The Vendors to Watch in Network Transformation

We might be facing a major, even seismic, shift in networking. How are vendors going to respond? Will the changes that we could see have an impact on their ranking, even on their bottom lines? The situation is still very fluid, but there are some early signs and signals we can try to read. There are three major forces driving the shift, so let’s start with them and move to their impact.

Force Number One is bit commoditization. That’s another way of saying that willingness to pay for network bandwidth is rising more slowly as bandwidth increases. Users tend to cluster at the low-capacity end of service ranges, and the price of twice the bandwidth is far, far, less than double the base price. That’s making it harder to sustain profit margins on access and connection services, since competition tends to push prices down where differentiation isn’t possible.

The second force is open-model networking. Vendors have relied on incumbency and inertia to sustain their customer commitments, even as they try to raise prices to improve their own bottom lines. Today, we’re seeing more network products based on open platforms and open-source software, and this not only reduces the strike price for technology (forcing incumbents to discount), it also threatens to create a completely open-model future, where proprietary technology will be difficult to sell.

The final force is edge and metaverse computing. For decades, network traffic has been increasingly video content, and that has been served from edge-sited cache points, the “content delivery network” or CDN. This has reduced core network traffic, but cloud computing and general Internet access still creates a need for core connectivity. Edge computing, driven in part by the metaverse, will place more compute resources in metro centers, and meshing these centers will shift networking toward an almost-data-center-network edge meshed via an optical core.

OK, so what can be done about these forces? That’s obviously a lot more complicated.

Bit commoditization is perhaps the top of the cause-and-effect heap. There’s a growing demand for capacity, particularly in the consumer market where the Internet is becoming (virtually, in many senses) the center of the universe. There is no corresponding expectation of proportional payment, so network operators have been trying to cut costs in order to sustain their profits. You can cut cost through your capital and expense budgets (capex and opex), and for over a decade, operators have been trying to do both. That’s put pricing pressure on the network vendors, and their response has been to discount when they had to, but to focus on trying to (subtly) lock in customers with features, certification programs, etc.

Open-model networking is arguably a response to this top-level force. Asking vendors to discount, absent any credible alternative source of products, is a waste of time. Operators take heart from the server market, where Linux and open-model server technology has combined to create a highly competitive market where vendor lock-in is nearly impossible. It’s a buyers’ market. The operators see that, and hope that a similar move to white boxes and open-source software would make networking a buyers’ market too. The challenge for open-model networking is integration, because the classic approach demands the buyer pull pieces of technology together to make it work. DriveNets’ biggest impact on networking has been to create a credible one-stop shop for open-model technology, but they still face the force of incumbency and the willingness of competing proprietary vendors to discount if they have to.

5G deserves a special comment in the open-model space, because 5G is transformational at the infrastructure level, and that sort of thing opens opportunities for non-incumbent vendors to step in and take some market share. It therefore represents something that incumbents will want to defend vigorously. The question is how, given that being against openness is cynical at best and totally opportunistic, manipulative, and doomed to bad PR at worst. We have a mixture of software vendors playing in this space, like Mavenir, Dish, Microsoft, and VMware, but the market is still trying to shake out a face of open-model 5G.

The thing about these two force-response pairings is that they’re accepting the notion that bit commoditization is inevitable because no connection features can be added. This assumption is true as far as it goes, but as I noted last week in my blog on AT&T’s response to conditions in the market, there are now new circumstances to be considered. As AT&T said, “I’m talking about moving up the stack to do things with our network that allows us to refer our connectivity, because it will work better with people who are running more sophisticated software on top of that stack.” That’s a way of saying that while AT&T doesn’t see itself becoming an OTT player, they do see themselves building out “up the stack” to deliver connectivity-related features that would facilitate other players’ creation of more sophisticated stuff. AT&T, presumably, might sell that stuff, but it would surely sell the up-the-stack features.

