the most experience and most marketable skills, may well have been among those who took the severance packages.

This should be a wake-up call for Cisco, of course, but even more so for its competitors.  Yes, they could be insulated from their own version of the revenue shortfall problem through gains in market share, but only if first Cisco doesn’t reinvent itself successfully and second no other competitor does a more effective job.  Remember that I’ve already noted that EVERY Cisco competitor (enterprise and service provider space) made the same mistakes.

 

 

Google+ continues to make news, with an admitted ten million subscribers in what’s still a closed trial and with buzz that’s enough to drown out competing reactions to the service.  There’s no question that Google+ is a true competitor to Facebook, and while Facebook is far from irrelevant we can at least see a path whereby it might become the next MySpace.  Twitter, of course, is in even greater jeopardy.

I think the big contribution of Google+ in social networking is the notion of “circles”, which is actually the way my open-source project ExperiaSphere does social communication.  A circle is essentially a community of personas, which are in turn virtual identities that people adopt for a given social context.  You behave differently as an employee versus family member versus casual friend, and what Google+ does is to let you define different sharing rules for each of these.  Presumably this discrimination of behavior by social role will extend into how you can manage communications through Google+ as well, though again that’s not yet clear.

Outside of the strict “social” world, the big question is whether social communications built around a social network can actually take hold and change the way that users connect to each other.  The chances of this happening through a vehicle like Google+ is enhanced because of the self-socializing nature of services like it.  People get onto social networks because their friends are there.   People communicate primarily among friends, so if you pull a friend pool into Google+ you create a community that likely involves much of your inter-calling.  In addition, Google can easily link Google+ with Google Chat, Voice, etc.  That means, for example, that they could allow you to out-call into the PSTN, in-call from the PSTN, and accommodate those who either aren’t on Google+ or who can’t currently respond to its own in-service communication.  That combination reduces the barrier to adoption that arises when users of a communication service find they frequently can’t use it to reach who they need to reach.

The implications of this are clear.  A major social communications shift, whether to Google+ or to Facebook/Skype, would reduce the value of voice services.  Many operators already offer data-only connectivity, and it’s very possible that users would drop their traditional voice or at least see it as having reduced value, encouraging a price war.  We would first see high-usage data plans coupled with low-minute voice plans, for example, instead of the current other-way-around practice.  That would impact carrier revenues quickly, and offloading text/SMS to social messaging would be even easier.