Month: August 2011

Dell has used a couple of software conferences as bully pulpits for some of its own cloud announcements.  The company is making a major cloud move, one that they obviously hope will elevate them to the status of a “real” computer company (they rank number three in our surveys as what users think is a “real” player in the space, after IBM and HP, but it’s a distant third).  In their effort they’ll partner with both VMware (one conference pulpit) and Salesforce (the other) to offer Dell-branded cloud technology, but they also intend to host open-source cloud offerings (a la Hadoop, perhaps) and even Microsoft Azure.

Dell’s greatest strength has been in the SMB space, and that is also perhaps the best target for cloud services in the near term.  Enterprises secure good economies of capital and support scale in their normal data center build-outs, and it’s hard for public cloud services to compete.  For the SMB, neither capital nor support economies are easily established, but the latter in particular is problematic because SMBs often can’t attract skilled IT technicians.  Remember that Dell also has a professional services arm now, and that means its own support skills likely have a lower marginal cost.  All to make their price potentially more attractive.

VMware, meanwhile, is advancing its own cloud position with a Data Director designed to create an enterprise DBaaS model that would also in my view facilitate cloud models where the application or its components ran in the cloud and the data stayed in the enterprise’s own repositories.  This would help considerably in building a larger cloud TAM because it dodges the thorny problem of cloud data pricing and security.

In another initiative, VMware has joined with Arista, Broadcom, Cisco, and Emulex to create what they call the “Virtual Extensible LAN) or VXLAN.  This is a strategy to add a 24-bit header to a VLAN packet and then encapsulate the whole thing in IP.  It would allow the creation of more VLANs with more members and do so using scalable IP rather than Ethernet.  VMware will be adding VXLAN support to its Hypervisor and the result would be a more scalable data center and cloud LAN architecture.  The four obviously hope this will become a new model for addressing distributed cloud resources.

The initiative is more important for its goal than its methodology.  We’re seeing network technology adapting to the cloud.  That shouldn’t be surprising, nor should it be happening only now.  The network creates the cloud; it’s the binding force that makes not only the resource pool possible but also makes its access possible.  The network is the business case, the network is the business.  But the network has been silent on the topic of the cloud.  Maybe this is a sign that the silence is finally over.

Cisco has also (finally) taken a step to get traction in the service layer, not with Videoscape or another broad-based initiative but in the mobile space.  They’ve established a partnership with NEC to sell LTE systems that will include the Cisco/Starent ASR 5000 and the NEC base stations.  NEC isn’t a household word in RAN, but that suits Cisco fine; they want to be the kingpin of the deals in the outside-Asia markets anyway.  Mobile credentials have been the strongest reason for Alcatel-Lucent’s gain in market share in the router/switching space.  Now Cisco hopes to counter the move.  The deal puts the most near-term pressure on Juniper, who must now leverage its NSN position better and/or establish the very broad-based service layer strategy that Cisco seems determined to avoid.

That’s a bad choice in my view.  NEC doesn’t have the juju in LTE to pull Cisco to the front of the line on mobile deals.  What it needs to do is to combine LTE presence with some savvy mobile content monetization.  In short, link it to Videoscape.  If Cisco can really do that (which it could through the Cisco Conductor XMPP bus and some glue) it would have a truly durable and maybe even compelling mobile position.

Juniper announced an enhancement to its Virtual Gateway (vGW) to provide security for virtualization, and cloud, environments.  Juniper has always had a strong security portfolio but it’s only been recently that it’s promoted the tools directly into the cloud data center space.  There are security features in the new QFabric architecture that will be fully available late this year, and the new vGW and Junos Pulse strategies both play well with those enhancements and create what is arguably a complete cloud security solution, the most complete on the market.  But the elements are coming together slowly, and UBS lowered estimates and its target price for Juniper based in part on macro-economic concerns.

Brocade is also experimenting with a new business model, the “router-as-a-subscription”.  The customer gets a router for nothing but pays on a per-port-per-month basis for how it’s configured and used.  The model is already being seen by the Street in a bipolar way; some are saying it’s a nervy innovation and others that it’s a sure sign of an industry in its death throes.  When you cave that much to cost pressures, the nay-sayers believe, you admit that your pricing power is gone forever.

