Cisco’s decision to buy Acacia has drawn praise and some pans from Street analysts worried about what the deal will do to Acacia’s sale to Cisco’s competitors. There are reasons for the deal, I think, that don’t seem to be coming out in the media, and in some ways, it seems to buck a trend toward software and virtualization. Obviously, something is going on in networking and obviously everyone isn’t seeing their proper course of action in the same way. What is happening and what should be done?
The big problem that network vendors face is the cost pressure on network buyers. The network operators have complained about lower profit per bit, and new services like 5G will only exacerbate the problem since they promise a lot more bandwidth for little or no increase in price. In the enterprise space, we’ve been in a fifteen-year period of decline in the number of new projects that drive new benefits and justify new network capacity. As a result, the enterprises are trying to create better business connectivity at little or no increase in cost. All this “little-or-no” stuff rolls downhill to impact sales.
Any time an ecosystem is under pressure, there’s more competition and predators (vendors in this case) will try to shut others out of the food chain. If you look at long-haul IP networking, it’s obvious that having an optical layer dedicated to transport, connecting to an electrical layer for connectivity and service delivery, is a complex structure. If you had optical interfaces for switches and routers that could support long-haul connectivity, you could drive glass directly and cut out the middleman.
That’s probably what Cisco has in mind with Acacia. They’ve been a supplier of optical stuff for Cisco, and owning them offers Cisco both improved margins on the boxes sold for long-haul missions and the opportunity to influence the development directions and priorities of the company. How this will impact the Cisco competitors that already deal with Acacia is another matter, but I don’t think the short-term impact will offset the benefits to Cisco.
What might be wrong with the deal is that it’s inherently consolidative. A growing ecosystem is better for vendors than constant fights over the diminishing fruits of a shrinking one. Having more beneficial bit-pushing missions would be great for Cisco, and of course great for everyone else. I’ve long believed that Cisco has shied away from market-education-based advances in the use of networking on the theory that raising all boats is philanthropy and not business strategy.
Not to mention the basic truth that market education is hard, and getting harder. In a recent post on the Carrier Ethernet LinkedIn Group, Vishal Sharma, the group’s leader, asked why we were getting all these stories about the faster video download speeds of 5G, when it was far from clear that any significant population of users wanted to do more than view videos rather than download them. My answer was that all online technical publications these days are ad-sponsored, and so a story like “The 5G You’ll Never Know You Have but Might Pay More For” are probably not going to play a big role in revenue planning. Vendors want to push stuff by making everyone believe they need it, but they don’t want to take the time to show then the value either. No vendor support, no publication support, no education.
That doesn’t mean that some vendors aren’t looking at options other than consolidation. Virtual networking, virtualization, and cloud computing all have a connectivity dimension. This new model of connectivity, a model that doesn’t bind services to the basic features of network devices we’ve had far longer than the current hot missions for connectivity were even talked about, is surely a part of the future. Not only that, it’s getting socialized enough that a lot of the heavy lifting of buyer education is either being done or being swept aside by enthusiasm.
Juniper, a long-time Cisco rival, had its own announcement extending the Juke HTBASE toolkit it acquired to multi-cloud Kubernetes container orchestration. Containers are increasingly seen as the foundation for cloud-native development, and Kubernetes and its growing ecosystem are the go-to orchestration framework at the center of any container deployment.
Cisco, Juniper, and other network vendors have also gotten into virtual networking directly. Most now have SD-WAN strategies, but it’s the SD-WAN space that demonstrates the peril of virtual networking for network vendors. It’s actually easier for a cloud vendor, such as VMware, to make a splash in virtual networking and SD-WAN, for two reasons. The obvious is that it doesn’t undercut their own “real” network sales. Nokia always struggled with Nuage positioning to avoid overhanging its router business. The not-so-obvious is that buyers look more to cloud software players than network players for solutions.
The real driver of virtual networking overall is the cloud. Even SD-WAN, a subset of virtual networking aimed at creating a universal IP VPN technology that includes cloud-hosted applications, is seen less as a network technology than as a cloud technology by many buyers. Those who see otherwise tend to be looking for nothing more than basic small-site extension of MPLS VPNs, so there’s little differentiation to be had.
Virtual networking is actually the hottest thing in networking overall, if one judges “hotness” by the potential for revolutionizing both how networks are built and what benefit they bring to those who build them. The problem is that virtual networking is linked to network-as-a-service, and the combination of the two requires even more education than either topic would alone. In the era of click bait, it’s hard to get anyone willing to take the time to help buyers understand enough to build the business case.
My modeling has consistently shown that new cloud-native applications could address an additional $900 billion per year in revenues. Reaping that requires the cloud, of course, and the cloud requires a virtual hosting model, a virtual networking model, and a software architecture and middleware kit to support facile and confident development. Where the cloud community has been leaping ahead, relative to networking for example, is that it’s been able to foster a series of vibrant open-source projects to provide all the necessary stuff.
Juniper, here at least, has perhaps the best approach of the network vendors. “Ride the coat-tails of the cloud” may sound a bit pedestrian in a strategic sense, but it could get the job done. The risk for Juniper is that their positioning, which has given a whole new meaning to that “pedestrian” characterization, will fall short of an actual ride. You don’t win by missing the jump or being dusted off opportunity’s coat-tails after all. Juniper’s link of Juke to multi-cloud sells the technology short.
At least Juniper knows it needs to find coat-tails to ride, which is more than some can say. Nokia is still the champion of virtual-network under-realization. Nuage has been my candidate for best SDN strategy of the age, and Nokia still isn’t really taking advantage of it. In the enterprise space, VMware’s NSX has five times the name recognition in my limited survey. Even among operators, Nokia’s position is at best a tie with VMware’s.
How about Cisco, whose Acacia deal is what started this piece off? Well, Cisco has never wanted to be a thought leader, only a thought manipulator. I don’t mean that as cynically as it may sound; Cisco’s goals are tactical because 1) it fits a sales-driven company to think that way, and 2) you don’t need to be strategic if your competitors are bumbling about in the strategy sense. Cisco’s risk is Nokia’s or Juniper’s success, either because they suddenly get some smarts or because they stumble onto the path to those cloud coat-tails. Cisco will need to watch how things unfold with the cloud to ensure they’re ready if the right strategic steps suddenly become clear enough to stimulate action.