Avaya Executive Departures, Intrigue Continue

Like many other vendors, Avaya showed off its latest virtualized wares at VMworld in San Francisco this week. While putting its best face forward at VMware’s annual conference and exhibition, Avaya also experienced further behind-the-scenes executive intrigue.

Sources report that Carelyn Monroe, VP of Global Partner Support Services, resigned from the company last Friday. Monroe is said to have reported to Mike Runda, SVP and president of Avaya Client Services. She joined Avaya in 2009, coming over from Nortel.

Meanwhile, across the pond, Avaya has suffered another defection. James Stevenson, described as a “business-services expert” in a story published online by CRN ChannelWeb UK, has left Avaya to become director of operations for reseller Proximity Communications.

Prior to the departures of Monroe and Stevenson, CFO Anthony Massetti bolted for the exit door immediately after Avaya’s latest inauspicious quarterly results were filed with the Securities and Exchange Commission (SEC). Massetti was replaced by Dave Vellequette, who has a long history of of working alongside Avaya CEO Kevin Kennedy.

In some quarters, Kennedy’s reunion with Vellequette is being construed as a circle-the-wagons tactic in which the besieged CEO attempts to surround himself with steadfast loyalists. It probably won’t be long before we see a “Hitler parody” on YouTube about Avaya’s plight (like this one on interoperability problems with unified communications).

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Xsigo: Hardware Play for Oracle, Not SDN

When I wrote about Xsigo earlier this year, I noted that many saw Oracle as a potential acquirer of the I/O virtualization vendor. Yesterday morning, Oracle made those observers look prescient, pulling the trigger on a transaction of undisclosed value.

Chris Mellor at The Register calculates that Oracle might have paid about $800 million for Xsigo, but we don’t know. What we do know is that Xsigo’s financial backers were looking for an exit. We also know that Oracle was willing to accommodate it.

For the Love of InfiniBand, It’s Not SDN

Some think Oracle bought a software-defined networking (SDN) company. I was shocked at how many journalists and pundits repeated the mantra that Oracle had moved into SDN with its Xsigo acquisition. That is not right, folks, and knowledgeable observers have tried to rectify that misconception.

I’ve gotten over a killer flu, and I have a residual sinus headache that sours my usually sunny disposition, so I’m no mood to deliver a remedial primer on the fundamentals of SDN. Suffice it to say, readers of this forum and those familiar with the pronouncements of the ONF will understand that what Xsigo does, namely I/O virtualization, is not SDN.  That is not to say that what Xsigo does is not valuable, perhaps especially to Oracle. Nonetheless, it is not SDN.

Incidentally, I have seen a few commentators throwing stones at the Oracle marketing department for depicting Xsigo as an SDN player, comparing it to Nicira Networks, which VMware is in the process of acquiring for a princely sum of $1.26 billion. It’s probably true that Oracle’s marketing mavens are trying to gild their new lily by covering it with splashes of SDN gold, but, truth be told, the marketing team at Xsigo began dressing their company in SDN garb earlier this year, when it became increasingly clear that SDN was a lot more than an ephemeral science project involving OpenFlow and boffins in lab coats.

Why Confuse? It’ll be Obvious Soon Enough

At Network Computing, Howard Marks tries to get everybody onside. I encourage you to read his piece in its entirety, because it provides some helpful background and context, but his superbly understated money quote is this one: “I’ve long been intrigued by the concept of I/O virtualization, but I think calling it software-defined networking is a stretch.”

In this industry, words are stretched and twisted like origami until we can no longer recognize their meaning. The result, more often than not, is befuddlement and confusion, as we witnessed yesterday, an outcome that really doesn’t help anybody. In fact, I would argue that Oracle and Xsigo have done themselves a disservice by playing the SDN card.

As Marks points out, “Xsigo’s use of InfiniBand is a good fit with Oracle’s Exadata and other clustered solutions.” What’s more, Matt Palmer, who notes that Xsigo is “not really an SDN acquisition,” also writes that “Oracle is the perfect home for Xsigo.” Palmer makes the salient point that Xsigo is essentially a hardware play for Oracle, one that aligns with Oracle’s hardware-centric approaches to compute and storage.

Oracle: More Like Cisco Than Like VMWare

Oracle could have explained its strategy and detailed the synergies between Xsigo and its family of hardware-engineered “Exasystems” (Exadata and Exalogic) —  and, to be fair, it provided some elucidation (see slide 11 for a concise summary) — but it muddied the waters with SDN misdirection, confusing some and antagonizing others.

Perhaps my analysis is too crude, but I see a sharp divergence between the strategic direction VMware is heading with its acquisition of Nicira and the path Oracle is taking with its Exasystems and Xsigo. Remember, Oracle, after the Sun acquisition, became a proprietary hardware vendor. Its focus is on embedding proprietary hooks and competitive differentiation into its hardware, much like Cisco Systems and the other converged-infrastructure players.

VMware’s conception of a software-defined data center is a completely different proposition. Both offer virtualization, both offer programmability, but VMware treats the underlying abstracted hardware as an undifferentiated resource pool. Conversely, Oracle and Cisco want their engineered hardware to play integral roles in data-center virtualization. Engineered hardware is what they do and who they are.

Taking the Malocchio in New Directions

In that vein, I expect Oracle to look increasingly like Cisco, at least on the infrastructure side of the house. Does that mean Oracle soon will acquire a storage player, such as NetApp, or perhaps another networking company to fill out its data-center portfolio? Maybe the latter first, because Xsigo, whatever its merits, is an I/O virtualization vendor, not a switching or routing vendor. Oracle still has a networking gap.

For reasons already belabored, Oracle is an improbable SDN player. I don’t see it as the likeliest buyer of, say, Big Switch Networks. IBM is more likely to take that path, and I might even get around to explaining why in a subsequent post. Instead, I could foresee Oracle taking out somebody like Brocade, presuming the price is right, or perhaps Extreme Networks. Both vendors have been on and off the auction block, and though Oracle’s Larry Ellison once disavowed acquisitive interest in Brocade, circumstances and Oracle’s disposition have changed markedly since then.

Oracle, which has entertained so many bitter adversaries over the years — IBM, SAP, Microsoft, SalesForce, and HP among them — now appears ready to cast its “evil eye” toward Cisco.

Some Thoughts on VMware’s Strategic Acquisition of Nicira

If you were a regular or occasional reader of Nicira Networks CTO Martin Casado’s blog, Network Heresy, you’ll know that his penultimate post dealt with network virtualization, a topic of obvious interest to him and his company. He had written about network virtualization many times, and though Casado would not describe the posts as such, they must have looked like compelling sales pitches to the strategic thinkers at VMware.

Yesterday, as probably everyone reading this post knows, VMware announced its acquisition of Nicira for $1.26 billion. VMware will pay $1.05 billion in cash and $210 million in unvested equity awards.  The ubiquitous Frank Quattrone and his Quatalyst Partners, which reportedly had been hired previously to shop Brocade Communications, served as Nicira’s adviser.

Strategic Buy

VMware should have surprised no one when it emphasized that its acquisition of Nicira was a strategic move, likely to pay off in years to come, rather than one that will produce appreciable near-term revenue. As Reuters and the New York Times noted, VMware’s buy price for Nicira was 25 times the amount ($50 million) invested in the company by its financial backers, which include venture-capital firms Andreessen Horowitz, Lightspeed,and NEA. Diane Greene, co-founder and former CEO of VMware — replaced four years ago by Paul Maritz — had an “angel” stake in Nicira, as did as Andy Rachleff, a former general partner at Benchmark Capital.

