Virtualization management is ultimately where these vendors will run their course in this market.  Everyday, dozens of elements managed in their frameworks are “falling off the grid” and popping up somewhere in VMware’s vCenter–which is rapidly evolving into the new dashboard for the new IT organization.  Yet, VMware is not sticking it to the big guys on their own, they are fostering a whole marketplace of start-ups allowing them to leverage their APIs and their virtual appliance construct.

One such company is Xangati, which briefed me earlier this week about their two new virtual appliances focused on virtualization management.   The power of the virtual appliance model is that it allows Xangati to have an enterprise-wide deployment within a couple hours (covering both the virtual and physical infrastructure) versus a framework which can take weeks and months to get started.  Even more importantly they are riding the wave of virtualization economics through being delivered as a virtual machine.  As a result they can as can others drive down the cost of management to a fraction of what it used to be–in the same way that VMs have done for servers.

What Xangati is capitalizing on is that there is a screaming need for management solutions that provide high value in the virtual world.  First of, you have to be virtual to properly manage the virtual.  Secondarily the value that is provided has to be focused directly at the virtualization teams first, since they are the ones feeling the growing pains with virtualization.  When there is a breakdown in virtual server or desktop performance the calls are channeled their way and not to IT operations.  And in turn they will use vCenter to first get their bearings on an issue, but they need more than just element management.  That is the void Xangati fills by focusing on how those elements are communicating and what they are doing at the time of a performance problem.  Why wouldn’t someone fill that visibility void at a mere $299 dollars a hypervisor?

That is what I like so much about this virtual appliance model, it that it takes the elongated business case out of the equation and allows the doers to buy what they need to by when they buy it.  It is after all this kind of model that has been driving IT over recent years–the organic growth of productivity solutions.  Will the incumbent management vendors go down this path?  Unlikely, but companies like VMware and Xangati will be happy to let them stick to their slow growth markets.

Based on the hype that Cisco and much of the media created, I’m not sure what I was expecting but my expectations were high.  So what was it?  Today Cisco launched its new carrier core router, CRS-3.  The CRS-3 is the evolution of a product Cisco launched a few years back, CRS-1, which, at the time, set the high water mark for carrier routers.  Upon its release, many people chuckled at the concept of a 92 Tbps router, thinking we’ll never need that kind of bandwidth, but what we found was that indeed we do!  Cisco has shipped almost 5000 CRS-1’s–clearly, there’s demand.

In comparison, the CRS-3 is a behemoth.  It’s 100 Gig-E ready with a total switching capacity for 322 Tbps.  In theory, one could download every movie ever made in about 4 minutes.  It’s also IPv6 ready, clearly designed to handle the explosion of mobile devices, and it’s optimized to work with Cisco’s data center products UCS and Nexus, meaning it’s “cloud ready” as well.  The CRS-3 is over 10x the speed of the closest competitive product and does indeed set a new high bar for networking.

Cisco sees the bandwidth being driven by the convergence of mobility, cloud computing and video.  This is similar to the vision Yankee Group laid out at the start of 2008 where we predicted that an Anywhere Enterprise would be driven by the convergence of cloud, mobility and social media.  We continue to see these as big drivers with video being a very specific form of social media.

In the enterprise markets this means growth of bandwidth intensive applications such as workload mobility, unified communications, videoconferencing and Telepresence.  Moving these complex applications to the cloud certainly decreases the complexity level for enterprises and allows the network operators to move from being a vendor of commodity services to a strategic partner.

In the consumer markets, the vision of converged mobility, video and cloud means more high bandwidth cloud based video and real time gaming services.  HD TV is here and 3D TV is right around the corner and these will be huge drivers of bandwidth.

Overall Cisco estimates that each person will consume 15TB of data between our personal and professional lives every month.  Is the 15 TB a real number?  Maybe and maybe not. But the fact remains, we use all the bandwidth we’re given and will continue to.

So, did the Cisco CRS-3 live up to the immense hype that preceded it?  No, I don’t think so. But they did set a very high bar.  It’s a good solid announcement that will allow network operators to put a foundation in place to drive differentiated multimedia and mobile services.

3Com is one of the industries most misunderstood companies.  Over the past few years almost the entire networking product line has been refreshed.  It has a huge base of business in China as well as low cost engineering that turns out high quality products quickly.  Its biggest problem though is brand.  When you mention 3Com to anyone in the networking industry, one of two comments usually come up: (1) “those are the guys that bailed on the enterprise market a decade ago;” or (2) “those are the guys that make NICs (network interface cards), palm or low end networking gear.”