There’s a decent notion behind this say supporters, even though it’s still cost/defensive in nature.  The idea is that by making the router a subscription service you transfer it from the capital budget to the monthly expense budget, which may be attractive from a cash flow perspective (you can write off 100% of expenses but on the average only a quarter or more of capital cost per year).  It’s an argument that’s being made in cloud computing, after all.  I agree that it’s a clever play, but it’s still an illustration that the enterprise router market is so abysmally price-pressured that you have to play accounting gimmicks to make a sale.

Another interesting development is an announcement by the two big independent DNS players (Google and OpenDNS) that they’ll support geographic (or at least address-hierarchical) extensions to the DNS lookup process to help insure that the users get linked to content caches that are closest to their particular location.  This is a pretty significant step for a number of reasons, not the least of which is that these big DNS players are potentially removing a differentiator used by CDN providers.  The downside of the idea is that it’s not granular enough to optimize delivery within a metro area, in my view.  It’s a way to make “normal” CDN access work better, but not the leading-edge distributed-cache metro-optimizing versions of CDNs.  There, operators will have to come up with their own solutions (or rather find vendors who solve the problem for them).

Rounding out the story, Ericsson has introduced some enhancements to its router line, proving out what some of our survey carriers told us about a renewed initiative for Ericsson at the IP layer.  The company wants to play on the theme of “premium service” routing but here as with its competitors there’s a fairly limited notion of what a “premium service” really is.  For vendors, it’s about transport and connection; for operators it’s about content and mobile/behavioral and (increasingly) the cloud.  In our surveys, Ericsson still falls into the noise level for IP-layer competitiveness but there are signs that the company is getting better recognition there.

 

The ever-changing focus of the consumer electronics folks is now shifting from Google/MMI to the upcoming Amazon tablet, which could be introduced in as little as a month.  The details of the technology aren’t known, but they’re probably less important than the price point.  If Amazon brings out an iPad-sized unit for under $300 they could create a whole new dynamic for the tablet space.

I noted in an earlier blog that the big asset that Amazon has in the tablet world is a follow-on revenue source that could be used to partially subsidize the devices.  Not only would that let Amazon field tablets at a lower price, it would put pressure on Apple by forcing them to either lower their own price with cross-subsidies from iTunes and/or App Store or let themselves be trapped as a high-end lower-volume play.  Neither would be a fun choice for the new CEO to make.

The other thing that an Amazon launch could bring is more impetus for both Apple and Google to look hard at MVNO status.  Amazon already has a 3G version of Kindle, and while that sort of thing won’t be automatically transferred to a tablet (which would presumably have a lot more online utility) it does seem likely that Amazon would want to link its own tablet up with its own streaming service.  They could rely purely on WiFi, or they could push into 3G/4G, and that might even make Amazon an MVNO candidate.

For now, it’s pretty likely that the big winner in the tablet space will be hospitality WiFi and the supporting equipment.  Even if tablets are equipped with cellular services, heavy entertainment use will surely drive users’ bills up unless they can unload the traffic.  Sitting in a comfortable coffee shop while viewing is safer than trying to drive or walk during the process in any event.  It’s the tablet’s linkage to entertainment video that’s also sparking the renewed debate over just what network licenses to cable and satellite companies really include in terms of non-broadcast use.  TV Everywhere is a model for making the right to view more independent of the delivery mechanism, and on one hand that can raise ad revenues and help profitability in an age of constricting profits for broadband.  On the other hand it aggravates the networks who believe they should have additional revenue from these new sources.

Tablets are also a clear path to increased reliance on network-hosted functionality, which is at least somewhat a definition of “the cloud”.  In the enterprise world, the VMware conference has become a convenient launch point for a lot of stories and not much news.  I think the biggest thing to come out of it is the fact that VMware is explicitly committing to the notion of the hybrid cloud, a move that some pundits are criticizing as being too conservative.  The problem is that this isn’t about promoting technology, it’s about promoting technology benefits.  I’ve said from the very first that our surveys consistently show a maximum of about 24% of enterprise IT spending migrating to the cloud, and that maximum can be met only if the public cloud and the data center don’t end up as IT-resource-ships in the night.  You can’t disintermediate your critical information tidbits from each other or from the workers who need them to drive productivity gains.

