As an old business-development hand, I am curious as to how Juniper’s increasingly significant OEM relationships with IBM and Dell might factor into strategic considerations.
In my experience, OEM relationships are balancing acts that never remain at rest. A permanent equilibrium is impossible to attain. They wax or wane, but they’re always subject to dynamic tension and latent volatility.
Such, I’m sure, is the case with Juniper’s OEM relationships with IBM and Dell. The latter relationship seems to be getting closer by the minute, as the latest blog post at Juniper’s The Network Ahead attests.
The OEM Dynamic
To understand what I’m getting at, one first has to consider why companies decide to OEM products rather than build them on their own or buy them through an acquisition. Typically, it’s because a company has a gap in its product portfolio that prevents it from capitalizing on a perceived market opportunity within its installed base of customers. That opportunity usually falls into an area where the company believes it has a mandate to play.
Still, the company is tentative, uncertain as to how much it’s wiling to put into the venture. It might not have the internal resources or institutional expertise to build the product on its own, or it might be reluctant to make the necessary investments to do so.
Similarly, it might not see enough core strategic value to warrant making an acquisition to procure products, technologies, and skill sets in question. It’s basically at a point where it feels it has a mandate to enter a market, and it believes it can do well selling into that market, but it’s unable or unwilling to build the product on its own and it’s not ready to make an acquisition.
That is when an OEM relationship comes into play. It explains how and why IBM and Dell have come to rebrand and resell significant swathes of Juniper’s product portfolio.
Status Quo Not Permanent
Those relationships can go one of two ways, but a permanent holding pattern probably is not in the cards. At some point, Dell and IBM, separately, might decide to stop carrying Juniper’s gear, for one of various possible reasons, or will attempt to acquire Juniper or another company that does some or all of what Juniper does.
Meanwhile, IBM and Dell, because they’ve each invested increasingly in a relationship with Juniper, will be concerned about Juniper’s existential status. What I mean is that, as IBM or Dell becomes more confident and proficient in the sale of networking gear, it will become more concerned about losing Juniper as an OEM partner. How would that happen? Through an acquisition of Juniper by another vendor, of course.
I’m sure executives at Dell and IBM tried (perhaps successfully) to insert restrictive clauses into their OEM deals with Juniper, attempting to account for any and all scenarios in which Juniper would be acquired by another party or otherwise cease to exist. Those contractual clauses and provisions can take many forms, but they’re all about mitigating risk. The objective is to avoid being jilted and spurned, left bereft at the altar with a gaping hole in your product portfolio and disaffected customers wondering how you’ll address their needs.
Changing Value Equation
Typically, such contractual clauses ensure that maintenance, support, and other residual services will continue in the event of the sale or dissolution of the supplier company; but there are other considerations, too.
For example, right of first refusal, in the event of a an acquisition bid from a third party, and acquisition veto clauses are two recourses that receiving OEM companies often pursue when negotiating deals. The latter usually is resisted vehemently and summarily rejected by the company providing the OEM products in question, but sometimes — if the deal is big enough and the circumstances warrant it — some consideration of the former (right of first refusal) is included in the deal.
So far, Juniper has done well in developing, managing, and maintaining its OEM relationships with IBM and Dell. The nature of those relationships is changing, though, as Juniper invests its Junos-based “3-2-1” network architecture with increasing amounts of dynamic intelligence and automation. To the extent that Juniper is successful in impressing the value of its intelligent network infrastructure on IBM and Dell customers, IBM and Dell necessarily will take notice.
As the value equations change, so will the relationships.