Bringing 3Com products into HP not only solves HPs product holes, but also solves 3Com’s brand and distribution problems.  Two problems, one solution.  The move also creates a de facto #2 vendor in the networking industry.  Currently, in the switching market, which is the biggest of the enterprise networking submarkets, HP and 3Com flip flop for #2 depending on how the numbers are cut.  Our research has HP at 11% and 3Com at 9% creating a company with a combined 20% of the overall ports.  This will be the first time the industry has had a clear alternative to Cisco since the mid ‘90s when Nortel was a dominant vendor.

This is the third big acquisition announcement in the past few months following Cisco-Tandberg and Avaya-Nortel.  There is a clear trend to companies rationalizing down the number of vendors they use so we see this trend continue as companies like Brocade, F5, Riverbed, Polycom and Aruba all become legitimate acquisition targets for larger companies.  So, while this may be the most recent announcement, it won’t be the last.

For a more detailed look at my analysis, look for the Yankee Group focus report on this acquisition.

On the surface, plunking down $405 million in cash for a company that’s expected to do $90 million in 2009 might seem kind of steep but Lifesize is expected to grow in the neighborhood of 50 percent this year, so the potential to make the investment back fairly quickly is there.  Additionally, the corporate videoconferencing market has been hot lately because of companies cutting travel costs, increased focus on collaboration, green compliance and overall easier to use systems.  Yankee Group estimates the videoconferencing market to be approximately $2 billion in 2009 and grow 15 to 18 percent in 2010, so a high growth market for Logitech to leverage Lifesize.

Most people know Logitech as the company that makes PC peripherals such as the computer mouse, keyboards or desktop webcams—all necessary things but not exactly synergistic with high end corporate videoconferencing.  Its decision to move into the corporate videoconferencing market does seem out of place but shouldn’t be a total surprise.  One of the big trends that Yankee Group has been following is the rapid consumerization of the enterprise, and as this happens and more workers work remotely, video will begin to cut deeper across our personal and professional lives.  Long term this trend will allow Logitech to bring much of the focus it has on consumer design and ease of use to the videoconferencing market and create an effective go to market strategy but, in the short term, it will likely run these as separate businesses.

I think this is a leading indicator of what’s to come for what was a niche market.  Today, there are still a lot of problems but many of the barriers are starting to fall.  The systems are easier to use, the vendors are focusing on interoperability between one another (took them long enough) and we’re starting to see some focus on intercompany videoconferencing (see my blog from earlier this week).  All of these will contribute to videoconferencing being a “rising tide” that will lift all the boats in the market.  Cisco has made its play, HP has moved its Halo product into its TSG (technology solutions group) and we’re expecting even more activity in this market.  Tandberg’s chief’s rival, Polycom, is a definite acquisition target with Avaya and HP being possible acquirers.  Radvision is another company that could be an acquisition target for any vendor in the network, communications or collaboration space.

In summary, look for the activity that’s started in this space to continue as we move into 2010 as video becomes a bigger part of our every day work life.

One of the new products, called Intercompany Media Engine, allows organizations to communicate with other organizations over any IP network expanding the value of the tools.  The “network effect” is derived from Metcalf’s Law which states that the value of a network is proportional to the square of the number of nodes on it.  The more nodes there are, the higher the value.  This has certainly been the driving force behind the growth in popularity of many of the consumer collaboration tools such as chat, Facebook and Twitter.  However, our corporate collaboration tools are generally limited to the reach of our own company which limits the value.  I know there are ways to make the tools work but that just underscores the problem, B2B communications shouldn’t be something that we have to “make work.”  As long as that’s true, corporate UC will never enjoy the hockey stick growth the industry has been waiting for.

As part of this release Cisco is extending the B2B capabilities to Telepresence.  Finally we can Telepresence with people in other organizations.  I was chatting with a business leader just last week that has a Telepresence system and he confessed to me that while the system is great for executive meetings, it just doesn’t get that much use because most people have no idea how to Telepresence with others.  This is a huge hurdle for Telepresence to overcome and is a great step in increasing the value of corporate video.  Ultimately what you would like is for people to just try and communicate with one another, if video communications is possible, then invoke it without having to worry about what kind of system it is, if they interoperate, etc.  Obviously the intercompany Telepresence doesn’t get us there but it’s a small step towards that.