We are seeing things that enhance cloud hybridization, ranging from VMware’s stuff to new offerings for hybridization management from IBM.  All of them help administer a hybrid environment but they won’t make the business case for users who are still having a problem getting their arms around the whole paradigm.  My research shows that over the last decade we’ve lost hundreds of billions of dollars in global IT spending simply because we’ve been unable to connect spending to benefits in the convincing way we did in the past.  The people who get that particular problem figured out will be the people who lead the next technology charge.

 

Over the last three weeks I’ve been developing an application note on multi-screen video based on the open-source Java framework I launched three years ago.  One of the steps along the way was to send the note to operators for comment, and the results that I’ve gotten from that process have been very interesting.  What I think they do is to lay out the way operators today are looking at content monetization and the service layer.

The hottest issue in the service layer, based on the number of comments on the topic, was the issue of FEDERATION AND SERVICE EXCHANGES.  “Federation” is the term that’s most often used to describe formal asset-sharing agreements that are functionally supersets of traditional peering or interconnect.  I say “functionally supersets” because the main focus of Federation is the sharing of service logic components or other things not directly linked to connection.  The most common example is the sharing of caching/CDN assets in mobile services.  Operators believe that as they build higher on the “experience stack” of network services they’ll need to cooperate across provider boundaries there just as they do today at the lower layers.

Service exchanges are a little more complicated.  Some operators, and some other players in the market, are interested in creating what might be called “feature repositories” where operators go to access stuff they need for their services, most often when an operator’s customer has roamed in some way into another operator’s service geography.  The concept of an exchange is more flexible than that of formal bilateral federation because it involves an operator making what might be considered an “open offer” for cooperation that can be taken up as needed.  This might be a formal service or it might be simply a convenient publishing- or meeting-point for available offers, a kind of “registry”.

Another interesting point was the fact that operators do see the CDN as the foundation of content monetization even though the majority of them don’t see selling CDN services in competition with current CDN giants as their primary monetization track.  Most operators have run through the functional maps of a content layer, and have concluded that CDNs fill in a lot of the boxes.  I think this is interesting because the commercial CDN space isn’t exactly flying high, and there’s been some consolidation among startup CDN players over the last couple of years.  Played correctly, I think the comments indicate that the CDN is a hot property for a vendor.

CDNs are also perhaps the most critical test bed for “asset exposure”, or the abstracting of features into something that can be composed dynamically into services.  When you look at how a flexible service can be built for content delivery, you realize that some of the elements are common to other services, and so how CDN assets are made more generally available may be one of the first exercises of flexible asset management for operators.

I was also very interested in noting that while the operators did universally want to understand how to link network transport/connection behavior to content delivery and did want to manage service assets via OSS/BSS, neither of these two issues was a major focus for comments.  I think operators realize that you first have to produce a conception of a content service that will sell and be profitable, and then tune it to leverage current assets.  Neither network handling nor OSS/BSS integration are features of OTT video, so they are by definition not mandatory elements in the service.  They may be DIFFERENTIABLE elements, but you can differentiate your solution only if you have one to differentiate!

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Verizon has taken what may be a very important and evocative step toward maturing its enterprise cloud strategy with the purchase of privately held CloudSwitch.  The significance of the move is hard to appreciate without an understanding of just what the heck CloudSwitch is, so I propose to start with that.

The classic vision of cloud computing is virtual something-hosting, where the “something” is anywhere from an entire application to the bare-bones machine image (SaaS down to IaaS, respectively).  This model is useful as a way of looking at the cloud in isolation, but for most enterprises the cloud in isolation isn’t very interesting.  Since they don’t expect to migrate more than a max of a quarter of their IT spending to a public cloud, the key question for them is how you hybridize.

Microsoft is the only one of the currently popular cloud leaders that has taken the hybridization to heart from the first.  The Azure cloud is a PaaS cloud that, with the help of the Azure Platform Appliance, which is a partner-delivered combination of Microsoft software and server and network hardware.  With APA, a user can build an “Azure cloud” that seamlessly extends between an enterprise data center and a public cloud provider (Microsoft, of course, but in theory other cloud providers who adopted the Azure architecture).

