One of the more interesting companies at VMworld this year is a small start up called Xsigo.  In my role as an analyst, I see loads of start ups and there are very few that have technology that is differentiated enough for me to consider them “game changing.”  Riverbed was one, Xangati another and most recently SeaMicro are a few and Xsigo is another.

At VMworld this week, Xsigo released an Ethernet-based virtual I/O solution which will allow virtual I/O to move from a niche technology to a main stream technology that can be used to scale virtualization and cloud environments.  For those who aren’t hard core, data center geeks, I’ll explain the significance of this and I’ll start with a definition of I/O and virtual I/O.

I/O is the term used for the flow of data to and from a device attached to a network.  When you save a file to the network, that’s  I/O.  Xsigo and other virtual I/O vendors deal with server I/O, that is information sent to and from a server.  Virtual I/O is a term used to describe the “splitting” a single physical I/O connection into multiple virtual I/O connections.  For example, if I had a server and I needed four network connections (NICs) and three storage connections (HBAs) without virtual I/O, I would need several physical I/O cards in the back of a server.  Generally new I/O cards are added when new VMs are added or connecting to different storage systems, etc., so it’s not uncommon to have many I/O connections in one server.  Virtual I/O would allow me to deploy a single physical I/O connector and then create seven virtual ones on the server itself.  If I need an eighth, I just create yet another virtual one.

Although this sounds simple, traditional virtual I/O requires the opening up of a server, the possible removal of I/O cards, installation of new cards, running new cables and then some stuff to be installed on the server.  Anyone that’s ever worked in a data center (and I spent the first 10+ years of my career in a data center – that’s why I’m such a fun guy!) will tell you that if requires opening up of servers and running new cables, it isn’t practical enough to deploy, no matter how big the cost savings.  That’s why virtual I/O technology has primarily been limited to new server implementations.

What Xsigo launched this week is that ability to create the virtual I/O connections over a standard Ethernet connection.  Almost every server comes with an Ethernet connector integrated on the mother board so the connector is already there.  No more cards to install, no more proprietary cables and no opening of servers but all the benefits of virtual I/O without the installation mess.  Another thing data center managers will tell you is that the more than can be done over Ethernet, the better.  Ethernet is simple to work with, it’s low cost, highly resilient and has become the preferred connectivity method in data centers.  Ethernet based virtual I/O brings the benefits of virtual I/O without the installation headaches and that’s the reason I think it’s got game changing potential.

Earlier today, Yankee Group Analyst Dmitriy Molchanov and I hosted a webinar in which we explored the infrastructure, content and differentiation difficulties facing video service providers. check out the replay below to here our thoughts on how these operators can thrive in the future.

The webinar runs about an hour.

• download slides (pdf)
• download audio (mp3)

But in the new world of digital content, the rules change. What happens when you have digital content partners sending products requested for download by consumers? We say we don’t want to be in the ‘dumb pipe’ business, but ask yourself if you’re ready to remit 70 cents on the dollar for what will soon become billions of transactions every month? To the accountants, that’s a 70% Cost of Services burden before you add in your own internal costs. Can your cash flow sustain that? And what about when you have 500, 5,000 or even 10,000 partner sources of digital downloads? Can your team sustain that level of activity? Time to throw away the spreadsheets, overhaul the old cost management processes, and automate.

The digital content side of cost management, known as Supplier/Partner Relationship Management (S/PRM) has a new set of requirements for this new line of business. There are more suppliers offering more digital goods via multiple channels at greater frequency, and with more co-op promotion deals. Speed to market rules. In this new world, boring old bill payment starts to get a lot more strategic. Check out the requirements in our recent report.

CSPs know well they are at risk of market disintermediation by over-the-top (OTT) purveyors. One way to combat that foe is to have razor-sharp automated S/PRM processes that make it easy for application providers to do business with you, processes that compensate even the smallest ‘garage band’ developer quickly and accurately, to keep them coming back with more products for you to sell.

Suddenly it’s more than just paying the bills, isn’t it?

A10’s claim to fame has been that it can offer the performance of the market leaders such as F5 and Brocade but at a lower price making many wonder how they were able to get as price aggressive as they have been and still maintain traditional industry margins.  It appears now though that A10 may have taken some short cuts in product development.