This is the first announcement out of Cisco where they truly leverage the investment they made in WebEx.  Software as a service (SaaS) has been growing by leaps and bounds over the past several years and Yankee Group research predicts that by 2012, more software will be bought as SaaS than as traditional premise based software; WebEx gives Cisco a leg up in that regard.  Of particular interest is Cisco’s cloud based instant messenger and WebEx Mail that leverages the acquisitions of Jabber and PostPath respectively.   It may seem strange that Cisco would choose to move into two markets, IM and e-mail that are heavily dominated by Microsoft and, to a lesser extent, IBM but I do think the shift to SaaS creates an opportunity for Cisco.

The shift to SaaS based e-mail will create a change in buying habits, just like the shift to SaaS based software has in other markets and Cisco’s hoping to grab a chunk of that market.  This won’t be a quick transition or something that gives Cisco 25 percent share overnight but with all the regulatory mandates around e-mail retention and the overall increase in the size of e-mail, it gets much harder for organizations to manage their own e-mail server, so it makes sense to push it into the cloud and be done with it.  One of Cisco’s advantages in this over the other web based services is that it allows the users to continue to use Outlook for the client.  This means IT can change out the back end but have the workers go on and use the client that they are familiar with.

The announcements today also bring Cisco into the social media markets, one of the key building blocks of an Anywhere Enterprise and a missing component of corporate UC solutions.  Cisco’s “Show and Share” is a social video solution which allows workers to upload videos, tag them, rank them, search, etc making it easy for workers to share videos with one another.  Social media was one of the hot topics at the recent VoiceCon event and I expect to see Cisco continue to grow this area as a point of differentiation.

There were a number of other announcements Cisco made included some new phones and end points but the above ones were the ones that I saw as the key announcements.  Later this year Microsoft will announced its next wave of OCS making it a full PBX replacement so now we’ll be able to buy phones from Microsoft and e-mail from Cisco.  Who would have thought it?

The intersection of UC and Social Media.

Social media has been a growing theme at VoiceCon but this was the first time a vendor demonstrated true integration between a corporate communications tool and a consumer social media tool.  In the Siemens keynote, VP Mark Straton demonstrated having Twitter integrated into OpenScape.  The integration wasn’t just embedding the tool into OpenScape but much deeper, it was using the context from Twitter to manipulate OpenScape.  For example, if a user ‘Tweeted’ from a mobile phone, “Having Lunch with Fred Knight to discuss next years VoiceCon agenda,” the system would recognize it, automatically change the user’s presence status to ‘busy’ and then route calls to voicemail.  Many CIOs I’ve spoken with have wondered how to leverage tools like Twitter.  Using Twitter to manipulate calendars, presence engines, etc could make the use of it move from just a niche, experimental thing to a core part of enterprise collaboration.

The thing I really liked about this is that Siemens didn’t try and re-create a consumer tool in an enterprise way, they just used the tool that people are familiar with and are already using.  The chances of a successful deployment and high enterprise usage are much greater this way than trying to force a similar tool on workers just for the office environment.

Interoperability between vendors

This has always been a big issue at past VoiceCons but seems like the issue has been raised to another level.  Note to all vendors, users DO NOT WANT a single vendor solution; they want ones that work with one another seamlessly.  Currently the level of interoperability varies from vendor to vendor, some of it easy, some of it needing gateways or special software and some just doesn’t work.  Failing to deliver interoperability really stifles growth of UC.  Deployments would skyrocket if buyers didn’t have to worry about the long term implications of single vendor lock in.

I would like to see VoiceCon evolve to where it’s a hybrid of the current show and the old Interop networking conference where interoperability is an actual theme and the conference is used for vendors to showcase their ability to work with others.  My guess is the vendor community wouldn’t be supportive of this yet, but it’s in their best interests.

Nortel and the fate of its customers

The pending acquisition of Nortel by Avaya has left a huge customer base scratching its head.  I was on a two hour panel on the topic of what Nortel customers should currently do and, even though it started at 8am, the session was packed.  The net result of the panel is that Nortel customers aren’t in that bad a spot.  It may seem like a bad thing right now but over the next few months, every vendor that sells VoIP and UC is going to be hitting the Nortel customer base up with competitive offerings on migrating them to a different solution.  In a sense Avaya will be pitching this too, although they have an edge since they own they will own the Nortel technology.

