No matter how complex a technology, you can always reduce it to dollars and cents, which is what Wall Street tends to do. Note, though, that while “cents” and “sense” have the same sound, focus on the former doesn’t always involve the latter. You can’t discount Street insight, but you can’t depend on it entirely. Thus, I feel free to add my own modest view to the mix, and particularly when we’re talking about metro and edge, topics I think are critical. Before I start, since I’m talking here about stocks in part, I want to make the point that I do not hold any stock in any network vendor.
Metro and edge are a fusion of network and cloud technologies, and the Street recognizes that. Generally, they see cloud technology hybridizing and edge computing developing, and with the spread of the data center they see network implications. To understand what they see, we have to look at these two themes, whether they’re viewed accurately, and what it means if they are.
Practically all enterprise cloud computing is and has been hybrid cloud, and this is something that’s been missed both by most of the Street and much of the media. What’s changing is that the cloud front-end part of applications is dominating new development and determining how businesses project themselves to customers, partners, and even workers. The cloud piece, once a small tail on the legacy application dog, is now doing more work and less wagging. As that happens, it unleashes some important issues.
Competition is one. Any time a market is expanding, and cloud-front-end computing is surely doing that, there’s a race to grab the incremental bucks. We can see that in the growing number of web services that cloud providers offer, and the fact that those services have started to creep into new areas like IoT and artificial intelligence or machine learning (AI/ML). Both IoT and AI/ML address classes of applications that are more tightly coupled to the real world, meaning “real-time applications” that are inherently latency sensitive. You can see how this drives edge computing and also networking.
Another issue is management. Data center applications have to be managed, and so do their resources, but the task is relatively straightforward and well understood. When you start to build applications designed to be deployed on resource pools, to heal themselves and scale themselves, you add a dynamism that data centers rarely saw. Since more and more of these features are found in the cloud front-end piece of applications, the growth in that space has shifted management focus to the cloud, to the point where cloud services providing orchestration and management have exploded. If application agility lives in and is controlled by the cloud, then the cloud becomes the senior partner in the application.
Hybrid cloud and edge computing are, or can be, linked. Hybrid cloud says that applications live in a compute domain that can live in the data center and in a public cloud. Edge computing says that some applications need to live close to the activities they support. The “edge” might be in a user facility that’s close to workers or processes, or in a cloud that’s hosted in the user’s metro area. Either way, edge computing adds resources to what hybrid cloud hosts on.
The Street sees all of this, sadly, through the lens of “moving to the cloud” which isn’t what’s happening. They tend to break things down by what as-a-service the cloud providers sell, saying for example that almost two-thirds of cloud services are IaaS. True, but almost 100% of enterprises employ value-added web services to augment basic hosting, even today. Most applications running on IaaS have never run in the data center or anywhere but the cloud. That’s the core reason why it’s so hard for others to break into the Top Four among cloud providers; the initial investment in those tools is too much for them, and the use of cloud provider tools tends to lock users into a particular cloud.
In hybrid cloud, the Street recognizes the value of the model but misunderstands what it means. Fortunately that doesn’t erase their emphasis on hybrid cloud as a symbiotic technology in edge computing.
The Street’s view of edge computing is less valuable. Like hybrid cloud, their edge view is based on a misperception; that content hosting leads to edge computing. We have CDNs today, of course, but CDNs were from the first a means for content providers to distribute video without the cost and glitches associated with pushing it from central points to anywhere on the Internet. Latency is less an issue than consistency; you can cache video to make up for some latency jitter, but on the average you have to deliver material at the intrinsic bit rate of the material.
In fact, almost everything the Street sees as a driver to edge computing (security, data management, cost management for network delivery, serverless computing, gaming, and even IoT) are really not drivers of edge computing. Some aren’t even exploiters of edge services that had somehow been justified by something else. The fact is that the Street has no idea what will drive edge computing, which is bad because it means that companies have no edge position they can take that will be useful in promoting their stock in the near term, and capable of sustained profit generation in the longer term.
Edge computing will be driven by IoT, but only to the extent that we take “the edge” to mean “on the customer premises, proximate to the point of activity.” That’s where we have it today, at the enterprise level. The Street’s edge focus on CDN means it’s focusing on OTT use of the edge not on enterprise use, and yet most of its future drivers would apply to the enterprise. Thus, the Street is talking out of one side of its mouth about what’s really a cloud application (edge-as-a-cloud), and the other about “edge as a new placement of customer-owned hosting”.
IoT today uses local “edge” devices for process control. Even smart homes often have “hubs” that are really a form of edge computing. Edge hosting expands the places you can put things, just as cloud hosting does. That’s why the link the Street suggests between hybrid cloud and edge computing is more credible than their view of edge computing overall. Ownership of the edge resources is less important than placement, and placement benefits in latency control suggest that on-premises “edge” owned by the customer is the best approach.
The current local edge model does benefit the cloud provider, because the cloud provider has (in “hybrid cloud”) already addressed the need to define a distributed hosting model that allocates resources in different places based on different cost and performance constraints. Remember the orchestration and management impact of hybrid cloud discussed above? The major public cloud providers offer the ability to locally edge-host cloud-integrated application components, making a local edge an extension of the cloud.
Via the network, of course, and that’s a topic where I think the Street has fallen significantly short on insights. If you have a collection of resource pools, from data center to cloud and then to edge, a collection of resilient, scalable, components, and a collection of potential users (customers, partners, and employees), you have a prescription for a very agile network. You have, in fact, a demand for a virtual network. Add in some things the Street does recognize, which are the need for an agile data center networking strategy, a need for enhanced security, and a need for operational efficiency, and you have a recipe for a completely new network model.
Completely new models raise the potential for completely new winners, and in this situation the Street doesn’t even see any network device vendor candidates to speak of, other than security specialists. At the same time, the trade media (or at least some of it) is picking up on the fact that Juniper is making a move. With the acquisition of 128 Technology, Mist, and Apstra, Juniper has covered all the bases of the new virtual-agile network. And yet the Street seems to assign them the least upside potential in the whole space, lower than rival Cisco or even F5. There seem to be two reasons why Juniper’s not getting Street cred; the Street doesn’t understand that all SD-WANs aren’t created equal (or even nearly so), and the Street like the trade media is more focused on get-in-Cisco’s-face positioning than on product technology improvements. Who doesn’t like a good brawl?
The challenge for the network device players, even Juniper, is that virtual networking is broadly viewed as an above-the-network technology. Juniper does integrate 128T’s Session Smart Router concept into other Juniper products, but many users and most Street analysts miss the fact that SSR integration could make network devices preferred virtual-network hosts. Without that, players like VMware have a credible shot at the space, and if you’re looking to define upside potential (as the Street surely is) then how do you miss this one?
Not all the Street did; Juniper got an upgrade recently and their stock has outperformed Cisco’s in the 3, 6, and 12-month comparisons. There’s no breakout though, and the technology shifts suggest that there could be. Whatever the Street, buyers, or even network vendors themselves, see, there is going to be a major change in networking down the line, and not that far down either. We can expect to see the impact of these shifts in 2022.