Earlier today, Juniper and Dell announced an OEM agreement where Dell would private label and distribute Juniper’s MX service routers, EX Ethernet switches and SRX secure gateways.  This announcement is strategic in nature as virtualization is driving networking and computing together requiring vendors to align their product portfolios along this trend.  This partnership follows many other announcements made over the past two years including the following major industry events:

• Storage networking leader Brocade acquires best of breed IP networking vendor, Foundry Networks
• HP moves former ugly stepchild, Procurve to favored child status by bringing into the Technology Solutions Group (TSG) that includes other data center technologies such as storage and servers
• Cisco launches Unified Computing System (UCS) and declares war on server vendors
• Big Blue counters Cisco’s move and jumps back into networking and agrees to OEM Brocade IP networking equipment
• Juniper and IBM outline Stratus “vision” for cloud and the role of the network.  IBM also agrees to OEM Juniper Ethernet switches
• Dell expands networking product portfolio and agrees to OEM Brocade IP networking products
• Dell further expands portfolio agreement with today’s announcement with Juniper.

This move has only upside for both Juniper and Dell.  Juniper has strong enterprise network products but lacks a significant channel to move its products.  The Dell and IBM partnerships could become a significant channel for Juniper and Brocade.  Currently, OEM distribution makes up almost all of the market for storage networking but not for data networking.  As the compute and network industries are brought together, OEM will need to be more involved in network decisions.  Even if it’s only 10% of the overall market, that’s still $1.8 billion in revenue that will flow through this channel which is larger than the combined IP networking revenues for both Juniper and Brocade.  There’s product overlap with both Brocade and Juniper so neither will get all of the business from IBM and Dell but there’s enough business that both will be significant beneficiaries.

This trend of having compute and networking brought together is a bad one for the rest of the industry.  Historically, the enterprise networking industry was known as Cisco and the seven dwarves which pitted the 800 pound gorilla, Cisco, up against a number of companies with small share including Extreme, Enterasys, 3Com, Nortel, Avaya, Alcatel and Foundry.

Some of the dwarves are already gone through acquisition (Nortel, Foundry), and others, such as Extreme and Enterasys, are on their deathbeds.  In fact, the only one of the original dwarves that could pose a threat to Cisco in the future is 3Com.  3Com’s China out strategy creates a unique positioning in the market where they have a growing customer base in China and low cost R&D group to keep products current and near the front of the pack as far as technology goes.  Cisco’s current dominant share is reflective of that fact that executed well but also these smaller companies continued to mismanage their own business giving Cisco a bit of a free ride.  Cisco’s incredible run deserves a tip of the hat, but it could not have been accomplished without the competition making many mistakes.

What Cisco will find moving forward is a much more difficult competitive environment.  Instead of competing with tiny companies that couldn’t sell cheese to a mouse, they’ll be competing with the likes of HP, Dell and IBM.  Even the “pure plays” of Brocade and Juniper are much larger than the pure plays of years past bringing Cisco’s “free ride” to an end.  Additionally, Cisco won’t be able to use many of the strong arm tactics it has with partners and channel any longer as the competitive options are as big, or bigger, than Cisco.

Overall, I see the OEM and compute vendor influence being a significant factor in the growth of networking and will help shape the new vendor landscape.  While the death of the seven dwarves could be viewed as a negative for the industry, I’m excited about the new life that’s been brought into a once stagnant industry.