Our advice to Nortel customers is pretty simple.  Make sure that you’re at the most current version of Nortel software since that’s likely to make migrations easier and unless you’re in dire need of an upgrade, be patient and let the market come to you.

Our advice to Avaya is that within 30 days of closing, there absolutely has to be a definitive statement of direction as to what stays and goes in the product line.

Mobility and device evolution

All of the sessions on Blackberrys, iPhones and mobile devices were packed with interested parties as companies try and figure out how to manage the explosion of devices.  This concept was represented well in Dr. Alan Baratz’s opening keynote where he talked about the conundrum companies find themselves in where, despite the fact that CIOs would like to get rid of desk phones, many users want them still as an augmentation to the mobile phone.  He went as far as to state that corporate phones need to be reinvented to be multipurpose devices that could support video, conference calling, etc.

This juxtaposes the Microsoft vision where the PC will eventually be the primary communications device where everything will be driven off the desktop and the “phone” may just be a handset for people that still prefer them.

So, we now have PCs, deskphones, video phones, mobile phones and probably lots of other things that could be a workers primary communications tool.  My bet is on the mobile phone but it’s an interesting thing to follow the evolution of.

The first and most obvious change was the corporate logo change. Gone is juniper plant and dark blue font and enter a much simpler logo that highlights the “IP” in the logo.

Only time will tell whether the new logo has any impact on they way the company is perceived, but I do remember when Cisco changed its logo, Juniper issued a fake press release stating it saw no need to change its logo. In fact, I still have the t-shirt they sent along with it. So, what’s changed? What’s changed is the approach Juniper is taking to networking as the company is finally thinking along the lines of being a “platform” vendor. The concept of “network as a platform” is a vision that Yankee Group has been articulating for years so it’s nice to see one of the major networking vendors moving in this direction.

As for the actual announcements at the event themselves, here were the highlights:

• Re-articulation of the “single OS” message and push of “Junos” as the brand. This has been Juniper’s key marketing message for the past few years. I actually think it has some merit, and I think Juniper’s done a good job of quantifying the benefits, but it does have some holes. First, Juniper isn’t a single OS company. While it has Junos, ScreenOS (from Netscreen) lives on. In fact, the new high density top of rack switch is an OEM from Blade Network Technologies so Juniper has some way to go to get to a single OS. Also, I think most organizations do not really consider the OS as part of the network equipment purchase, so Juniper has a lot of work ahead to make the OS matter. I think it can matter, but it’s going to require a shift in thinking.

• Launch of the long awaited Trio chipset—formerly known as the code name “trinity” —and service provider routers MX 960 and MX 80. This was, by far, the beefiest part of the day. The Trio chipsets (for which there are 4—does anyone else find that confusing?) are a leap ahead in silicon technology. CTO Pradeep Sindhu went through all the technical aspects of the product – 65nm technology, 1.2 billion transistors, 604GB IO performance, etc, which most people won’t understand but he did give some stats that people could get, like being able to download the whole library of congress in 12 seconds. The performance specs of MX 960 and MX 80 are through the roof compared to competitive products. Service providers are the bread and butter for Juniper and these products will keep Juniper ahead of the curve.

• Launch of Junos Space and Junos Pulse. Space is an open platform for ISVs to develop network enhanced applications on. It includes an APIs, SDKs and applications that will act as a “platform” for application development. It follows a trend that Extreme started a number of years ago (although Extreme never managed to monetize it). More recently, Cisco launched its AXP developer program and announced a number of ISV partners with it. The concept of Space is fine but I would have liked to have seen some third party examples of Junos based applications. The three Juniper showed off were created by Juniper and, while this is interesting, it’s not fulfilling on the vision of a third party ISV program. It alluded to partnered applications but didn’t show any. Pulse is a unified end point application. The concept is that all clients that IT departments need to put on the various end points are collapsed into one client. Initial uses are for WAN acceleration, dynamic security and location aware services. Overall a good start but the proof will come in Junipers ability to attract third party ISV partners.

• David Yen went over the Juniper data center to cloud vision. I was highly disappointed here. The majority of David’s presentation was great but was a repeat of the vision that the company outlined when it launched Stratus, its joint project with IBM. There was a “3 steps to cloud” network roadmap given that was “simplify, secure and shared” which isn’t really anything new. What was missing was much of the detail on what exactly Stratus is. This includes how Juniper plans to address the storage connectivity challenges in a data center which is currently dominated by Cisco and Brocade, when a product will be available, etc. It’s great vision, but it’s still just a vision and needs more detail to be tangible.

