We’re coming into that wonderful quarterly ballet that the financial industry calls “earnings season”, a bit of a misnomer given that we actually have four of them any year. Nomenclature notwithstanding, this is a good time to look at the health and ecosystemic pressures of tech overall. We’ll be getting at least a snapshot of every public company’s position, but we need to fit them into a coherent industry view to make any sense of the trends. One way to do that is to play on some data points.
In China, as previously in Europe, we’re seeing pressure from network operators on regulators to provide some relief from unbridled traffic growth. A mobile chat application is the culprit in China, and regulators there appear willing to consider some sort of compensation. That’s already under discussion in Europe, and of course it’s been the focus of the neutrality debates here in the US. Since the US position on OTT-pays has been set by the former VC FCC chairman who is now stepping down, we may see a shift in US policy and an acceleration of the global trend.
Leaving the politics aside, the problem that the current approach of bill-and-keep has created is a disastrous drop in revenue per bit, a slide averaging 50% per year. This has put enormous pressure on operators to reduce cost per bit, not so much to cut capex but to “cap” capex to a constant percent of top-line revenue. Two decades ago, operators were spending about 20% less on infrastructure as a percentage of their sales and they want to get back to something closer to historical levels. In China, where there’s still a lot of untapped opportunity and in the US where there’s still market share up for grabs, the mobile market is still sustaining higher investment levels and likely will for some time. In Europe, with economic pressure compounded by high levels of competition and little chance for major market-share gains, even mobile is unlikely to show much growth.
Operator interest in things like SDN and NFV stem from this basic issue. “Flattening the network”, meaning eliminating multiple loosely coupled protocol layers, promises to reduce both the capex (part of which is investing in layers that serve not the customer but other layers) and opex (“OSI ships in the night” as one operator termed the situation). Hosting higher-level (out-of-data-plane) functionality in servers is another way to cut costs, and the same architecture that offloads firewall services could be the point of implementation for new service features that aren’t in the network of today at all.
In the enterprise, the situation is similar but with the obvious twist that the network isn’t a profit center for the enterprise, it’s a cost center. ROI for an enterprise means productivity benefit divided by the augmentation cost. Trends like BYOD aren’t drivers to spending, because they aren’t convincingly linked to incremental worker productivity. What is? Point-of-activity empowerment, which is that fusion of network and IT that I’ve blogged about before. The question is where it’s going to come from. Absent some specific approach, an architecture, that can guide investment in IT and network changes, enterprises will sit on their hands…as they clearly are.
If there is a technical lowest-common-denominator here it’s the cloud. As workers are less and less likely to go to their IT support point for answers and more likely to expect those answers at their point of need, we need to rethink not only how we build applications to support those workers, we need to rethink how we resource them and connect them. The cloud is a completely new application ecosystem, one that delivers services that people will pay for and one that delivers information and productivity support that raises the IT benefit case for enterprises. So SDN or NFV aimed at the current situation will never be successful, because they will never address the real problem. The evolution from where we are isn’t justified by the next step on the path, but by the goal. Yes we have to survive the transition to get to the future, but without a promise of a truly transformational future, you’re in Groundhog Day.
So here’s the point. Vendors are going to be talking about quarterly sales mechanics in their calls, “feet on the street” or “cutting TCO” or “next-gen optics” or whatever. All of this stuff is just managing the current decline of tech. A static benefit case in a competitive market creates consolidation and marginalization and nothing more than that, ever. If you want to transform the industry you have to transform the justification for spending on what you sell. When you hear vendors talk about their quarter, their plans, their prospects for the future, make sure it’s the future that they’re prospecting for. Otherwise they’re not digging for gold, they’re digging graves.