Cisco, Ericsson Partner on Telecom's Future
In a broad partnership, the networking and mobility giants team on R&D, customer service, network management, multivendor systems, and more.
I believe it was at Cisco Live 2014 that then Cisco CEO John Chambers said the industry would see "brutal consolidation" as vendors look to grow their portfolios to address the needs of an increasingly complex technology landscape. Today, with rising trends such as mobility, cloud, software-defined networks, network functions virtualization, and big data, that complexity is unquestionably at an all-time high -- and that's driving a definite need to deliver end-to-end, turnkey solutions that let customers deploy technology faster.
Winning in the digital era is predicated on speed. If an organization can move fast, it can capture share quickly and leapfrog the competition. Those that take too long to react to business opportunities will fall behind and join the likes of Radio Shack, Circuit City, and other companies that couldn't make the shift to digital.
Because of this need for speed, Chambers' prediction has proven to be right. Dell acquired EMC in October, and just last week French digital services firm Atos SE announced its plans to take over Unify (see related post, Unify Will be Siemens' No More).
While these two examples are primarily enterprise focused, things are no different in the telecom market.
Currently, much of the growth in the telecom industry is due to the explosion in mobile devices and applications. However, there is no such thing as an all-wireless network. Every radio-access network connects back to wired networks somewhere, driving the need for a combined wired and wireless offering.
Currently only ZTE and Huawei can offer end-to-end solutions, a marketplace dynamic that prompted Nokia to pony up $16.8 billion to acquire Alcatel-Lucent (deal still pending approval). The combined organization will be much better equipped to compete with these fast-growing Chinese vendors.
Cisco and Ericsson have chosen to go another route.
On Monday, Nov. 9, the two companies outlined out plans for a strategic partnership to create "networks of the future." The broad partnership includes joint R&D, customer service, network management, multivendor systems, and other aspects that one would expect to get from a single company. The partnership will combine $11 billion in R&D, be active in 180 countries, and include almost 50,000 employees. The joint venture should be able to compete much more effectively in the telecom market than either organization could do going it alone. The partnership is expected to generate up to $1 billion in revenue for both companies by 2018.
The partnership does beg a question, or two. If the need exists, why didn't Cisco just acquire Ericsson? Or why didn't Ericsson acquire Juniper Networks? Each of these has been speculated for quite some time now, but neither has happened. If you look back in time, each has acknowledged this trend -- Ericsson with its acquisition of Redback Networks in 2006, and Cisco's purchase of Starent Networks in 2009. Neither acquisition, however, really had the oomph to compete with Huawei and ZTE.
I haven't talked to Cisco about this particular deal, but I believe this is part of the new Cisco. Chambers, who is now executive chairman, and his successor, CEO Chuck Robbins, both discuss the need to act quickly to capture market transitions. Mega mergers tend to be slow and can create a lag in R&D as the companies come together.
From a historical perspective, it's hard to argue with this. Mergers such as those between HP and Compaq and Alcatel and Lucent typically cause companies to take a few steps backwards before they can move forwards. In some cases, like with Alcatel-Lucent, it's fair to say the combined company never really is able to catch up to the market after spending the time and energy required of a substantial merger. This is one of the reasons why I liked the move that HP made when it acquired Compaq, splitting the company into two businesses. This bucked the trend of "brutal consolidation." For HP, it was better to be lean and mean than trying to manage the behemoth that crossed too many markets with too many products.
Cisco has chosen to continue to move forward with smaller acquisitions like that of Tropo for its cloud-based communications development platform Lancope, for its cyber security threat defense capabilities. But for capturing share in other markets it has chosen to partner.
For example, Cisco has an innovative partnership with Akamai to address cloud optimization, and despite a history of competitiveness, Cisco and F5 Networks are now great partners. The Ericsson partnership follows along those lines. It lets both companies move now with solutions immediately available, and then focus on long-term customer needs with joint solutions.
Watching the IT and communications industries moving forward will be fascinating, as I'm sure the consolidation we've seen to date will continue. However, it will be interesting to see if other vendors follow the Cisco-Ericsson way, and choose to partner deeply instead of going through the pains of mega mergers.