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The Oracle Descends into the Communications Marketplace
So, did Oracle offer $1.7 billion for Acme Packet because it wants to get into the communications business, or because it sees communications as a linchpin to sell more software and services? My guess is that, in the short- and even the mid-term, it's the latter; but ultimately, it's both.
Oracle is among the handful of dominant global software companies, and the simple fact of the matter is that communications is being built into, well, everything. Our enterprises have long depended on interconnected software, but we're soon going to have smart cars, refrigerators, buildings, watches, eyewear, you name it. Much of those smarts are, or soon will be, delivered via the Cloud, and the bid for Acme Packet reflects Oracle's decision that it couldn't or shouldn't rely on someone else to cover network access.
Moreover, Acme Packet doesn't produce just any network device, it's the company that was the first to jump on the Session Border Control (SBC) bandwagon, and it led the SBC market until recently, when it was overtaken by Cisco. That must be more than galling to those within Acme's leadership who fought the router wars against Cisco in the '90's, but it doesn't detract from the fact that they've done a heck of a job: Oracle's offered them close to $2 billion for the company and Acme has a great base of customers and contacts both inside the enterprise and among the service providers.
So, if this deal goes through, Oracle will wind up owning a substantial portion of the growing but still small market for access to SIP Trunks; Zeus Kerravala believes that SIP Trunks have captured less than 5% of the access line market thus far.
More importantly, Oracle will own, rather than having to source, a very important component of their software-based solutions for both enterprises and service providers: An SBC that also includes a broad set of gateway and transcoding capabilities. This Acme Packet SBC and gateway functionality can apply essential security and traffic management to any Internet Protocol channel, e.g. Ethernet backbone and MPLS networks, as well as SIP trunks.
But beyond the pure growth opportunities, SIP Trunks are intriguing because of their strategic potential. Here are some attributes worth keeping in mind:
* It's a market that generates revenues from both sides of the demarc: Whoever uses or delivers SIP Trunking service needs SBCs--that's everyone, from enterprises and SMBs to the service providers.
* SIP Trunks provide the "last mile" of end-to-end IP service. Until SIP Trunks, true end-to-end IP didn't exist. And if you're building for the 21st century, are you going to deploy an architecture other than all-IP?
• It's the preferred access method for Cloud providers. The new Cloud SPs assume an all-IP world, and without legacy systems to take into account, SIP Trunks and SBCs are typically cheaper for them to deploy.
There's another aspect of SBCs that bears mentioning: SBCs already are multi-purpose devices--they do gateway/protocol conversion tasks, security, transcoding, call recording and even some directory-based call routing. But there's been speculation that SBCs could do even more. As part of the SIP Trunking track at Enterprise Connect, we're running a session that will examine functionalities that could be added to the SBCs' arsenal. In short, depending on how SBCs evolve--and on how Oracle invests to make them evolve--Oracle's wedge into the communications business could expand, perhaps considerably.
So this deal has a lot of angles, even beyond the SIP Trunking/SBC arena. Oracle's bid for Acme Packet is part of a larger transition--communications is migrating into a software-driven business. This migration has been going on for some time--for close to a decade, the majority of the dollars spent on many, if not most, enterprise communications purchases has been for software, not hardware.
What is new is the growing presence and, perhaps soon the dominance, of software companies in key segments of the enterprise communications and collaboration space. Now, I hasten to add that this is by no means a fait accompli. In the nearly three decades that I've been covering this market, I've seen IBM come and leave enterprise communications no less than three times. And while Microsoft is enjoying a great run with Lync, it has yet to demonstrate that it can grow and retain market share in the same way that it has grown mind share.
But there's no question that more companies with software in their DNA are coming into this market. That has huge implications for budget, both capex and opex, and for how enterprise IT goes about provisioning, supporting and maintaining communications networks, systems and services. It is already causing major dislocation and realignment among traditional communications manufacturers and the channel. And, of course, it has tremendous impact on the skill sets that IT organizations and communications professionals will need in the near future. All of us are in for quite a ride