Despite its acquisition of Nicira, VMware says it’s not “at war” with Cisco. Technically, that’s correct. VMware and its parent company, EMC, will continue to do business with Cisco as they add meat to the bones of their data-center virtualization strategy. But the die was cast, and  Cisco should have known it. There were intimations previously that the relationship between Cisco and EMC had been infected by mutual suspicion, and VMware’s acquisition of Nicira adds to the fear and loathing. Will Cisco, as rumored, move into storage? How will Insieme, helmed by Cisco’s aging switching gods, deliver a rebuttal to VMware’s networking aspirations? It won’t be too long before the answers trickle out.

Still, for now, Cisco, EMC, and VMware will protest that it’s business as usual. In some ways, that will be true, but it will also be a type of strategic misdirection. The relationship between EMC and Cisco will not be the same as it was before yesterday’s news hit the wires. When these partners get together for meetings, candor could be conspicuous by its absence.

Acquisitive Roads Not Traveled

Some have posited that Cisco might have acquired Nicira if VMware had not beaten it to the punch. I don’t know about that. Perhaps Cisco might have bought Nicira if the asking price were low, enabling Cisco to effectively kill the startup and be done with it. But Cisco would not have paid $1.26 billion for a company whose approach to networking directly contradicts Cisco’s hardware-based business model and market dominance. One typically doesn’t pay that much to spike a company, though I suppose if the prospective buyer were concerned enough about a strategic technology shift and a major market inflection, it might do so. In this case, though, I suspect Cisco was blindsided by VMware. It just didn’t see this coming — at least not now, not at such an early state of Nicira’s development.

Similarly, I didn’t see Microsoft or Citrix as buyers of Nicira. Microsoft is distracted by its cloud-service provider aspirations, and the $1.26 billion would have been too rich for Citrix.

IBM’s Moves and Cisco’s Overseas Cash Horde

One company I had envisioned as a potential (though less likely) acquirer of Nicira was IBM, which already has a vSwitch. IBM might now settle for the SDN-controller technology available from Big Switch Networks. The two have been working together on IBM’s Open Data Center Interoperable Network (ODIN), and Big Switch’s technology fits well with IBM’s PureSystems and its top-down model of having application workloads command and control  virtualized infrastructure. As the second network-virtualization domino to fall, Big Switch likely will go for a lower price than did Nicira.

On Twitter, Dell’s Brad Hedlund asked whether Cisco would use its vast cash horde to strike back with a bold acquisition of its own. Cisco has two problems here. First, I don’t see an acquisition that would effectively blunt VMware’s move. Second, about 90 percent of Cisco’s cash (more than $42 billion) is offshore, and CEO John Chambers doesn’t want to take a tax hit on its repatriation. He had been hoping for a “tax holiday” from the U.S. government, but that’s not going to happen in the middle of an election campaign, during a macroeconomic slump in which plenty of working Americans are struggling to make ends meet. That means a significant U.S.-based acquisition likely is off the table, unless the target company is very small or is willing to take Cisco stock instead of cash.

Cisco’s Innovator’s Dilemma

Oh, and there’s a third problem for Cisco, mentioned earlier in this prolix post. Cisco doesn’t want to embrace this SDN stuff. Cisco would rather resist it. The Cisco ONE announcement really was about Cisco’s take on network programmability, not about SDN-type virtualization in which overlay networks run atop an underyling physical network.

Cisco is caught in a classic innovator’s dilemma, held captive by the success it has enjoyed selling prodigious amounts of networking gear to its customers, and I don’t think it can extricate itself. It’s built a huge and massively successful business selling a hardware-based value proposition predicated on switches and routers. It has software, but it’s not really a software company.

For Cisco, the customer value, the proprietary hooks, are in its boxes. Its whole business model — which, again, has been tremendously successful — is based around that premise. The entire company is based around that business model.  Cisco eventually will have to reinvent itself, like IBM did after it failed to adapt to client-server computing, but the day of reckoning hasn’t arrived.

On the Defensive

Expect Cisco to continue to talk about the northbound interface (which can provide intelligence from the switch) and about network programmability, but don’t expect networking’s big leopard to change its spots. Cisco will try to portray the situation differently, but it’s defending rather than attacking, trying to hold off the software-based marauders of infrastructure virtualization as long as possible. The doomsday clock on when they’ll arrive in Cisco data centers just moved up a few ticks with VMware’s acquisition of Nicira.

What about the other networking players? Sadly, HP hasn’t figured out what to about SDN, even though OpenFlow is available on its former ProCurve switches. HP has a toe dipped in the SDN pool, but it doesn’t seeming willing to take the initiative. Juniper, which previously displayed ingenuity in bringing forward QFabric, is scrambling for an answer. Brocade is pragmatically embracing hybrid control planes to maintain account presence and margins in the near- to intermediate-term.

Arista Networks, for its part, might be better positioned to compete on networking’s new playing field. Arista Networks’ CEO Jayshree Ullal had the following to say about yesterday’s news:

“It’s exciting to see the return of innovative networking companies and the appreciation for great talent/technology. Software Defined Networking (SDN) is indeed disrupting legacy vendors. As a key partner of VMware and co-innovator in VXLANs, we welcome the interoperability of Nicira and VMWare controllers with Arista EOS.”

Arista’s Options

What’s interesting here is that Arista, which invariably presents its Extensible OS (EOS) as “controller friendly,” earlier this year demonstrated interoperability with controllers from VMware, Big Switch Networks, and Nebula, which has built a cloud controller for OpenStack.

One of Nebula’s investors is Andy Bechtolsheim, whom knowledgeable observers will recognize as the chief development officer (CDO) of, and major investor in, Arista Networks.  It is possible that Bechtolsheim sees a potential fit between the two companies — one building a cloud controller and one delivering cloud networking. To add fuel to this particular fire, which may or may not emit smoke, note that the Nebula cloud controller already features Arista technology, and that Nebula is hiring a senior network engineer, who ideally would have “experience with cloud infrastructure (OpenStack, AWS, etc. . . .  and familiarity with OpenFlow and Open vSwitch.”

 Open or Closed?

Speaking of Open vSwitch, Matt Palmer at SDN Centralwill feel some vindication now that VMware has purchased a company whose engineering team has made significant contributions to the OVS code. Palmer doubtless will cast a wary eye on VMware’s intentions toward OVS, but both Steve Herrod, VMware’s CTO, and Martin Casado, Nicira’s CTO, have provided written assurances that their companies, now combining, will not retreat from commitments to OVS and to Open Flow and Quantum, the OpenStack networking  project.

Meanwhile, GigaOm’s Derrick Harris thinks it would be bad business for VMware to jilt the open-source community, particularly in relation to hypervisors, which “have to be treated as the workers that merely carry out the management layer’s commands. If all they’re there to do is create virtual machines that are part of a resource pool, the hypervisor shouldn’t really matter.”

This seems about right. In this brave new world of virtualized infrastructure, the ultimate value will reside in an intelligent management layer.

