There aren’t all that many enduring questions in networking, but one I recall coming up almost thirty years ago came up again last week. It was “Is it getting cheaper to provide more capacity than to try to optimize it?” There’s a new flavor to this question, though: “Should we be using more optical paths to substitute for MPLS LSPs?” I’ve blogged about the potential benefits of a metro-network model where metro centers are meshed in some way via optical trunks. Might we actually be heading there? Ciena’s quarterly numbers, reported on March 6th, suggest that maybe we are, but not conclusively.
The company’s revenue grew by just over 25%, and their premier product area, “Converged Packet Optical” jumped from $541 million in fiscal 1Q22 to $736 million in the first fiscal quarter of 2023. Routing and switching also gained (from $86 million to $120 million), and platform software and services gained just slightly. All the other areas showed a decline y/y, including Blue Planet.
The Blue Planet story might be the most direct indicator of a shift in thinking. Blue Planet is Ciena’s operations automation software framework, and the fact that revenue there declined while the revenue for optical/packet equipment was up significantly suggests that most of the gear is going into sites with Blue Planet already in use, or where it is still not being considered. That could be an indication that optical networks generally are lower-touch than router networks, and require less operations automation. Indeed, that’s one of the value propositions for the “more bits not more bit management” theme.
Another interesting point from their earnings is that the company got about 40% of its revenue from non-telco sources. Does this mean they’re seeing some data center missions, things that might lead to success in the metro of the future? Maybe. While the “webscale” players are the largest segment of the non-telco space, the other two segments (cable and government/enterprise) combine to be larger, and they’re similar to the telco space in terms of requirements.
The question of data centers is critical because data center coupling to the network is essential in injecting new service features. As I’ve noted in the past, these features have to be injected close enough to the user to allow for personalization and a high QoE, but deep enough to benefit from economies of scale. The only place that can happen is “metro”, the major metropolitan-area concentration points. There are, for example, about 250 metro areas in the US. Metro areas also represent a great meshing point, which would expand the optical convergence opportunity.
The key piece of the Ciena story that relates to metro is their “Coherent Routing”, which is a software-managed multi-layer model that combines IP/MPLS at the top layer with an optical base. Metro is the logical place where the layer transition would occur, and where their new 8140 router (announced last week) is targeted. The 8140 is a logical candidate for both metro aggregation and metro service injection, since you could make data center connections to it. You can tie it to business Ethernet connections, to residential broadband (FTTH, cable, etc.) and to mobile and 5G networks, and you can also connect to a metro data center owned by the operator, an interconnect/COLO player, or a cloud provider, as well as to traditional public cloud regional data centers. Obviously it supports connection to the Internet and to CDNs. Ciena shows it interconnected with the 8190 for many of these missions, too.
I think that Ciena has a very good, perhaps even great, metro story, but they have an issue they share with another metro pioneer, Juniper, in that their documentation and positioning isn’t exactly evangelistic. They can do what’s needed, but you won’t find material that shows the full potential and role of metro in the network of the future. If an operator has already recognized just how important the metro is, Ciena’s stuff can connect with their thinking, as Juniper’s can. If the operator hasn’t made the connection yet, it’s not likely that the Ciena material will push them over the threshold into metro-land.
Ciena (and Juniper) aren’t simply ignoring the obvious here. The importance of marketing to operators, even to cloud providers, is a matter of debate among vendors. These are giant buyers, large enough to support dedicated sales resources with technical sales support backup. Given that, most network vendors don’t really provide what might be called “educational” or “mission-focused” marketing material on the theory that their sales relationships can carry that. However, my contacts with operators suggest that this isn’t a great strategy. Salespeople tend to shy away from educational/evangelistic activities; they’re time-consuming and they may not pay off for many quarters, when sales organizations have to focus on making quota in the present. Thus, they may be slow taking advantage of strategic superiority when they have it, simply because it’s not translating to tactical sales success. Next year, it would.
For Ciena, I think the problem is particularly acute because “packet/optical convergence”, the concept that’s in play to shift focus from bandwidth management to bandwidth creation, is very transport-centric rather than service-evolution-centric. Operators can view that convergence either as a cost-management strategy or as a new-service strategy. The operators’ own biases and legacy push them toward the former, and ultimately it’s the new service approach that has the potential of driving significant spending by operators, and thus revenue for vendors. And convergence tends to focus toward the bottom layer, which of course is less visible and tends to develop only when the layer above it runs out of gas. What happens with convergence if the packet/router players in that top layer step up? They push the optical piece downward, which constrains its growth. For Ciena, the convergence has to take place at the metro level to maximize their equipment sales.
Cisco, who has an even-less-specific metro positioning than Ciena, nevertheless is looking to make its routers into the optical on-ramp through its Acacia acquisition, which lets routers with highly effective optical interfaces be the on-ramp to packet/optical convergence. Since those routers can connect with each other efficiently via optical trunks, they let Cisco take a bigger bite of the top piece of the convergence story. The more routers do at the metro level, the more it is that Ciena is stuck in a pure aggregation role, because service injection deeper than the metro is highly unlikely.
Router vendors aren’t the only players who need to understand how critical the metro is, optical players like Ciena may have even more at stake. With a strong metro story, they can make metro a barrier to router expansion and an outpost in the services space. That’s a role operators really need some vendor to play, and so the position is perhaps the strongest out there for expanding vendors’ opportunities. I suspect we’ll see clear signs of just what vendors might be going after the space by the end of this year.