CloudSwitch can be visualized as a more generalized model of the same hybridization notion.  With this approach, the user deploys a series of CloudSwitch Instances in the cloud and a CloudSwitch Appliance (which is a software component, not a gadget) in the data center.  The Appliance links to all of the Instances in as many clouds as there are, and it essentially synchronizes each instance as a host for one or more virtual machines that are managed to be identical functionally with the applications’ resources in the enterprise.  What you end up with is a kind of “envelope” that everything runs in and that can be made to extend to any number of clouds that can host a virtual machine.  A secure Internet tunnel links the components of this architecture.

There’s a lot to be said for this approach, but it’s not a panacea for cloud issues.  What CloudSwitch does is make public cloud resources (Terremark’s resources, in this case) appear to be elastic extensions of local VM hosts.  The way this is done (once it’s set up) is largely transparent to users so the cloud can really appear as an elastic extension of the data center.  For “cloudbursting” applications where the cloud takes up the slack when applications overload the in-house computing resources, it’s an easy way to build the framework without becoming a specialist.  Compared to Azure, which is PaaS and thus imposes some application and middleware constraints, it’s more flexible.

One place the concept falls short is in the area of “equivalence”.  Yes, CloudSwitch can create a virtual data center that spans the real one and the cloud, but the stuff that goes into the cloud still has to conform to the price paradigms of the cloud and is still constrained by the tunnel connection in terms of performance.  For Verizon, these limitations probably won’t be critical because I think the company is likely to be targeting SMBs with the offering and because enterprises could be made to understand the limitations of the Cloud Isolation Technology and exploit the capabilities readily.

The most significant thing about the deal, I think, is that this is a NETWORK OPERATOR buying a software company.  If you think about this, that’s a major twist because in the past operators would have expected their vendors to offer them a package, or would have “introduced” a startup to a big vendor in an arranged acquisition.  Here’s a Tier One buying their own service-layer technology.  If you need proof that the network equipment vendors have fallen asleep at the switch, this should be it.

 

Steve Jobs has finally decided that his health won’t permit him to head Apple, and has passed control to Tom Cook, the Apple COO who has been the administrative head since Jobs took a leave early this year.  I met Steve twice in my career, once very early in Apple’s rise and again after he’d brought the company back from the brink.  There was no mistaking his innovative flair, then or now.  While I’m sure that Apple management can run the company, I’m far less certain that they can run the market.  Steve could, and did.

The move comes at a very critical time for Apple.  While the company has been the almost-single-handed driver of the mobile revolution, the product cycles in that space are getting shorter and it’s harder to say what the next generation of devices might be.  A smartphone is a logical extension of a standard phone, and one that exploits the broadband mobile connectivity that was already in place.  A tablet is in many ways an extension of a smartphone.  What extends the tablet?  What is the Next Big Thing?  The answer is the cloud, the mobile/behavioral ecosystem that will create the electronic virtual world we’ll all live in, in parallel with the real world.  For Apple, it’s the iCloud, a course Steve Jobs has already charted.

Google knows that, of course, and they see a similar vision.  One could argue that they see it even more clearly than Apple, in fact, because Apple’s culture has always been just a tad elitist and thus egocentric.  Android and the MMI deal are Google’s appliance play, and ChromeOS is for now carrying the flag of the cloud, in the form of hosting the thinnest of all possible clients.  ChromeOS, in my view, is just a placeholder for an eventual shift toward a more Android-centric future, but one that focuses on exploiting Android as a cloud conduit just as Apple wants iOS to be.

The thing is, the secret sauce of the future is the mobile/behavioral stuff, and that is something that neither Apple nor Google have any particular incumbency in.  Nobody does, in fact.  My work with operators suggests that they understand that there’s a lot to be done, and a lot of money to be made, in the mobile/behavioral symbiosis, but the problem they have is that this particular area of service innovation is even more vague than content monetization, and they can’t get anyone on the vendor side to talk effectively about content.  What hope do they have for mobile?  If you’re a vendor and if you want to own the market of the future, this is the problem you need to solve for your customers.

Interestingly, Alcatel-Lucent has just issued a press release calling for more thoughtful use of mobile assets in customer care, and when you read into the details you see some of the elements of a mobile/behavioral solution at a more general level.  The Alcatel-Lucent mantra is “contact me, connect me, know me” and that is pretty much what I believe to be the key to mobile/behavioral opportunity.  You have to be able to reach the customer proactively with social/behavioral changes to their virtual world, to connect them to the other partners (human or cloud-machine) in that world, and you have to know a lot about their interests, desires, and prohibitions to make inferences about what’s best for them at that moment in time.  I’d like to see Alcatel-Lucent take this story more into the general consumer market.  I’d also like to see some competitors push the story even further.