PS: I wrote this post under a slight fever and a throbbing headache, so I would not be surprised to discover belatedly that it contains at least a couple typographical errors. Please accept my apologies in advance.

Cisco’s SDN Response: Mission Accomplished, but Long Battle Ahead

In concluding my last post, I said I would write a subsequent note on whether Cisco achieved its objectives in its rejoinder to software-defined networking (SDN) at the Cisco Live conference last week in San Diego.

As the largest player in network infrastructure, Cisco’s words carry considerable weight. When Cisco talks, its customers (and the industry ecosystem) listen. As such, we witnessed extensive coverage of the company’s Cisco Open Network Environment (Cisco ONE) proclamations last week.

Really, what Cisco announced with Cisco ONE was relatively modest and wholly unsurprising. What was surprising was the broad spectrum of reactions to what was effectively a positioning statement from the networking market’s leading vendor.

Mission Accomplished . . . For Now

And that positioning statement wasn’t so much about SDN, or about the switch-control protocol OpenFlow, but about something more specific to Cisco, whose installed base of customers, especially in the enterprise, is increasingly curious about SDN. Indeed, Cisco’s response to SDN should be seen, first and foremost, as a response to its customers. One could construe it as a cynical gesture to “freeze the market,” but that would not do full justice to the rationale. Instead, let’s just say that Cisco’s customers wanted to know how their vendor of choice would respond to SDN, and Cisco was more than willing to oblige.

In that regard, it was mission accomplished. Cisco gave its enterprise customers enough reason to put off a serious dalliance with SDN, at least for the foreseeable future (which isn’t that long). But that’s all it did. I didn’t see a vision from Cisco. What I saw was an effective counterpunch — but definitely not a knockout — against a long-term threat to its core market.

Cisco achieved its objective partly by offering its own take on network programmability, replete with a heavy emphasis on APIs and northbound interfaces; but it also did it partly by bashing OpenFlow, the open  protocol that effects physical separation of the network-element control and forwarding planes.

Conflating OpenFlow and SDN

In its criticism of OpenFlow, Cisco sought to conflate the protocol with the larger SDN architecture. As I and many others have noted repeatedly, OpenFlow is not SDN;  the two are not inseparable. It is possible to deliver an SDN architecture without OpenFlow. Even when OpenFlow is included, it’s a small part of the overall picture.  SDN is more than a mechanism by which a physically separate control plane directs packet forwarding on a switch.

If you listened to Cisco last week, however, you would have gotten the distinct impression that OpenFlow and SDN are indistinguishable, and that all that’s happening in SDN is a southbound conversation from a server-based software controller and OpenFlow-capable switches. That’s not true, but the Open Networking Foundation (ONF), the custodians of SDN and OpenFlow, has left an opening that Cisco is only too happy to exploit.

The fact is, the cloud service-provider principals steering the ONF see SDN playing a much bigger role than Cisco would have you believe. OpenFlow is a starting point. It is a means to, well, another means — because SDN is an enabler, too. What SDN enables is network virtualization and network programmability, but not how Cisco would like its customers to get there.

Cisco Knows SDN More Than OpenFlow

To illustrate my point, I refer you to the relatively crude ONF SDN architectural stack showcased in a white paper, Software-Defined Networking: The New Norm for Networks. If you consult the diagram in that document, you will see that OpenFlow is the connective tissue between the controller and the switch — what ONF’s Dan Pitt has described as an “open interface to packet forwarding” — but you will also see that there are abstraction layers that reside well above OpenFlow.

If you want an ever more detailed look at a “modern” SDN architecture, you can consult a presentation given by Cisco’s David Meyer earlier this year. That presentation features physical hardware at the base, with SDN components in the middle. These SDN components include the “forwarding interface abstraction” represented by OpenFlow, a network operation system (NOS) running on a controller (server), a “nypervisor” (network hypervisor), and a global management abstraction that interfaces with the control logic of higher-layer application (control) programs.

So, Cisco clearly knows that SDN comprises more than OpenFlow, but, in its statements last week at Cisco Live, the company preferred to use the protocol as a strawman in its arguments for Cisco-centric network programmability. You can’t blame Cisco, though. It has customers to serve — and to keep in the revenue- and profit-generating fold — and an enterprise-networking franchise to protect.

Mind the Gap

But why did the ONF leave this gap for Cisco to fill? It’s partly because the ONF isn’t overly concerned with the enterprise and partly because the ONF sees OpenFlow as an open, essential precondition for the higher, richer layers of the SDN architectural model.

Without the physical separation of the control plane from the forwarding plane, after all, some of the ONF’s service-provider constituency might not have been able to break free of vendor hegemony in their networks. What’s more, they wouldn’t be able to set the stage for low-priced, ODM-manufactured networking hardware built with merchant silicon.

As you can imagine, that is not the sort of change that Cisco can get behind, much less lead. Therefore, Cisco breaks out the brickbats and goes in hot pursuit of OpenFlow, which it then portrays as deficient for the purposes of far-reaching, north-and-south network programmability.

Exiting (Not Exciting) Plumbing

Make no mistake, though. The ONF has a vision, and it extends well beyond OpenFlow. At a conference in Garmisch, Germany, earlier this year, Dan Pitt, the ONF’s executive director, offered a presentation called “A Revolution in Networking and Standards,” and made the following comments:

“I think networking is going to become an integral part of computing in a way that makes it less important, because it’s less of a problem. It’s not the black sheep any longer. And the same tools you use to create an IT computing infrastructure or virtualization, performance, and policy will flow through to the network component of that as well, without special effort.

I think enterprises are going to be exiting technology – or exiting plumbing. They are not going to care about the plumbing, whether it’s their networks or the cloud networks that increasingly meet their needs, and the cloud services. They’re going to say, here’s the function or the feature I want for my business goal, and you make it happen. And somebody worries about the plumbing, but not as many people who worry about plumbing today. And if you’ve got this virtualized view, you don’t have to look at the plumbing. . . .

The operators are gradually becoming software companies and internet companies. They are bulking up on those skills. They want to be able to add those services and features themselves instead of relying on the vendors, and doing it quickly for their customers. It gives opportunities to operators that they didn’t have before of operating more diverse services and experimenting at low cost with new services.”

No Cartwheels

Again, this is not a vision that would have John Chambers doing cartwheels across the expansive Cisco campus.

While the ONF is making plans to address the northbound interfaces that are a major element in Cisco’s network programmability, it hasn’t done so yet. Even when it does, the ONF is unlikely to standardize higher-layer APIs, at least in the near term. Instead, those APIs will be associated with the controllers that get deployed in customer networks. In other words, the ONF will let the market decide.

On that tenet, Cisco can agree with the ONF. It, too, would like the market to decide, especially since its market presence — the investments customers have made in its routers and switches, and in its protocols and management tools — towers imperiously over the meager real estate being claimed in the nascent SDN market.

With all that Cisco network infrastructure deployed in customer networks, Cisco believes it’s in a commanding position to set the terms for how the network will deliver software intelligence to programmers of applications and management systems. Theoretically, that’s true, but the challenge for Cisco will be in successfully engaging a programming constituency that isn’t its core audience. Can Cisco do it? It will be a stretch.

Do They Get It?