Back in April, both F5 and Brocade filed lawsuits against A10.  F5, who should have sued over the similar naming of A10 versus the market leader F5, filed a lawsuit over two patent infringements.  Brocade, launched its own suit that claims A10 violated 7 patents.  Earlier this month Brocade extended the suit and filed a patent infringement and trade secret misappropriation case against A10 and three A10 employees that were former Foundry employees (Foundry was acquired by Brocade, hence the suit comes from Brocade now).

The case alleges that A10s AX series infringes on nine US patents.  It also claims that A10 CEO Lee Chen, CTO Raj Jalan and software manager Ron Szeto all misappropriated trade secrets including the source code from ServerIron, the Brocade ADC.

Leapfactor is a cloud-based micro-apps company that is seeking to accelerate the trend of the consumerization of business processes through the proliferation of both ready-to-use and customisable micro-apps that can in theory run on any device and link to almost any back-end system (for starters think automated and customisable alerts & notifications, easy sharing of business indicators, and on-the-go work approval flows).

In an interesting call with their CEO, Lionel Carrasco yesterday, what struck me was not their ambition but how much of the emerging Anywhere could be seen in the micro-apps approach:

• The core proposition is a redefinition of where value resides in mobile communications, no longer HW, no longer even SW, but true to mobility it lies in customisation to the business, and agility in deployment and execution.
• Value can be realised quickly, negating in this case the need for large upfront investments in software licenses. Cost becomes OPEX and crucially it becomes flexible depending on user demand.
• The model is intended to be highly scalable, both in terms of the number of users for whom it could be deployed within a business and by having B2E, B2C and B2B applicability.
• Everyone can be empowered by the potential of mobility, not just those core application software license holders in your organisation.
• By offering a public SDK aimed not just at the professional developer community but company IT departments, and partners; it’s less about zero-sum winners and losers in mobility, and more about empowering the ecosystem.
• By making it easier to create, customise, and update applications, businesses are not slowed down by the extended product development cycles of for example SAP applications.

There are however the inevitable challenges and they are myriad – leapfactor’s CEO acknowledged that security around the cloud-based architecture is high on the list of their clients’ concerns. It goes further than security however, with recent Yankee Group data pointing not only to security but a host of other potential barriers that enterprises consider cloud computing to throw up.

Add to this the challenges of this business model for markets with a lot of legacy infrastructure. Not so much a problem for Brazil and Mexico, two of the focus markets for the initial deployment, but for Western Europe who is next in the line up, it will be a more complicated sell-in.

And let’s not forget the challenge of growing the whole ecosystem. This is difficult enough to do as a large enterprise, but as a start-up this will require a lot of clever partnerships with systems integrators, OEMs and others to make it work.

Nevertheless, the potential points to one of the most interesting dynamics of Anywhere – when innovations allow the Anywhere enterprise to focus less on the “how” and more on the “where” opportunities in the contact zone between businesses and their customers, and between employees and their business processes, the relationship becomes a reciprocal one, where each one has a mobilizing force on the other.

But despite the Clear/Sprint 4G network currently covering only approximately 51M of the US population, when Verizon is expecting to cover over 100M by the end of this year, I don’t think we can sound the death knell for Clear either.  Yes, I know, there are rumblings about Clear moving to LTE, but ahead of the Harbinger network Clear is starting to offer wholesale services (can you say Best Buy?) showing a bit of strategy flexibility.  Good move.  And I think the facts will show that in two or three year’s time, there are folks who just like the Clear service, brand and are loyal customers.  Seriously, we can’t really take that for granted.  Toyota knows this all too well. It took its lumps, but has bounced back handsomely.  Clear may end up shifting technologies to LTE, but will there be a Clear in two or three years?  Yeah I think so.

What is clear (no pun intended) is that there is not ONE market all of these operators are dipping into.  There are MANY (and I’m not even going to try and spell them out right now) markets, with differing price points, service needs and even device requirements.  Think not?  I point again at the Sprint Pre-Paid services and those are masterfully aligned with different market requirements:  Virgin Mobile for data heavy users, Boost for voice users, Assurance for low-income families and is supported by state programs, and Common Cents Mobile for the budget conscious.  Not to mention Sprint’s Post-Paid users.

