Let the real battle about software-defined networks (SDN) begin.
Human nature is as constant and predictable in tracking technical evolutions as it is in tracking the rise and fall from grace of kid stars. At one point, Miley Cyrus is a cute kid, the next, a fallen angel. The same with Justin Bieber (though the cute phase was far shorter). And the same, I say, for software-defined networks.
It’s a very vague comparison, of course. SDNs haven’t gotten arrested or performed lewdly at the MTV VMAs. The connection simply is that what happens in the initial feel-good era will give way to the harshness of the real world.
In the case of SDNs, the early honeymoon involves simply considering the elegance of the concept: Separating the intelligence controlling the data from the devices that actually do the trafficking opens up a number of great possibilities. The centralization allows a global view of the network and what is needed to perform specific tasks. It allows changes, such as adding bandwidth, to be made much more quickly. It greatly increases the use of commodity hardware.
Real-life complications enter the picture when efforts begin to actually create such networks in the real world. The gap between the promise and the reality, often referred to as the hype cycle, slows the process down and, in some cases, can grind it to a fatal halt.
What Will the Incumbents Do
A big issue is that the very promise of these networks cuts to the core of what the dominant incumbents do. They are threatened and are not going to cede the battlefield. Indeed, they are going to try as hard as they can to co-opt the new idea.
Cisco is the big banana in networking and stands to lose a lot if SDNs replace the proprietary approaches employed to date. This week, JP Morgan essentially said that Cisco’s alternative to SDN is financially unsupportable, and seemed to suggest that the company wasn’t upfront in a presentation on the topic at its analysts’ conference in December.
The controversy coalesced on a slide that made claims about the comparative cost of SDNs and Cisco’s Application Centric Infrastructure (ACI) approach. Cisco claimed that its approach would cost less than a SDN by a good margin. The following commentary, excerpted at Network World, is brutally direct. The comments make reference to the slide, so the details are not clear. What is perhaps more important is how the language shreds Cisco:
There is a lot wrong with this analysis in our opinion. First, we believe the $4,000 price shown above is Cisco’s absolute rock bottom provided only to hyperscale web customers. Second, the price does not appear to include Smartnet or L3 license fees. We agree that Smartnet is likely to be tossed in with larger deals but don’t expect that to be the case with L3 licenses. Finally, we believe that the $1,000/yr for the Whitebox OS is inaccurate in this scenario. We believe that the real license fee in that case could drop to something closer to $200/switch/year.
The language doesn’t suggest that JP Morgan believes Cisco has made an innocent mistake. The sense, quite clearly, is that the company is taking the position that Cisco is misstating the facts. The firm is putting its rating where its writing is: It downgraded Cisco’s stock from Neutral to Underweight and cut Cisco’s target price from $21 to $17, according to Barron’s.
The Barron’s story has more from JP Morgan’s assessment, which was written by Senior Analyst Rod Hall. The downgrade wasn’t a punishment for what Hall considered an inaccurate slide. It was because the advent of SDNs will hurt Cisco’s profitability:
However, one of the insights we come away with is that Cisco’s services fees and licenses significantly inflate their pricing. Over time we would expect these fees to come under the most pressure as Cisco is forced to compete with lower cost solutions that offer, in many ways, superior operational efficiency.
This post, of course, only presents the side of the story attacking the veracity of Cisco’s presentation. There undoubtedly is a counter-argument. At a higher level, however, is the realization that the fundamental change SDNs portend will generate strong and even desperate resistance.
Separately, Cisco made announcements on SDN this week. SearchSDN said that Cisco announced a controller based on the open source OpenDaylight project and extended ACI’s functionality from the data center to the wide-area network and local-area network (WAN and LAN).
There is a long way to go before SDNs generally are accepted. Despite the challenges, however, it is safe to say that the company’s initiative has had a better few months than Justin or Miley.