All the while, the ONF and its service-provider backers will be advancing and promoting the SDN model and the network virtualization and programmability that accompany it. The question for the ONF is not whether its movers and shakers understand programmers — it’s pretty clear that Google, Facebook, Microsoft, and Yahoo are familiar with programmers — but whether the ONF understands and cares enough about the enterprise to make that market a priority in its technology roadmap.

If the ONF leaves the enterprise to the dictates of the Internet Engineering Task Force (IETF) and Institute of Electrical and Electronics Engineers (IEEE), Cisco is likely to maintain its enterprise dominance with an approach that provides some benefits of network programmability without the need for server-based controllers.

Meanwhile, as Tom Nolle, president of CIMI Corporation has pointed out, Cisco ONE also serves as a challenge to Cisco’s conventional networking competitors, which are devising their own answers to SDN.

But that is a different thread, and this one is too long already.

Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

Dell’s Steady Progression in Converged Infrastructure

With its second annual Dell Storage Forum in Boston providing the backdrop, Dell made a converged-infrastructure announcement this week.  (The company briefed me under embargo late last week.)

The press release is available on the company’s website, but I’d like to draw attention to a few aspects of the announcement that I consider noteworthy.

First off, Dell now is positioned to offer its customers a full complement of converged infrastructure, spanning server, storage, and networking hardware, as well as management software. For customers seeking a single-vendor, one-throat-to-choke solution, this puts Dell  on parity with IBM and HP, while Cisco still must partner with EMC or with NetApp for its storage technology.

Bringing the Storage

Until this announcement, Dell was lacking the storage ingredients. Now, with what Dell is calling the Dell Converged Blade Data Center solution, the company is adding its EqualLogic iSCSI Blade Arrays to Dell PowerEdge blade servers and Dell Force10 MXL blade switching. Dell says this package gives customers an entire data center within a single blade enclosure, streamlining operations and management, and thereby saving money.

Dell’s other converged-infrastructure offering is the Dell vStart 1000. For this iteration of vStart, Dell is including, for the first time, its Compellent storage and Force10 networking gear in one integrated rack for private-cloud environments.

The vStart 1000 comes in two configurations: the vStart 1000m and the vStart 1000v. The packages are nearly identical — PowerEdge M620 servers, PowerEdge R620 management servers, Dell Compellent Series 40 storage, Dell Force10 S4810 ToR Networking and Dell Force10 S4810 ToR Networking, plus Brocade 5100 ToR Fibre-Channel Switches — but the vStart 1000m comes with Windows Server 2008 R2 Datacenter (with the Hyper-V hypervisor), whereas the vStart 1000v features trial editions of VMware vCenter and VMware vSphere (with the ESXi hypervisor).

An an aside, it’s worth mentioning that Dell’s inclusion of Brocade’s Fibre-Channel switches confirms that Dell is keeping that partnership alive to satisfy customers’ FC requirements.

Full Value from Acquisitions

In summary, then, is Dell delivering converged infrastructure with both its in-house storage options, demonstrating that it has fully integrated its major hardware acquisitions into the mix.   It’s covering as much converged ground as it can with this announcement.

Nonetheless, it’s fair to ask where Dell will find customers for its converged offerings. During my briefing with Dell, I was told that mid-market was the real sweet spot, though Dell also sees departmental opportunities in large enterprises.

The mid-market, though, is a smart choice, not only because the various technology pieces, individually and collectively, seem well suited to the purpose, but also because Dell, given its roots and lineage, is a natural player in that space. Dell has a strong mandate to contest the mid-market, where it can hold its own against any of its larger converged-infrastructure rivals.

Mid-Market Sweet Spot

What’s more, the mid-market — unlike cloud-service providers today and some large enterprise in the not-too-distant future — are unlikely to have the inclination, resources, and skills to pursue a DIY, software-driven, DevOps-oriented variant of converged infrastructure that might involve bare-bones hardware from Asian ODMs. At the end of the day, converged infrastructure is sold as packaged hardware, and paying customers will need to perceive and realize value from buying the boxes.

The mid-market would seem more than receptive to the value proposition that Dell is selling, which is that its converged infrastructure will reduce the complexity of IT management and deliver operational cost savings.

This finally leads us to a discussion of Dell’s take on converged infrastructure. As noted in an eChannelLine article, Dell’s notion of converged infrastructure encompasses operations management, services management, and applications management. As Dell continues down the acquisition trail, we should expect the company to place greater emphasis on software-based intelligence in those areas.

That, too, would be a smart move. The battle never ends, but Dell — despite its struggles in the PC market — is now more than punching its own weight in converged infrastructure.

Putting an ONF Conspiracy Theory to Rest

We know that the Open Networking Foundation (ONF) is controlled by the six major service providers that constitute its board of directors.

It is no secret that the ONF is built this way by design. The board members wanted to make sure that they got what they wanted from the ONF’s deliberations, and they felt that existing standards bodies, such as the IETF and IEEE, were gerrymandered and dominated by vendors with self-serving agendas.

The ONF was devised with a different purpose in mind — not to serve the interests of the vendors, but to further the interests of the service-provider community, especially the service providers who sit on the ONF’s board of directors. In their view, conventional networking was a drag on their innovation and business agility, obstructing progress elsewhere in their data centers and IT operations. Whereas compute and storage resources had been virtualized and orchestrated, networking remained a relatively costly and unwieldy fiefdom ruled by “masters of complexity” rummaging manually through an ever-expanding bag of ad-hoc protocols.

Organizing for Clout

Not getting what they desired from their networking vendors, the service providers decided to seize the initiative. Acting on its own,  Google already had done just that, designing and deploying DIY networking gear.

The study of political elites tells us that an organized minority comprising powerful interests can impose its will on a disorganized majority.  In the past, as individual companies, the ONF board members had been unable to counter the agendas of the networking vendors. Together, they hoped to effect the change they desired.

So, we have the ONF, and it’s unlike the IETF and the IEEE in more ways than one. While not a standards body — the ONF describes itself as a “non-profit consortium dedicated to the transformation of networking through the development and standardization of a unique architecture called Software-Defined Networking (SDN)” — there’s no question that the ONF wants to ensure that it defines and delivers SDN according to its own rules  And at its own pace, too, not tied to the product-release schedules of networking vendors.

In certain respects, the ONF is all about consortium of customers taking control and dictating what it wants from the vendor community, which, in this case, should be understood to comprise not only OEM networking vendors, but also ODMs, SDN startups, and purveyors of merchant silicon.

Vehicle of Insurrection?

Just to ensure that its leadership could not be subverted, though, the ONF stipulated that vendors would not be permitted to serve on its board of directors. That means that representatives of Cisco, Juniper, and HP Networking, for example, will never be able to serve on the ONF board.

At least within their self-determined jurisdiction, the ONF’s board members call all the shots. Or do they?

Commenting on my earlier post regarding Cisco’s SDN counterstrategy, a reader, who wished to remain anonymous (Anon4This1), wrote the following:

Regarding this point: “Ultimately, [Cisco] does not control the ONF.”