Just as there is no one killer app, there is not a golden technology bullet solving all problems and no one device to fit all users.  There is also not one best network or one user to fit all markets.  We should all stop talking like there is one.

Today, Verizon, AT&T and T-Mobile publicly announced a contactless payment consortium. It has no name, no CEO and no concrete details on cities of deployment, payment processor or, really much of anything. HOWEVER. It will use contactless (read NFC) technology to facilitate the payments and it may well bypass the traditional Visa and MasterCard duopoly. Intriguing.  So much so in fact that my colleague Andy Castonguay published a report on this very topic last month (available here).

Here are my $0.02.  Remember Simpay? No? Let me refresh your collective memories. In February 2003, Vodafone, T-Mobile and Orange formed a mobile payments association collectively called “Simpay”. The initiative had a simple remit – that subscribers could charge merchants and content resellers for goods and services to their mobile bill, bypassing traditional payment networks.

Fast forward to June 2005. Simpay press release:  “Following the decision of one of its founding Members not to launch Simpay for the foreseeable future, [...] not to pursue its activity on a pan-European scale as originally planned.” 

(cue sound of air being released from a balloon)

Why did Simpay fail? A variety of reasons… the readiness of consumers to use alternative payment mechanisms (cards, checks and most of all, cash), the relatively nascent mobile payments landscape in Europe at the time, the lack of retailer buy-in and, not insignificantly, one of the three major participants pulling the plug.

So, have lessons been learnt? The U.S. consortium that is yet to have a name* has, IMHO, more potential than the not-long-deceased European predecessor. And why?… 

• It is intended to be deployed in a single country. Admittedly a very large and diverse country, but at least the language is the same. Apparently.
• It may offer an alternative payment network to vocally disgruntled retailers that are looking to escape the shackles of Visa and MasterCard (but not too much)
• The technology is so very nearly there to offer contactless NFC payments at the point of sale in the US, AND there are a number of large retailers that already have the hardware in place from the last attempt to make contactless work, circa 2006.
• Operators may not be necessarily charging to a mobile bill, unlike Simpay, but to a third party. Hence, the potential for churn inducing sticker shock is  not expected to be a problem (banking / processing allegedly being dealt with by Discover and Barclays)
• The public at large is, theoretically at least,  prepared to experiment with new and exotic forms of payment. Tests of NFC have been done ad nauseum for years and in each of these rather self serving tests, the public has embraced the concept of tapping a phone / keyfob / card / dog with sticker on its nose against a payment instrument. People love this.

The one issue remains however. Consortium. Not to suggest that the triumvirate of AT&T, Verizon and T-Mobile can’t come to some equitable agreement on forming a mobile payments network, but it didn’t work before. And, all it took for Simpay to implode was one of the players to drop out.

Lesson learned?…

*May I be the first to suggest not a name, but a symbol like mid-90′s Prince, or an emoticon even? How about :-/

With today’s technology, it’s often difficult to determine who is at fault for such an accident; the utility, the third-party locator or Ernie. As the only real evidence lies in the physical paint markings, insurance companies and investigation teams will sometimes find themselves in landfills feverishly sifting through mountains of construction rubble trying to piece together what happened. Jigsaw puzzles are significantly less fun when they come fully loaded with substantial legal ramifications.

Electronic Marking Wand Prototype USPTO #7640105

Construction damage disputes are hardly rare; The Common Ground Alliance estimates there were over 200,000 “facility events” in 2008 alone. CertusView is currently developing an Electronic Marking Wand to help avoid these potentially messy situations. The wand is loaded with connectivity to create a digital record of exactly where and when ground was painted.As the operator manually sprays paint on the ground, an RFID tag identifies the color of paint being sprayed and GPS capability (with the help of other onboard technology) determines the precise coordinates of the markings. This information is then transferred via Wi-Fi to an application that digitally superimposes the paint markings onto an aerial image of the worksite. With this visual documentation on record before any excavating takes place, the specifics of the paint spraying will no longer be points of dispute.