 

 

Sprint’s shares were up yesterday (well, so were a lot of shares) on reports that it would be offering the iPhone 5, and there were also rumors that analysis of app logs for that phone showed it was compatible with both GSM and CDMA networks.  I wonder now if that’s a further indication that Apple has been planning to make itself into an MVNO.

The wider you spread yourself as a phone player, the more customers you have access to but the less leverage you have with the big wireless operators.  Most handset players, like Apple, have limited their early launch to a single provider in each service area to get the most support, marketing, and subsidies.  With the iPhone long past the early-launch phase, it’s not surprising it would be widening its base, but we need to think like Jobs here.

Apple loves to eat all the Apples and not just the low ones; they like to control the ecosystem they create and to fully monetize it.  So how does that square with their letting customers pay a hundred bucks a month to get their iPhone or iPad connected to the cellular network, payment they don’t get?  That alone would make Apple consider becoming an MVNO.

I think that the Google/Motorola deal is either a further driver for Apple or an indicator that Apple’s intentions are being guessed by Google.  Google, you’ll recall, has actually threatened to bid for spectrum, and while there was never any chance that it would go through with that (at least not any time soon), there is a very good chance that Google realizes it could gain much of the benefits of owning its own cellular wireless business without the cost of licenses and infrastructure.

I wonder how many iPhone owners don’t even know who their cellular provider is, or would know only because they recognized the name from a bill or from the logo on a store where they bought the phone?  Brand loyalty in cellular isn’t with the operator as much as with the appliance, particularly if we’re talking about an Apple appliance.  Can Google afford to take any less aggressive a position in its own marketing?  Even without previous cellular aspirations to point to, would Google now have to think about MVNO status?  I think so.

The MVNO road isn’t always an easy one, of course, and it increases costs (primarily marketing) as well as revenues.  Apple and Google wouldn’t get all the money, either; they’d get what is essentially the retail spread (perhaps 25%) of the costs.  But they’d be in control, and I think that counts a lot for both companies.

 

 

 

Huawei is definitely getting to be a problem for the other network equipment vendors.  The company had a good quarter with sales up over 10%, and it’s also gaining market share in both carrier routing and switching; by our measure the fastest growth rate of any vendor.  The company is also embarking on a campaign to build its strategic influence in emerging markets, presenting what by most accounts is the best overall strategic pitch that anyone is offering to the Tier Two and Three players.  There have even been speculations that Huawei might be the one that would pick up HP’s TouchPad and webOS business.

What Huawei now has is what the Street calls “Mo”, which means “momentum”.  The competitors are all fighting to hold their own in a tough market and are in the main losing that battle while Huawei is on a roll.  They have true, convincing, price leadership and many competitors are playing into their hands with cost-based value propositions instead of feature and opportunity differentiation.  They have (according to one of our sources) DOUBLED their investment in strategic higher-layer R&D over the last year.  They are looking to double and then redouble their software efforts according to the same source.  In short, they feel they have the competition on the rocks and they’re closing in.

But right now they can’t put their opponents away.  There is still a period when the incumbency of competitors counts for something, and in that period competitors could still create some significant barriers to Huawei success by being more aggressive in the higher network layers.  The economic angst globally is limiting capex and limiting willingness to make radical changes, but our model suggests that attitude won’t last beyond 2012.  I think that Cisco may be seeing this and may be trying to get its service-layer assets in order.  They’re the player who, as the biggest incumbent, has the biggest chance, but Alcatel-Lucent and Juniper are also in play here, as I’ve noted in the past.

The timing for all of these guys is critical.  Operators tell me that their proof-of-concept trials in content monetization almost all scheduled to be underway by the end of 1H12, and about a third of operators say that they need a good cloud strategy in that same timeframe.  Mobile/behavioral networking is involved in both these activities for about two-thirds of all mobile operators, and nearly all of them say they’ll have to deploy trials in web-mobile services and social services for mobile users by the end of 2012.  That means that at the same time as the capex veil is lifted, the operators will have had to commit to a short-term approach that could end up being their long-term strategy by default.  Huawei wants that position and their efforts to get it are becoming visible, particularly in the content space.  Anyone who wants to contend with them for the role will have to be ready to do something by early 2012 at the latest.