That was one of the key reasons for the creation of the ONF. That is, there was a sense that existing standards bodies were under the collective thumb of large vendors. ONF was created such that only the ONF board can vote on binding decisions, and no vendors are allowed on the board. Done, right? Ah, well, not so fast. The ONF also has a Technical Advisory Group (TAG). For most decisions, the board actually acts on the recommendations of the TAG. The TAG does not have the same membership restrictions that apply to the ONF board. Indeed, the current chairman of the TAG is none other than influential Cisco honcho, Dave Ward. So if the ONF board listens to the TAG, and the TAG listens to its chairman… Who has more control over the ONF than anyone? https://www.opennetworking.org/about/tag

Board’s Iron Grip

If you follow the link provided by my anonymous commenter, you will find an extensive overview of the ONF’s Technical Advisory Group (TAG). Could the TAG, as constituted, be the tail that wags the ONF dog?

My analysis leads me to a different conclusion.  As I see it, the TAG serves at the pleasure of the ONF board of directors, individually and collectively. Nobody on the TAG does so without the express consent of the board of directors. Moreover, “TAG term appointments are annual and the chair position rotates quarterly.” Whereas Cisco’s Dave Ward serves as the current chair, his term will expire and somebody else will succeed him.

What about the suggestion that the “board actually acts on recommendations of the TAG,” as my commenter asserts. In many instances, that might be true, but the form and substance of the language on the TAG webpage articulates clearly that the TAG is, as its acronym denotes, an advisory body that reports to (and “responds to requests from”) the ONF board of directors.  The TAG offers technical guidance and recommendations, but the board makes the ultimate decisions. If the board doesn’t like what it’s getting from TAG members, annual appointments presumably can be allowed to expire and new members can succeed those who leave.

Currently, two networking-gear OEMs are represented on the ONF’s TAG. Cisco is represented by the aforementioned David Ward, and HP is represented by Jean Tourrilhes, an HP-Labs researcher in Networking and Communication who has worked with OpenFlow since 2008. These gentlemen seem to be on the TAG because those who run the ONF believe they can make meaningful contributions to the development of SDN.

No Coup

It’s instructive to note the company affiliations of the other six members serving on TAG. We find, for instance, Nicira CTO Martin Casado, as well as Verizon’s Dave McDysan, Google’s Amin Vahdat, Microsoft’s Albert Greenberg, Broadcom’s Puneet Agarwal, and Stanford’s Nick McKeown, who also is known as a Nicira co-founder and serves on that company’s board of directors.

If any company has pull, then, on the ONF’s TAG, it would seem to be Nicira Networks, not Cisco Systems. After all, Nicira has two of its corporate directors serving on the ONF’s TAG. Again, though, both gentlemen from Nicira are highly regarded and esteemed SDN proponents, who played critical roles in the advent and development of OpenFlow.

And that’s my point. If you look at who serves on the ONF’s TAG, you can clearly see why they’re in those roles and you can understand why the ONF board members would desire their contributions.

The TAG as a vehicle for an internal coup d’etat at the ONF? That’s one conspiracy theory that I’m definitely not buying.

Lessons for Cisco in Cius Failure

When news broke late last week that Cisco would discontinue development of its Android-based Cius, I remarked on Twitter that it didn’t take a genius to predict the demise of  Cisco’s enterprise-oriented tablet. My corroborating evidence was an earlier post from yours truly — definitely not a genius, alas — predicting the Cius’s doom.

The point of this post, though, will be to look forward. Perhaps Cisco can learn an important lesson from its Cius misadventure. If Cisco is fortunate, it will come away from its tablet failure with valuable insights into itself as well as into the markets it serves.

Negative Origins

While I would not advise any company to navel-gaze obsessively, introspection doesn’t hurt occasionally. In this particular case, Cisco needs to understand what it did wrong with the Cius so that it will not make the same mistakes again.

If Cisco looks back in order to look forward, it will find that it pursued the Cius for the wrong reasons and in the wrong ways.  Essentially, Cisco launched the Cius as a defensive move, a bid to arrest the erosion of its lucrative desktop IP-phone franchise, which was being undermined by unified-communications competition from Microsoft as well as from the proliferation of mobile devices and the rise of the BYOD phenomenon. The IP phone’s claim to desktop real estate was becoming tenuous, and Cisco sought an answer that would provide a new claim.

In that respect, then, the Cius was a reactionary product, driven by Cisco’s own fears of desktop-phone cannibalization rather than by the allure of a real market opportunity. The Cius reeked of desperation, not confidence.

Hardware as Default

While the Cius’ genetic pathology condemned it at birth, its form also hastened its demise. Cisco now is turning exclusively to software (Jabber and WebEx) as answers to enterprise-collaboration conundrum, but it could have done so far earlier, before the Cius was conceived. By the time Cisco gave the green light to Cius, Apple’s iPhone and iPad already had become tremendously popular with consumers, a growing number of whom were bringing those devices to their workplaces.

Perhaps Cisco’s hubris led it to believe that it had the brand, design, and marketing chops to win the affections of consumers. It has learned otherwise, the hard way.

But let’s come back to the hardware-versus-software issue, because Cisco’s Cius setback and how the company responds to it will be instructive, and not just within the context of its collaboration products.

Early Warning from a Software World

As noted previously, Cisco could have gone with a software-based strategy before it launched the Cius. It knew where the market was heading, and yet it still chose to lead with hardware. As I’ve argued before, Cisco develops a lot of software, but it doesn’t act (or sell) like software company. It can sell software, but typically only if the software is contained inside, and sold as, a piece of hardware. That’s why, I believe, Cisco answered the existential threat to its IP-phone business with the Cius rather than with a genuine software-based strategy. Cisco thinks like a hardware company, and it invariably proposes hardware products as reflexive answers to all the challenges it faces.

At least with its collaboration products, Cisco might have broken free of its hard-wired hardware mindset. It remains to be seen, however, whether the deprogramming will succeed in other parts of the business.

In a world where software is increasingly dominant — through virtualization, the cloud, and, yes, in networks — Cisco eventually will have to break its addiction to the hardware-based business model. That won’t be easy, not for a company that has made its fortune and its name selling switches and routers.

Direct from ODMs: The Hardware Complement to SDN

Subsequent to my return from Network Field Day 3, I read an interesting article published by Wired that dealt with the Internet giants’ shift toward buying networking gear from original design manufacturers (ODMs) rather than from brand-name OEMs such as Cisco, HP Networking, Juniper, and Dell’s Force10 Networks.

The development isn’t new — Andrew Schmitt, now an analyst at Infonetics, wrote about Google designing its own 10-GbE switches a few years ago — but the story confirmed that the trend is gaining momentum and drawing a crowd, which includes brokers and custom suppliers as well as increasing numbers of buyers.

In the Wired article, Google, Microsoft, Amazon, and Facebook were explicitly cited as web giants buying their switches directly from ODMs based in Taiwan and China. These same buyers previously procured their servers directly from ODMs, circumventing brand-name server vendors such as HP and Dell.  What they’re now doing with networking hardware, then, is a variation on an established theme.

The ONF Connection

Just as with servers, the web titans have their reasons for going directly to ODMs for their networking hardware. Sometimes they want a simpler switch than the brand-name networking vendors offer, and sometimes they want certain functionality that networking vendors do not provide in their commercial products. Most often, though, they’re looking for cheap commodity switches based on merchant silicon, which has become more than capable of handling the requirements the big service providers have in mind.

Software is part of the picture, too, but the Wired story didn’t touch on it. Look at the names of the Internet companies that have gone shopping for ODM switches: Google, Microsoft, Facebook, and Amazon.