However, despite all of the fanfare, the conference did leave many open questions regarding its long term strategy including:

• How it leverages the opportunity in mobile environments. As we said after the acquisition of Starent by Cisco, the single largest opportunity for layer 2/3 equipment is in the mobile markets. In fact, Juniper had a rolling counter that showed the number of clients attached to a network—a visual just to show you how massive this opportunity is going to be. However, the majority of vendors in this space go to market with a single, mobile and fixed solutions approach. When Juniper’s partner-to-be, Starent, was snatched up by Cisco, Juniper was left wanting. However, Juniper did outline a project “Falcon” that appears to be a reference architecture to deliver on the core transport part of the mobile environment, but it’s not clear who the partners might be.

• What its wireless LAN strategy is. There’s no doubt that 802.11n is going to have a significant impact on the way companies design the corporate networks. Juniper, who has a great desire to be an end to end vendor, has a huge hole in its product line by not having a WLAN solution. Industry rumor is that Juniper is building its own but that’s likely to not be ready until next year and limited to just branch environments meaning Juniper might miss the initial wave of 11n deployments.

• How it will address future product innovation. Juniper had been a company that hadn’t been shy to acquire. Some were successful (Unisphere, Netscreen) and some not so much (Peribit, Redline) but it did use acquisition for innovation. Today it seems the single OS vision is driving Juniper to build more than buy and this could slow down their innovation. For example, it could have acquired any number of Ethernet switch vendors (Force10, Foundry, Extreme) instead of building its own. Sure it wouldn’t have been Junos based, but they would have a larger share of the pie by now.

Overall my biggest question for Juniper is how a mid sized company like Juniper competes long term in this ever evolving industry. The majority of Juniper’s competitive environment is huge multifaceted companies like Alcatel Lucent, Cisco, Huawei and others. These companies go to market with a unified wired, wireless and services solution and Juniper, at its size, can’t compete along those lines. The enterprise space has Cisco and HP as well as smaller organizations that are very deep in a certain area (like Brocade in the data center). Juniper again, falls somewhere in the middle. Juniper is too small and doesn’t have the right mindset to grow significantly through acquisition but it’s too big to be an acquisition candidate for all but a few companies, most of which have too much competitive overlap. So for now, the vision of what Juniper announced is fine, but all of us Juniper watchers will be looking to see how quickly they can get there.

• 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.

Both moves are significant for different reasons and both accomplish the same goal.  Put more traffic on the network allowing Cisco to stimulate sales of routers and switches, the cash cow and engine that makes Cisco go.

Tandberg fills an interesting void for Cisco.  Cisco has almost single handedly evangelized the Telepresence and video markets taking them it from relative obscurity to a market that almost everyone knows about and is interested in.  However, with price points in the six figure range and the need for nailed up bandwidth, Telepresence isn’t for everyone.  I’ve talked to many customers and resellers that have told me that while many buyers like Telepresence, the steep price point has acted as deterrent and caused many of them to look at solutions that are a step down, such as the HD solutions available from Polycom or Tandberg.  So Cisco evangelizes the market and then others reap the rewards, not exactly the Cisco style.  The fact is, Cisco had nothing to offer customers at the level below Telepresence, but Tandberg gives the company a broad line of video products that includes desktop, room based, HD and fully immersive video.  The best thing about Tandberg is that all the solutions run on a common data network creating network traffic like no other application in the enterprise.

Tandberg also fits nicely into Cisco’s overall UC strategy and makes them the only UC vendor to offer a broad based video solution.  Microsoft has Roundtable, a conference room system (that’s actually very cool), Mitel has their own Telepresence system but most of the other vendors choose to go to market through partnership. Cisco has chosen to do it themselves, which again is consistent with their historical go-to-market approaches.  We’re expecting video to continue its double digit growth in enterprise over the next several years giving Cisco an early lead here but leaving Polycom out there as another acquisition candidate for the likes of HP.