It looks as though there may be some hope for Clearwire; Sprint is said to be seeking cable partners to help fund a buyout of the firm.  There’s some logic to this move, I think, because with mobile becoming the hottest spot in all of networking, the cable MSOs are generally without a mobile property.  They need to come up with a strategy that will let them into the mobile game without each of them building out private mobile infrastructure.

The question is whether ganging up on a single solution for mobile is an answer.  The cable companies are competitors in the major metro areas, and thus it’s hard to see them playing nice in the mobile space.  The biggest problem would be the integration of TV-Everywhere content with mobile delivery when potentially several competitors in a given market have different rights under different terms.  The rumor is that Sprint would establish itself and Clearwire as a host for MSO MVNO relationships and that they would all deploy their own rights management layer on top.  But what about the CDN space?  CDNs for mobile service would be expected to require deep caching that’s tightly coupled to the backhaul network to optimize utilization and QoE.  Does that mean one shared CDN or would every MSO have to deploy their own?  It’s hard to see how the latter would work, but also hard to see how they’d keep fairness in the first option, or even decide what “fair” meant.  Weighted access based on cable customers, mobile customers, or what?

The media has been having a lot of “fun” with the HP decision to exit the PC space.  HP has been generally castigated for buying Autonomy, often castigated for pulling out of PCs.  The HP move has been called an opportunity for Dell and Apple or a warning.  PCs are dead or they’re still healthy, and the $99 fire sale on TouchPads is a seed for a needy market or will suppress everyone’s sales forever.  You get the picture.

HP had little choice in exiting the PC business.  The problem is that there is really no convincing “brand” of PC anymore, so there’s little opportunity to gain brand loyalty.  The market at the consumer level is really determined by retail availability; whoever’s on the shelf at a good price wins.  That’s not a market where anyone will make a good margin, and it’s been shifting convincingly to Asian manufacturing anyway.  The thing that’s more surprising is that HP not only stayed the course in the PC space, it made a biggish (over one billion dollars) acquisition of Palm to get WebOS and a tablet position.  Then it tossed that out with the PC.  It’s pretty clear that HP has been struggling with the right position in the “client” space.

There isn’t one, at least not in the long run, and not even for Apple.  There can’t be a long-term, margin-rich, consumer market.  It either commoditizes or is superseded (or both).  Apple jumps from trend to trend to be successful, something it can do because it’s cultivated a leading-edge-hip-consumer image.  HP is hardly that, nor could it hope to be.  It might have been reasonable for them to hope for a position in tablets when Google wasn’t buying Motorola Mobility, but once that deal was done so was the HP tablet opportunity.  They gambled and lost.

 

Well, revolutions are interesting at least, and we certainly have one now.  HP has said it will be “considering” exiting the PC business, spinning off its PC unit and doing some M&A to boost itself as a player in the software and systems space.  In fact, if you look at what seems the Plan of the Day, it seems as if HP wants to be Oracle; software-intensive, enterprise-focused.  In their spring quarter, HP was hurt by the soft consumer PC market where Dell (who had less consumer exposure) did better.  Now with Dell taking an outlook hit and HP following suit (again) there was little the company could do except to admit that PCs were not now, nor ever in the future, what they used to be.

Tablets and smartphones aren’t in HP’s future either; they’ve said they’re dumping the whole WebOS effort and all of the devices that came with it.  The move is in some ways more dramatic than the decision to spin out PCs because it’s a retreat from the client business completely, a sharp turn toward the center of the action that would seem to be irreversible.  Are they abandoning the client world to Asia or to Apple?  Both.

To round out the move, HP will (buy a British software specialist, Autonomy, who has very strong credentials in database searching and business, as well as some expertise in content management.  The price for the software company seems high to Wall Street; it’s probably one reason why HP’s shares have been off in pre-market.  It’s the price and not the concept; HP has been buying software companies for some time as a part of a transformation that started with the hiring of former SAP CEO Apotheker.  Most IT players at this point realize that software is the key to establishing a direct connection to the users’ business case, and HP is proving its commitment to that approach.  But remember that HP is still a broad-based data center player, a giant in enterprise computing.