What do those companies have in common besides their status as Internet giants and their purchases of copious amounts of networking gear? Yes, it’s true that they’re also cloud service providers. But there’s something else, too.

With the exception of Amazon, the other three are board members in good standing of the Open Networking Foundation (ONF). What’s more,  even though Amazon is not an ONF board member (or even a member), it shares the ONF’s philosophical outlook in relation to making networking infrastructure more flexible and responsive, less complex and costly, and generally getting it out of the way of critical data-center processes.

Pica8 and Cumulus

So, yes, software-defined networking (SDN) is the software complement to cloud-service providers’ direct procurement of networking hardware from ODMs.  In the ONF’s conception of SDN, the server-based controller maps application-driven traffic flows to switches running OpenFlow or some other mechanism that provides interaction between the controller and the switch. Therefore, switches for SDN environments don’t need to be as smart as conventional “vertically integrated” switches that combine packet forwarding and the control plane in the same box.

This isn’t just guesswork on my part. Two companies are cited in the Wired article as “brokers” and “arms dealers” between switch buyers and ODM suppliers. Pica8 is one, and Cumulus Networks is the other.

If you visit the Pica8 website,  you’ll see that the company’s goal is “to commoditize the network industry and to make the network platforms easy to program, robust to operate, and low-cost to procure.” The company says it is “committed to providing high-quality open software with commoditized switches to break the current performance/price barrier of the network industry.” The company’s latest switch, the Pronto 3920, uses Broadcom’s Trident+ chipset, which Pica8 says can be found in other ToR switches, including the Cisco Nexus 3064, Force10 S4810, IBM G8264, Arista 7050S, and Juniper QFC-3500.

That “high-quality open software” to which Pica8 refers? It features XORP open-source routing code, support for Open vSwitch and OpenFlow, and Linux. Pica8 also is a relatively longstanding member of ONF.

Hardware and Software Pedigrees

Cumulus Networks is the other switch arms dealer mentioned in the Wired article. There hasn’t been much public disclosure about Cumulus, and there isn’t much to see on the company’s website. From background information on the professional pasts of the company’s six principals, though, a picture emerges of a company that would be capable of putting together bespoke switch offerings, sourced directly from ODMs, much like those Pica8 delivers.

The co-founders of Cumulus are J.R. Rivers, quoted extensively in the Wired article, and Nolan Leake. A perusal of their LinkedIn profiles reveals that both describe Cumulus as “satisfying the networking needs of large Internet service clusters with high-performance, cost-effective networking equipment.”

Both men also worked at Cisco spin-in venture Nuova Systems, where Rivers served as vice president of systems architecture and Leake served in the “Office of the CTO.” Rivers has a hardware heritage, whereas Leake has a software background, beginning his career building a Java IDE and working at senior positions at VMware and 3Leaf Networks before joining Nuova.

Some of you might recall that 3Leaf’s assets were nearly acquired by Huawei, before the Chinese networking company withdrew its offer after meeting with strenuous objections from the Committee on Foreign Investment in the United States (CFIUS). It was just the latest setback for Huawei in its recurring and unsuccessful attempts to acquire American assets. 3Com, anyone?

For the record, Leake’s LinkedIn profile shows that his work at 3Leaf entailed leading “the development of a distributed virtual machine monitor that leveraged a ccNUMA ASIC to run multiple large (many-core) single system image OSes on a Infiniband-connected cluster of commodity x86 nodes.”

For Companies Not Named Google

Also at Cumulus is Shrijeet Mukherjee, who serves as the startup company’s vice president of software engineering. He was at Nuova, too, and worked at Cisco right up until early this year. At Cisco, Mukherjee focused on” virtualization-acceleration technologies, low-latency Ethernet solutions, Fibre Channel over Ethernet (FCoE), virtual switching, and data center networking technologies.” He boasts of having led the team that delivered the Cisco Virtualized Interface Card (vNIC) for the UCS server platform.

Another Nuova alumnus at Cumulus is Scott Feldman, who was employed at Cisco until May of last year. Among other projects, he served in a leading role on development of “Linux/ESX drivers for Cisco’s UCS vNIC.” (Do all these former Nuova guys at Cumulus realize that Cisco reportedly is offering big-bucks inducements to those who join its latest spin-in venture, Insieme?)

Before moving to Nuova and then to Cisco, J.R. Rivers was involved with Google’s in-house switch design. In the Wired article, Rivers explains the rationale behind Google’s switch design and the company’s evolving relationship with ODMs. Google originally bought switches designed by the ODMs, but now it designs its own switches and has the ODMs manufacture them to the specifications, similar to how Apple designs its iPads and iPhones, then  contracts with Foxconn for assembly.

Rivers notes, not without reason, that Google is an unusual company. It can easily design its own switches, but other service providers possess neither the engineering expertise nor the desire to pursue that option. Nonetheless, they still might want the cost savings that accrue from buying bare-bones switches directly from an ODM. This is the market Cumulus wishes to serve.

Enterprise/Cloud-Service Provider Split

Quoting Rivers from the Wired story:

“We’ve been working for the last year on opening up a supply chain for traditional ODMs who want to sell the hardware on the open market for whoever wants to buy. For the buyers, there can be some very meaningful cost savings. Companies like Cisco and Force10 are just buying from these same ODMs and marking things up. Now, you can go directly to the people who manufacture it.”

It has appeal, but only for large service providers, and perhaps also for very large companies that run prodigious server farms, such as some financial-services concerns. There’s no imminent danger of irrelevance for Cisco, Juniper, HP, or Dell, who still have the vast enterprise market and even many service providers to serve.

But this is a trend worth watching, illustrating the growing chasm between the DIY hardware and software mentality of the biggest cloud shops and the more conventional approach to networking taken by enterprises.

Avaya IPO? Don’t Count On It

Reports now suggest that Avaya’s pending IPO, which once was mooted to occur this month, might not take place until 2013.

Sources who claim to be familiar with the matter told Reuters and Bloomberg that Avaya has deferred its IPO because of tepid demand amid competition for investment dollars from Facebook, the Carlyle Group, and Palo Alto Networks, among others.

Reconsidering the “Nortel Option”

Well, if you are generously disposed, you might believe that particular interpretation of events. However, if you are more skeptical, you might wonder whether an Avaya IPO will ever materialize. If I were making book on the matter — and I’m not, because that sort of thing is illegal in many jurisdictions — I would probably skew the morning-line odds against Avaya bringing its long-deferred IPO to fruition.

Some of you found it amusing when I mooted the possibility of Avaya pursuing the “Nortel option” — that is, selling its assets piecemeal to various buyers — but I can easily envision it happening. Whether that occurs as part of bankruptcy proceedings is another question, though Avaya’s long-term debt remains disconcertingly and stubbornly high.

Despite recent acquisitions, including that of Radvision for $230 million earlier this month, I don’t see the prospect of compelling and sustained revenue growth that would allow Avaya to position itself as an attractive IPO vehicle.

Unconvincing Narrative

No matter where one looks, Avaya’s long-term prospects seem unimpressive if not inauspicious. In its core business of “global communications solutions” — comprising its unified-communications and contact-center product portfolios — it is facing strong rivals (Cisco, a Skype-fortified Microsoft) as well as market and technology trends that significantly inhibit meaningful growth. In networking, its next-biggest business, the company’s progress has been stalled by competition from entrenched market leaders (Cisco, Juniper, HP, etc.), the rise of aggressive enterprise-networking newcomers (Huawei), and a chronic inability to meaningful differentiate itself from the pack.