The final force, the edge-and-metaverse movement, is important because it’s a disruptor of the network model and not just of ROI. Edge computing and metaverse hosting, even perhaps Web3 “virtual machines”, are surely metro functions. Metro areas are big enough to justify the resources, and few enough that once they exist, they could be meshed with fiber to create a kind of distributed super-core. Metro areas would be a combination of a powerful data center and data center network, including CDN hosting, and an element in this optical mesh. What this has the potential of doing is revolutionizing how networks are built, which undermines the value of incumbency. It’s a force that current network leaders need to watch, because it’s the one that could making resting on your laurels start to look like resting under them.

So that’s the forces and the general responses. Can we say anything about the vendors and where they might be taking things? I think that there are really two “disruptive” vendors, ones that may be representing change rather than trying to cement incumbency. They are DriveNets, who’s the open-model fresh face, and Juniper, who seems to be the only “incumbent” who’s really proposing to face the future through an insightful expansion of features, rather than by trying to deny or obstruct it.

DriveNets’ product is a kind of modular router, a cluster of white boxes that behave symbiotically, with specialized but open (if not strictly open-source) software. It’s a disaggregated approach, one that they describe as creating a “network cloud” that can be divided into multiple router instances or used cooperatively to create a network. The individual white boxes are interchangeable, which means that one set of spares supports all the possible missions.

Juniper is a traditional network equipment vendor who’s made some non-traditional acquisitions. Of particular note are those of 128 Technology (SD-WAN, virtual networking, and session-based security), Apstra (intent-based data center network deployment) and Mist (AI/ML for management of operations). They’ve created a powerful symbiosis among these new elements, one that aligns nicely with the changes in the network market that I’ve summarized above.

Both these vendors have responded to the “seismic changes” that are at least possible (and IMHO, inevitable), but it’s interesting that the two are on opposite sides of the incumbency issue. DriveNets needs buyer acceptance of the notion that radical changes are underway to blast buyers loose from their current network models and commitments. They do well where an operator has decided that change is coming, but incumbents tend to defeat them where no such realization is present. Juniper, as an incumbent, has to balance their tales of revolution against the fact that revolution could put some of their own base at risk…perhaps to an up-and-coming like DriveNets.

If I’m right about seismic change, then it’s these two network vendors I would watch most closely. What I’d watch for is how they respond to the 5G and edge computing initiative in particular. We are already seeing, with AT&T, some transformational thinking that suggests that operators are already planning for change, and AT&T has offered some insight into what those operators are likely to be thinking about. Right now, that prospective vision isn’t a major element of any vendor’s positioning, including both DriveNets and Juniper.

Aggressive positioning is always a risk for a startup. Aggressive positioning toward a radical market shift is always a risk for an incumbent, and culturally it’s a risk for pretty much everyone. However, if there is a seismic shift, then naked aggression is the winning response. I’m really interested in seeing whether either or both these vendors, or a competitor, takes the plunge.

But what plunge should be taken? I’ve said in past blogs that any focus on content or experience would inevitably lead to a concentration of service assets in metro areas, because they’re close enough to the edge to deliver QoE but deep enough to represent a reasonably large service opportunity base. Metro networks would look like data center networks meshed through data-center-interconnect (DCI) optical technology. We’d have much, perhaps even most, of the high-value stuff terminating there (certainly all the content, metaverse hosting, and so forth) and accelerated connectivity among the centers.

What about the other vendors? In the mobile space, I think the “incumbent” is really Nokia, and they are doing a decent job of navigating the Open RAN shift. I still think VMware, of the software/cloud vendors, has the cleanest shot at open-model 5G overall, but because network operators are favoring cloud-hosted solutions, they risk being submerged. Cisco, as always, is fast-following rather than trying to lead the trend, but they’re likely to kick off some M&A as soon as they see that there’s clear evidence that my seismic shift is real. I think we may see clear movement this year, almost surely in the second half, but depending on geopolitics and economics (including COVIDnomics) we might have to wait till early 2023 for a clear trend to emerge.