So is the PC now chopped liver?  There is no denying the declining interest in the PC as the primary consumer appliance.  That’s something that even Microsoft realizes, apparently.  Their Windows 8 is obviously a transition product, something that would let them run the same basic OS across any suitable appliance.  The announcement that Windows 8 will have its own app store seems to me to confirm a trend that’s been developing in the consumer market for several years.  Driven largely by Apple, we’re seeing a transformation of “computing” into “appliancing”, a shift from designing personal computers as small computers to designing them as information portals.  It’s not (at least not yet) as much about replacing the PC as about doing something the PC was never really needed for to begin with.  The consumer wants entertainment, period.  When PC games and PC browsers were their only conduit to that goal, that’s what they bought.  With game consoles, tablets, and smartphones increasingly becoming the user’s window on the world, the PC is old news for consumers.  Can the enterprise be far behind?

The HP move will certainly put pressure on a lot of players.  To start off with, that means that Dell might find it necessary to do its own cut-and-run move.  Their decision to get into networking with Force10 and their creation of a cloud-and-virtualization focus on the data center seems like it might be laying the groundwork.  I think that the loss of the PC would help Dell’s overall financials and also help the company focus on the data center, where it’s been showing most of its strength.  In any event, it may have little choice at this point.

IBM, of course, shed its PC business by selling it to Lenovo.  As a pure play on enterprise computing, it’s had its ups and downs, but there is no question that IBM is still the big tech success story.  They proved that making big moves to cut your losses is as important as making moves to cement gains.  With IBM now seeing giant HP aiming at IBM’s turf without being encumbered by PC baggage, what does IBM do?  Networking?  HP has networking products; rival Dell just picked up a line.  Does IBM follow suit, and if it does who does it pick up?

Before we go there, let’s look at an important point about enterprise networking.  The only part of it that’s strategic is data center networking, and data center networking is about (you guessed it) the DATA CENTER, which is where servers and software and IBM and HP and Oracle and Dell all live.  If “computer companies” are going to say that “computer” doesn’t include PCs then they’re focused totally on the data center, and unlikely to ignore the fact that the data center network is a big part of that picture.  Networking first collapses into data center networking and unimportant branch junk, and then data center networking collapses into the server/storage technology plans of the buyer.  That’s surely how the IT guys see it.

There are two players (IBM and Oracle) who might see themselves becoming a full-service data center company and who lack the network piece.  There are probably four network vendors who might be targets of acquisition—Brocade, Extreme, F5, and Juniper.  Only two players max from this group could be acquired.  If enterprise networking commoditizes and gets subducted as the current moves suggest it will, then the rest of these, and other non-target players like Cisco, have got to make it on their own.  In the new market, is that possible?  Who might be forced to find out?

Cisco might be feeling good; they seem to have accidentally occupied the space that everyone else wants to converge on.  With servers, networking, and a reduced consumer exposure they’re in a way a bit ahead of HP in terms of a transformation out of the business space.  But Cisco isn’t an IT player no matter what they want to believe—at least not yet.  Their understanding of IT is short of what’s needed to compete with the big boys, and they’ve got nothing in software despite continued efforts.  In fact, Cisco may find itself under a bit more pressure as HP steps up the “we-do-all-the-data-center” story at the sales level.

 

 

NetApp, like so many this quarter, turned in OK numbers and somewhat weak guidance, which was enough for the Street to send the stock down by 15% in after-hours trading.  Coming after Dell and a downgrade of HP pre-earnings, the NetApp news was seen as a reinforcement of the challenges tech stocks face.  In yesterday’s trading, the tech-rich NASDAQ was off when the Dow and S&P were both very slightly up.

In fact, it looks like the Street has decided tech is in trouble, interesting less for the conclusion than for the fact that the signs have been around since the spring and the Street was happy to put on its look-only-at-the-quarter blinders.  I noted in June that our survey was showing a pushback of project spending combined with some front loading on budgetary items.  That netted a roughly on-track trajectory for the first half.  When, in the second half, project spending continued to be pushed back and budget spending had to slow, we took a hit.

The good news is that while “lost” budget funding is rarely made available in the following year, we’re not dealing with that in 2011.  What’s happening is that project spending is being slow-rolled, and because projects have a specific benefit case attached, they are likely to be funded in 2012 if conditions improve.  That would create a hike in spending next year, again presuming macro-economic problems that are hurting consumer and business confidence are solved.