According to a quarterly financial report that Avaya filed with the Securities and Exchange Commission (SEC) last month, the company generated overall revenue of $1.387 billion during the three months ending on December 31, 2011. That was marginally better than the $1.366 billion in revenue Avaya derived during the corresponding quarter in the previous year. In the fourth quarter of 2011, products accounted for $749 million of revenue and services contributed $638 million, compared to product revenue of $722 million and services revenue of $644 million during the fourth quarter of 2010.

If we parse that product revenue, Avaya’s story doesn’t get any better. The aforementioned “global communications solutions” produced $667 million in revenue during the fourth quarter of 2011, up slightly over revenue of $645 million in the fourth quarter of 2010. Those growth numbers aren’t exactly eye popping, and the picture becomes less vibrant as we turn our attention to Avaya Networking. That business generated revenue of $82 million in the fourth quarter of 2011, a very slight improvement on the $78 million in revenue recorded during the fourth quarter of 2010.

Lofty Aspirations

Avaya can point to seasonality and other factors as extenuating circumstances, but, all things considered, most neutral parties would conclude that Avaya has a mountain to climb in networking. Unfortunately, it seems to be climbing that mountain without sensible footwear and with the questionable guidance of vertiginous  sherpas. I just don’t see Avaya scaling networking’s heights, especially as it pares its R&D spending and offloads sales costs to its channel partners.

True, Marc Randall, who now heads Avaya Networking, has lofty aspirations for the business unit he runs, but analysts and observers (including this one) are doubtful that Avaya can realize its objective of becoming a top-three vendor. Hard numbers validate that skepticism: Dell’Oro Group figures, as reported by Network World’s Jim Duffy, indicate that Avaya has lost half of its revenue share in the Ethernet switching market since taking ownership of Nortel’s enterprise business nearly three years ago. Furthermore, as we have seen, Avaya’s own numbers from its networking business confirm a pronounced lack of market momentum.

Avaya’s networking bullishness is predicated on a plan to align sales of network infrastructure with key applications in five target markets: campus, data center, branch, edge, and mobility. The applications with which it will align its networking gear include Avaya’s own unified communications and contact center solutions, its Web Alive collaboration software, and popular business applications that it neither owns nor controls.

Essentially, Avaya’s networking group is piling a lot of weight on the back of a core business that is more beast of burden than Triple Crown thoroughbred.

Growth by Acquisition?

Perhaps that explains why Avaya is searching for growth through acquisitions. In addition to the acquisition of Radvision this year, Avaya last year acquired Konftel (for $15 million), a vendor of collaboration and conferencing technologies; and Sipera, a purveyor of session-border controllers (SBCs). The Radvision acquisition extended Avaya’s product reach into video, but it probably will not do enough to make Avaya a leader in either videoconferencing or video-based collaboration. It seems like a long-term technology play rather than something that will pay immediate dividends in the market.

So the discussion comes full circle as we wonder just where and how Avaya will manage to produce a growth profile that will make it an attractive IPO prospect for investors. I’m not a soothsayer, but I am willing to predict that Avaya will sell off at least some assets well before it consummates an IPO.

Avaya IPO? Magic 8-ball says: Don’t count on it.

Fear Compels HP and Dell to Stick with PCs

For better or worse, Hewlett-Packard remains committed to the personal-computer business, neither selling off nor spinning off that unit in accordance with the wishes of its former CEO. At the same, Dell is claiming that it is “not really a PC company,” even though it will continue to sell an abundance of PCs.

Why are these two vendors staying the course in a low-margin business? The popular theory is that participation in the PC business affords supply-chain benefits such as lower costs for components that can be leveraged across servers. There might be some truth to that, but not as much as you might think.

At the outset, let’s be clear about something: Neither HP nor Dell manufactures its own PCs. Manufacture of personal computers has been outsourced to electronics manufacturing services (EMS) companies and original design manufacturers (ODMs).

Growing Role of the ODM

The latter do a lot more than assemble and manufacture PCs. They also provide outsourced R&D and design for OEM PC vendors.  As such, perhaps the greatest amount of added value that a Dell or an HP brings to its PCs is represented by the name on the bezel (the brand) and the sales channels and customer-support services (which also can be outsourced) they provide.

Major PC vendors many years ago decided to transfer manufacturing to third-party companies in Taiwan and China. Subsequently, they also increasingly chose to outsource product design. As a result, ODMs design and manufacture PCs. Typically ODMs will propose various designs to the PC vendors and will then build the models the vendors select. The PC vendor’s role in the design process often comes down to choosing the models they want, sometimes with vendor-specified tweaks for customization and market differentiation.

In short, PC vendors such as HP and Dell don’t really make PCs at all. They rebrand them and sell them, but their involvement in the actual creation of the computers has diminished markedly.

Apple Bucks the Trend 

At this point, you might be asking: What about Apple? Simply put, unlike its PC brethren, Apple always has insisted on controlling and owning a greater proportion of the value-added ingredients of its products.

Unlike Dell and HP, for example, Apple has its own operating system for its computers, tablets, and smartphones. Also unlike Dell and HP, Apple did not assign hardware design to ODMs. In seeking costs savings from outsourced design and manufacture, HP and Dell sacrificed control over and ownership of their portable and desktop PCs. Apple wagered that it could deliver a premium, higher-cost product with a unique look and feel. It won the bet.

A Spurious Claim?

Getting back to HP, does it actually derive economies of scale for its server business from the purchase of PC components in the supply chain? It’s possible, but it seems unlikely. The ODMs with which HP contracts for design and manufacture of its PCs would get a much better deal on component costs than would HP, and it’s now standard practice for those ODMs to buy common components that can be used in the manufacture and assembly of products for all their brand-name OEM customers. It’s not clear to me what proportion of components in HP’s PCs are supplied and integrated by the ODMs, but I suspect the percentage is substantial.

On the whole, then, HP and Dell might be advancing a spurious argument about remaining in the PC business because it confers savings on the purchase of components that can used in servers.

Diagnosing the Addiction

If so, then, why would HP and Dell remain in the PC game? Well, the answer is right there on the balance sheets of both companies. Despite attempts at diversification, and despite initiatives to transform into the next IBM, each company still has a revenue reliance on — perhaps even an addiction to — PCs.

According to calculations by Sterne Agee analyst Shaw Wu, about 70 to 75 percent of Dell revenue is connected to the sale of PCs. (Dell derived about 43 percent of its revenue directly from PCs in its most recent quarter.) In relative terms, HP’s revenue reliance on PCs is not as great — about 30% of direct revenue — but, when one considers the relationship between PCs and related related peripherals, including printers, the company’s PC exposure is considerable.

If either company were to exit the PC business, shareholders would react adversely. The departure from the PC business would leave a gaping revenue hole that would not be easy to fill. Yes, relative margins and profitability should improve, but at the cost of much lower channel and revenue profiles. Then there is the question of whether a serious strategic realignment would actually be successful. There’s risk in letting go of a bird in hand for one that’s not sure to be caught in the bush.