While Tandberg was a strategic acquisition that will help with growing their enterprise penetration, Starent solved a different problem for Cisco.  There’s no question that the biggest opportunity in layer 2/3 networking today lies in the opportunity to sell into wireless ecosystems.  Many of Cisco’s competitors, Ericsson, Huawei, Alcatel-Lucent and Nokia Siemens have been going to market with combined wired-wireless offerings.  While Cisco could talk the talk, they really couldn’t back it up with product.  It’s not surprising that Cisco would pay such a hefty premium given Starent’s strength in the mobile data market, which we are expecting to demand 29 times capacity expansion over the next six years.

So this purchase has the obvious impact that it allows Cisco to compete better with the larger equipment vendors that can offer wired and wireless solutions.  However, this has a secondary impact in that it puts router rival, Juniper, in a very tough position.  Industry rumors had indicated that one of the global operators had pushed Juniper into partnering with Starent to deliver a combined wired (Juniper) and wireless (Starent) offering.  In fact, many other industry people I’ve talked with had expected that Juniper would be the company pulling the string and buying Starent, so the news that Cisco had acquired Starent came as somewhat of a surprise.

Juniper finds itself in somewhat of an awkward spot in that it’s too small to be a significant acquirer to grow its portfolio rapidly and it’s a little too big to be an acquisition company for most companies that might need them.  This raises the question of how a router pure play can continue to compete for business in the carrier market when so much of the growth and demand is coming from the wireless ecosystem.

Cisco’s made their play in these two areas now it’s up to the competitive market to respond.

*** Phil Marshall, YG Senior Research Fellow, contributed to this blog.

What’s driving IBM to do this?  One could look at this and interpret it simply a response to Cisco’s Unified Computing System (aka California) launch when Cisco started stepping on IBM’s toes by becoming a server vendor.  I’m sure that’s part of the motivation, but this trend of compute and networking coming together is one of the outcomes Yankee Group predicted in our “Introducing Anywhere IT” report.  The transition to Anywhere IT demands that compute and network resources work as one to orchestrate the movement of virtual workloads across the network.  To date only Cisco’s UCS product and best-of-breed vendor Liquid Computing are the only two vendors that actually have a solution to address this need right now, but the OEM agreements give IBM some of the building blocks to create a “best-of-breed” solution.

IBM downplays the competitiveness this may have with its long time partner Cisco, but frankly that’s just smoke and mirrors.  I think initially IBM may be more careful than aggressive as it will test the waters and see how Cisco responds (unlike HP who has stated earlier that it has Cisco squarely in its cross hairs) but over time IBM and Cisco will have to compete more as unified computing and Anywhere IT move from vision to reality.  For Juniper, this partnership gives a viable enterprise channel for its enterprise product line, which it has sorely lacked over the years.  Because I’m expecting IBM to tread lightly initially, the impact to Juniper is likely to be a year or so out but the potential is there.

Historically an OEM channel strategy hasn’t been successful with data network equipment (although it has been with storage networking) but unified computing will make this a viable go to market strategy for all network vendors.  Based on this we are predicting the following over the next 12-24 months:

• Brocade, who has many OEM agreements in place already with its storage business will lead the way and expand its partnerships to companies such as Sun (Oracle), Dell and HP. Because of the experience Brocade has with this type of business model it should be the big winner from this trend.
• IBM will add at least one more OEM partner to fill in gaps on the low end of the product line. Rumor is that IBM has been considering 3Com for this role so it may get a piece of the IBM pie. Ultimately IBM will have almost a “menu” of networking vendors to choose from and where it can mix and match products from different vendors to deliver a full, IBM branded solution.
• HP will likely OEM to fill in the high end of its product line. My prediction is Brocade but HP could look to someone like Force10 that may be less competitive overall with them.
• Cisco will lose margin or share in Ethernet switching. Cisco’s competition in this market used to be a bunch of small companies that just didn’t have the resources to compete on the same level as Cisco. Today, HP is much more aggressive with its products, IBM’s moving back in,,Juniper is now a viable competitor and Brocade merged with Foundry to create a bigger competitor. With so many viable options, Cisco will be challenged to keep both its share and above industry average margins in place. The fact that it has kept both for so long is remarkable but the bell now tolls for Cisco and the likes of HP, and IBM is ringing it.
• Cisco’s strategic partnership strategy shifts from compute to applications. As Cisco grows its UCS portfolio it really doesn’t need to partner in the compute area any more. The HP alliance is all but over. IBM and Cisco still need each other for now but expect to see Cisco do more with the likes of VMWare, Oracle and SAP and then move the integration business to companies like Accenture and WiPro.