CertusView’s wand is a great example of how an M2M solution can help solve an industry’s inefficiencies. By leveraging existing and emerging technologies in creative ways, embedded device developers have the power to transform current inadequacies and legal quagmires into business opportunities.

Today, Catalonia – one of Spain’s largest Autonomous Regions – voted to ban the practice within its territory. This may mark the beginning of the end.

No less dramatic was today’s announcement in Madrid that Telefónica de España had finally killed Portugal Telecom’s resistance to selling Vivo in Brazil. After weeks of bitter fighting between shareholders and in the courts – including a dramatic withdrawal of Telefónica offer last Friday – the Spanish company was able to assume 100% control of what had been a contentious 50:50 joint venture. The price tag was €7.5B up from an initial offer around €5.7B which was itself a considerable premium over VIVO’s market cap at the time of the initial offer.

What will Telefónica do now that they finally have Vivo?

• There will be a branding change from “Vivo” to “Movistar”, after a longish period of co-branding. Telefónica needs to link its fixed operation, Telesp, to mobile but “Vivo” has been in the market for years now and it could be dangerous to change abruptly especially outside of Sao Paulo state.
• There will be some tentative triple play offers (Fixed Voice, Fixed Broadband, Mobile) but adding TV will require that Bill 29 (currently in the upper house of the Brazilian Parliament) gets passed.
• They will definitely merge the two companies to start realizing synergies in infrastructure, IT and customer care. This will take longer than they hope but is essential to paying for the big premium that Telefónica paid for Vivo.
• Finally, they will use Vivo’s network outside Sao Paulo state to jumpstart a national fixed offer, at least in the Enterprise market. I believe that this was one of the drivers of the deal and an important source of growth.

What will PT do now that they have “lost Brazil”?

• Shareholders were pressuring PT to take the cash, but management was right that without Brazil the company’s growth prospects were slim and none. Market share in Portugal can only go down. Angola and Mozambique may be under-served Portuguese speaking-countries but their combined population is less than that of Sao Paulo State and their economies are weaker.
• A simultaneous announcement said that PT had agreed to invest half the amount received (€3.75B) in Oi – Brazil’s largest fixed operator and fourth largest – but fastest growing – mobile operator. In return they get 21% which should make them one of – if not the largest shareholder. But Oi’s balance sheet is dominated by debt – debt held by government pension funds. These funds are in turn controlled by the Brazilian government since their leaders serve at the mercy of the President’s office.
• Brazilian President Lula de Silva said this week he welcomed an Oi/PT partnership to deliver on the country’s national broadband strategy.
• What happens with the other €3.75B was not announced. Certainly Telefónica’s offer awakened the interest of PT’s shareholders who wanted access to the cash. PT’s management may have other ideas.

Telefónica has what it has always wanted – absolute control of the leading mobile operator and the opportunity to raise Telesp to a truly national competitor. It can do non-TV triples today and quad-play very shortly. Look for (finally) increased competition in fixed telecom outside of traditional territories (Telesp in Sao Paulo State, Oi in the rest of the country). Look for Telesp/VIVO/Movistar BR to increase its market share in mobile at the expense of TIM – the only operator without a fixed telecom network.

PT has played half the chips they received for Vivo by putting it in Oi. The Brazilian government would like to see that €3.75B invested in a national broadband network. Much as I believe in broad scale national broadband programs, the payoff is very long term. Why private shareholders would want to take this risk is at best unclear. Furthermore, there is the question of governance. PT once again finds itself in a difficult marriage, this time with what is rapidly becoming a government-controlled company pursuing a political agenda.

Catalonian bulls will sleep more soundly tonight (presuming that they’ve heard the news). Telecom stock market bulls need to be more careful at least with respect to PT. This autumn’s presidential elections could have a significant impact on the value of PT’s stock.

Earlier today, I was joined by two of my Yankee Group colleagues, Benoît Felten and Camille Mendler, for a webinar about how the telecom industry will grow. Each of us offered up some unique perspectives on what a growth strategy might look like, from new industry partnerships, to next-generation access services, to mobile pricing.

The webinar runs about an hour: audio (mp3) and slides (pdf).