ODMs Squeeze Servers, Too

Let’s put aside, at least for this post, the question of whether it’s good strategy for Dell and HP to place so much emphasis on their server businesses. We know that the server business faces high-end disruption from ODMs, which increasingly offer hardware directly to large customers such as cloud service providers, oil-and-gas firms,  and major government agencies. The OEM (or vanity) server vendors still have the vast majority of their enterprise customers as buyers, but it’s fair to wonder about the long-term viability of that market, too.

As ODMs take on more of the R&D and design associated with server-hardware production, they must question just how much value the vanity OEM vendors are bringing to customers. I think the customers and vendors themselves are asking the same questions, because we’re now seeing a concerted effort in the server space by vendors such as Dell and HP to differentiate “above the board” with software and system innovations.

Fear Petrifies

Can HP really become a dominant purveyor of software and services to enterprises and cloud service providers? Can Dell be successful as a major player in the data center? Both companies would like to think that they can achieve those objectives, but it remains to be seen whether they have the courage of their convictions. Would they bet the business on such strategic shifts?

Aye, there’s the rub. Each is holding onto a commoditized, low-margin PC business not because they like being there, but because they’re afraid of being somewhere else.

Networking Vendors Tilt at ONF Windmill

Closely following the latest developments and continuing progress of software-defined networking (SDN), I am reminded of what somebody who shall remain nameless said not long ago about why he chose to leave Cisco to pursue his career elsewhere.

He basically said that Cisco, as a huge networking company, is having trouble reconciling itself to the reality that the growing force known as cloud computing is not “network centric.” His words stuck with me, and I’ve been giving them a lot of thought since then.

All Computing Now

His opinion was validated earlier this week at a NetEvents symposium in Garmisch, Germany, where Dan Pitt, executive director of the Open Networking Foundation (ONF) made some statements about software-defined networking (SDN) that, while entirely consistent with what we’ve heard before from that community’s most fervent proponents, also seemed surprisingly provocative. Quoting Pitt, from a blog post published at ZDNet UK:

“In future, networking will become just an integral part of computing, using same tools as the rest of computing. Enterprises will get out of managing plumbing, operators will become software companies, IT will add more business value, and there will be more network startups from Generation Y.”

Pitt was asked what impact this architectural shift would have on network performance. He said that a 30,000-user campus could be supported by a four-year-old Dell PC.

Redefining Architecture, Redefining Value

Naturally, networking vendors can’t be elated at that prospect. Under the SDN master plan, the intelligence (and hence the value) of switching and routing gets moved to a server, or to a cluster of servers, on the edge of the network. Whether this is done with OpenFlow, Open vSwitch, or some other mechanism between the control plane and the switch doesn’t really matter in the big picture. What matters is that networking architectures will be redefined, and networking value will migrate into (and be subsumed within) a computing paradigm. Not to put too fine a point on it, but networking value will be inherent in applications and control-plane software, not in the dumb, physical hardware that will be relegated to shunting packets on the network.

At that same NetEvents symposium in Germany, a Computerworld UK story quoted Pitt saying something very similar to, though perhaps less eloquent than, what Berkeley professor and Nicira co-founder Scott Shenker said about network-protocol complexity.

Said Pitt:

“There are lots of networking protocols which make it very labour intensive to manage a network. There are too many “band aids” being used to keep a network working, and these band aids can actually cause many of the problems elsewhere in the network.”

Politics of ONF

I’ve written previously about the political dynamics of the Open Networking Foundation (ONF).

Just to recap, if you look at the composition of the board of directors at the ONF, you’ll know all you need to know about who wields power in that organization. The ONF board members are Google, Yahoo, Verizon, Deutsche Telekom, NTT, and Microsoft. Make no mistake about Microsoft’s presence. It is there as a cloud service provider, not as a vendor of technology products.

The ONF is run by large cloud service providers, and it’s run for large cloud service providers, though it’s conceivable that much of what gets done in the ONF will have applicability and value to cloud shops of smaller size and stature. I suppose it’s also conceivable that some of the ONF’s works will prove valuable at some point to large enterprises, though it should be noted that the enterprise isn’t a constituency that is foremost of mind to the ONF.

Vendors Not Driving

One thing is certain: Networking vendors are not steering the ONF ship. I’ve written that before, and I’ll no doubt write it again. In fact, I’ll quote Dan Pit to that effect right now:

“No vendors are allowed on the (ONF) board. Only the board can found a working group, approve standards, and appoint chairs of working groups. Vendors can be on the groups but not chair them. So users are in the driving seat.”

And those users — really the largest of the cloud service providers — aren’t about to move over. In fact, the power elite that governs that ONF has a definite vision in mind for the future of networking, a future that — as we’ve already seen — will make the networking subservient to applications, programmability, and computing.

Transition on the Horizon

As the SDN vision moves downstream from the largest service providers, such as those who run the show at the ONF, to smaller service providers and then to large enterprises, networking companies will have to transform themselves into software vendors — with software business models.

Can they do that? Some of them probably can, but others — including probably the largest of all — will have a difficult time making the transition, a prisoner of its own past success and circumscribed by the classic “innovator’s dilemma.”  Cisco, a networking colossus, has built a thriving franchise and dominant market position, replete with a full-fledged business model and an enormous sales machine. It will be hard to move away from a formula that’s filled the coffers all these years.

Still, move they must, though timing, as it often does, will count for a lot. The SDN wave won’t inundate the marketplace overnight, but, regardless of the underlying protocols and mechanisms that might run alongside or supersede OpenFlow, SDN seems set to eventually win adherents in CFO and CIO offices beyond the realm of the companies represented on the ONF’s board of directors. It will take some time, probably many years, but it’s a movement that will gain followers and momentum as it delivers quantifiable business benefits to those that adopt it.

Enterprise As Last Redoubt

The enterprise will be the last redoubt of conventional networking infrastructure, and it’s not difficult to envision Cisco doing everything in its power to keep it that way for as long as possible. Expect networking’s old guard to strongly resist the siren song of SDN. That’s only natural, even if — in the very long haul — it seems a vain pursuit and, ultimately, a losing battle.

At this point, I just want to emphasizes that SDN need not lead to the commoditization of networking. Granted, it might lead to the commoditization of certain types of networking hardware, but there’s still value, much of it proprietary, that software-centric networking vendors can bring to the SDN table. But, as I said earlier, for many vendors that will mean a shift in business model, product focus, and go-to-market strategy.

In that Computerworld piece, some wonder whether networking vendors could prevent the rise of software-defined networking by refusing to play along.

Not Going Away

Again, I can easily imagine the vendors slowing and impeding the ascent of SDN within enterprises, but there’s absolutely no way for them to forestall its adoption at the major service providers represented by the ONF board members. Those players have the capital and the operational resources, to say nothing of the business motivation, to roll their own switches, perhaps with the help of ODMs, and to program their own applications and networks. That train has left the station and it can’t be recalled by even the largest of networking vendors, who really have no leverage or say in the matter. They can play along and try to find a sinecure where they can continue to add value, or they can dig in their heels and get circumvented entirely.  It’s their choice.

Either way, the tension between the ONF and the traditional networking vendors is palpable. In the IETF, the vendors are casting glances and sometimes aspersions at the ONF, trying to figure out how they can mount a counterattack. The battle will be joined, but the ONF rules its own roost — and it isn’t going away.