The 800 pound gorillas in communications & networking are looking to each other's markets for continued growth.
Today, computing giant IBM announced that it would be entering an OEM agreement with network performance specialist Brocade. Under the terms of the agreement, IBM will sell network equipment from Foundry (which was acquired by Brocade) under IBM's own brand. This is more than just a simple reseller agreement that IBM has with many of the network vendors, as the products will actually bear the IBM logo, a significant move for IBM, who has maintained a neutral approach to networking since it got out of networking many years ago. This announcement includes metro, wiring closet and data center switches as well as Ethernet routers, instantly giving IBM an end to end portfolio of networking products to go to market with.This is just one of many data center oriented vendor announcements made over the past few months which includes Cisco's UCS product, Oracle buying Sun and HP launching its Matrix product. All of this activity is being driven by the transformation of the data center that is bringing communications and IT technology together, causing the vendors in the data center to land-grab for each other's markets. Reading the press release, it's easy to see the significant value that an IBM OEM agreement will be to a relatively small company like Brocade, but there are larger implications here. Below are some of the things we may see over the next year or so.
* The network vendor landscape is forever changed. While IBM downplays the competitive aspect of this with its long time partner Cisco, it's clear this relationship has changed. We've got IBM now selling IP networking equipment and Cisco selling servers, creating much more competitiveness between the two companies. This is similar to the wedge that is being driven between HP and Cisco, although HP has been much more vocal about this than IBM has been. Prior to HP Procurve's emergence, Cisco had somewhat of a free ride in networking. The market used to be known as Cisco and the seven dwarves, with Cisco competing with a number of small competitors that simply couldn't compete with Cisco's scale. HP and IBM are significantly different than past competitors, and Cisco will finally have networking competitors that are in the same class of company as it is.
* The communications industry will benefit from this trend. The bringing together of computing with networking will allow more mission critical, real time applications to be run on virtual machines. This will allow collaboration and communications platforms to be deployed and managed the same way other corporate applications are today. This will also help accelerate the communications industry's rapid transition to software. While we've talked about this for a long time, the fact is the underlying computing and networking platforms just could not provide the stability communications needs, forcing vendors to require appliances.
* The communications vendors will become acquisition targets for the computing vendors. As IBM and HP look to compete with Cisco more broadly, their lack of a unified communications platform still gives Cisco a leg up. IBM is addressing this through its Sametime Unified Telephony strategy and HP is integrating Avaya into Procurve One, but I believe both vendors will become communications vendors sooner than later, most likely through acquisition. I can see Nortel, Avaya, ShoreTel and Mitel being the most attractive acquisition targets.
* The OEM type of relationship that is now in place between IBM and Brocade is common in storage networking but not IP networking. If this OEM agreement goes well, we're likely to see other server vendors such as Dell or even Oracle (through the Sun acquisition) OEMing networking equipment from a company like Juniper, creating more competitiveness for Cisco with current partners.
In summary, the ability to virtualize IT assets has caused disruption in the software and computing markets, and now we're starting to see virtualization impact the networking industry and eventually the communications industry. This agreement between IBM and Brocade has obvious immediate value to Brocade but does foreshadow continued transformation and consolidation of the communications and IT industries as the 800 pound gorillas look to each other's markets for continued growth. While the IBM-Brocade announcement is the latest announcement to demonstrate this, it certainly won't be the last, creating a very interesting remainder of the year.The 800 pound gorillas in communications & networking are looking to each other's markets for continued growth.
