Credit Suisse has some interesting data on the data center switching market, and I think it’s particularly interesting when you look at in light of the overall weakness in IT spending that Gartner previously reported. It also raises some points about SDN evolution and what can be expected there.
First, the data center is the hub of enterprise capital spending on network equipment. In the enterprise space, everything else has been a slave in at least a common-cause sense to data center evolution. Credit Suisse points out that data center evolution is now driving network connectivity needs higher; they’re expecting a steady migration up the Ethernet speed ladder. The picture is fairly congruent with the one Gartner paints in that it pegs major changes in data center network spending to upgrades to faster Ethernet, making a 2015-2018 uptick in spending likely.
At the same time, Credit Suisse is looking at two specific vendors and how this would impact them. One is (obviously) Cisco, who is the market leader and has the most exposure to both negative and positive trends in opportunity, and the other is Arista, who Credit Suisse argues is a technology leader in the space because of its EOS operating system. It’s pretty obvious (given that Cisco is rated “underperform” and Arista “outperform”) who is expected to win. It’s not that simple.
Pretty much everyone in the financial analyst space acknowledges that switching is a commoditizing market. Network feature differentiation is tough enough in the carrier market where there are at least potential operations differentiators and even a few technical features to work with. In the data center switch market it’s really about how cheaply you can push bits with gear that has a high MTBF. It’s also about the value of the drivers of change, relative to the cost and risk.
If you’re an enterprise whose data center traffic is exploding because of big data or IoT or the cloud and virtualization or whatever you think might be driving traffic growth, you’re evolution and its costs tie back directly to the drivers and the benefits they generate. Big data is really about making better business use of analytics, and so the extent to which analytic betterment is created determines the pace of investment. In my most recent survey, none of the popular drivers of IT growth are offered even a 50% chance of creating significant benefits in the next two years. If an enterprise has a big data project or an IoT project in mind, they’re struggling to get it to pay back its own investment. Making it drag along a major upgrade in data center networking is definitely not desirable.
What this means is that enterprises will work to contain the impact of their data center changes to reduce costs during the period when benefits are first of all most tenuous and second are being used to justify primary IT changes. That Gartner says IT spending in the data center is lagging suggests that even servers and platform software are under pressure to hold the line on costs. An incremental approach to upgrading will always favor the incumbent. Cisco, for the next three years or so, isn’t likely to lose significant market share to “feature competitors”; their risk would be competition from those competing on price. Arista would have a hard time creating value around the improved agility of their EOS platform if their gear, added where something has become obsolete, is still surrounded by un-depreciated Cisco switch assets.
That’s also the challenge that SDN faces. If 20% of data center switching is displaced in 2015 (a fairly good number, likely) then the goal of planners will be to get as much bang for their buck as they can, and to be sure that changes they make don’t force premature obsolescence of the other 80%. To replace all the switches will require a much bigger benefit. If feature value is hard to create within a data center network, that bigger benefit has to equate to a truly monumental price reduction. The cheapest switch is the one you already own, as long as it’s not broken.
I like Credit Suisse but I think they’re wrong in their view of how the data center market could be wrestled away from Cisco. You have to change the enterprise network model in a systemic way, create a benefit that’s impressive and that both requires and justifies a major upgrade in equipment. Evolution won’t do because the only credible benefit that justifies switching vendors for a couple switches is that the new option is cheaper. Arista and SDN have to think revolution, and to do that you have to step out into the total network and address the total problem.
In past blogs I’ve talked about the possibilities created by an explicit connectivity model of enterprise WANs, a model that presumes nobody is authorized to communicate and that then permits only that which is authorized. Application-specific VPNs, linked with application subnets in the data center, could revolutionize connectivity security, DDoS protection, and more. There are probably other revolutions out there, but this one will do as an example. It has a lot of benefits because it has a lot of impact. It could give SDN or Arista a win over Cisco.
Particularly when you consider that an incumbent is always vulnerable to “benefit spread”. If a data center switch and a cheap branch switch could change the whole dynamic of security, the combination could displace a lot of current security gear. Gear that incumbent Cisco sells, which makes it less likely that Cisco would go in this new direction at all. But if you shadowbox with Cisco on a switch-by-switch basis, you’ll always face the question “Why change for one switch?”
Every one of our technology refresh cycles or capacity upgrade cycles does offer an opportunity, though. Having 20% of the switches on the line for replacement is more ecosystemic than having one. If SDN or Arista or any other Cisco competitor is clever enough, they might be able to combine the momentum of the refresh cycle with some ecosystemic benefits and provide a reason to expand that 20% target. And the more switches on the line for replacement, the smaller the incumbent’s natural home-field advantage. Nobody is “home” in a new field.