Phil Edholm - Chief Technology Officer and Vice President of Strategy and Architecture for Nortel Enterprise Solutions, blogged in response to an earlier Network World Cisco blog comment regarding Nortel's reliance on merchant silicon vendors:
"Cisco is well known for a profound inability to innovate internally and a penchant for acquisition as well as a penchant for trying to present attempts at catch-up as innovation."
"The fact that Cisco ships only 37% of the ports yet gets 73% of the revenue in the campus switching market is testament that their solutions are overly complex, pricey and focused to the last evolution."
Gartner Report:
"Perhaps it is time for Cisco customers to demand multivendor solutions with integration of merchant silicon and thus push Cisco to either change their business/technology model or leave the data market if they cannot migrate with the obvious evolution of the market."
View Phil's blog response to this Network World story.
 In a stinging rebuke to Phil and his Nortel blog entry, Cisco Data Center Marketing Manager - Douglas Gourlay blogged: |
"Recently there was a quick write-up by one of my favorite competitors in the switching market arguing against my assertion that merchant silicon is essentially not a good thing in the switching space. Let me clarify..."
"Maybe an analogy will help. If a switch is like a car then the switching silicon would be most analogous to the engine and/or transmission. i.e. the core of the car and a major point of competitive advantage and differentiation. Do major automobile manufacturers outsource engine design and development to other firms? Of course not, they design and build their engines. Do manufacturers of more consumer goods like lawn mowers outsource their engines? Absolutely, they go to specialized engine manufacturers because the core value of what they offer is either a certain price point, or the value is not tied to the engine."
"So the question then - is do you want to ride to work or school in a car, or on a lawnmower? I know one would get me laughed at if I was in school, the other... not so much :)"
"Applying it back to switching, I'd rather control my own destiny and align the core value creation in the silicon with the hardware and then with the software and continue to drive innovation at every tier and not saddle up on my Toro in my enterprise. (no offense to the manufacturer of lawn mowers, I am a good customer of yours too :)"
View Doug's blog response to this Network World story.
Ferrari or Toro, which one do YOU believe customers will choose to ride?
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Ferrari or Toro? But what if I really need is a pickup truck?
Actually, outsourcing whole engines is commonplace among major automobile manufacturers. For years I drove a mid-sized Chevy pickup with an Izuzu engine in it. Yes, Chevy was (and is) quite good at building larger, less fuel efficient engines for their larger trucks, but they found it cheaper and more profitable to just buy Japanese engines for their more fuel efficient truck models.
So I guess Mr. Gourlay wants us all to drive the Ferrari he is selling and scoff like he does at anything else on the road that is more efficient and less expensive to purchase and maintain. I can certainly see why - his entire business model is built on his customers not recognizing the viability of alternatives to his solutions.
So maybe Mr. Edholm is right and it is time for Cisco's customers to control their own destiny and drive the networking solutions that they want and need by deploying multi-vendor solutions, rather than letting Cisco dictate whet they get based on what meets Cisco's wants and needs. Right now Cisco in control of our destiny - which is how Mr. Gourlay prefers things to be...
Apropos "vendors": Nortel
Apropos "vendors": Nortel turned off the lights in its vending machines, touting a lower electric bill and CO2 avoidance.
But, uh, the candy bars still cost the same. Are we to believe the savings have been diverted into R&D?
Geez, I don't see where picking a fight with Cisco is going to encourage folks to buy Nortel stock, which should be Nortel management's primary concern.
Is Nortel run by Juviniles?
I have watched Nortel Execs for years and I have seen how the childish "name calling" has effected their entire organization.
They do not do this to gain customers. They do this to hold on to the customers they currently have by creating some type of fear.
I have found they are quite effective at this. Especially with companies that have a less than technically competent staff.
Phil Edholm states "Cisco is
Phil Edholm states "Cisco is well known for a profound inability to innovate internally and a penchant for acquisition as well as a penchant for trying to present attempts at catch-up as innovation."
From what I've seen in my 20+ years in IT is that Cisco is a leader in innovation in which ever space they want to play in. Cisco buys startups that it preceded to be an asset to Cisco and performs internal development when required (just look at the CRS-1 and Nexus 7000 if you have questions). If Nortel could blend the two together better, then their stock price and market share would not suck. We all know that larger companies take longer to roll product out due to integration complications.
Cisco may not always get it right the first time, but they do get it right when it counts.
Ferrari or Corvette; Which One for You?
While Brad seems to think that his reply was a “stinging rebuke”, it seems more of a lame attempt to “gild the lily”. If it were only so simple to make decisions in life, but the Ferrari comes with Ferrari pricing and maintenance costs. And it sure does a lousy job of cutting the grass!!!
I guess I hit a nerve with my comments in my blog. While I agree with Brad that Cisco pricing is Ferrari like, the performance numbers of their products generally do not bear out a value proposition that justifies the product pricing. Witness the Tolly tests that indicate that most times the Nortel products are faster and Gartner identifying Nortel as a "Visionary" in networking in the 2007 Magic Quadrant Analysis. In fact, Cisco products typically cost 2 times other “merchant” offers in the Ethernet space, a fact borne out by recent Del ‘Oro data that shows while Cisco delivers only 37% of Ethernet ports, it receives 73% of the Ethernet market revenue. Over time you can only demand Ferrari pricing if you are delivering profound performance advantage...something not delivered in Cisco networking products.
Like Brad, I like analogies to illustrate a point, but I believe they should be at least vaguely believable. The analogy Brad has chosen is flawed and almost laughably absurd. Who would ever consider a buying decision that was a choice between a Ferrari and a lawnmower? However, if Brad wants to use an automotive analogy, let’s use one that is closer to reality; the choice between a Ferrari F430 and a Chevrolet Corvette (we will use the standard model Corvette in keeping with Brad’s analogy of “merchant” engines, not the higher performance Z06). Both are very similar, (kind of like Ethernet switches), each being a 2 seat car with a V8 engine and designed for performance over people or luggage hauling. And they follow Brad’s analogy, in that the Corvette is based on a broad range of “merchant” parts from the General Motors inventory, while the Ferrari is highly optimized with virtually every part factory built in Modena. In fact, Road and Track just compared these two in their January 2008 issue, so we can use some real facts in this analogy for a change. While the review decides for general use it is a toss-up between the two (in the review, two editors out of four choose each of these cars as their favorite), the F430 does have a 12% advantage in acceleration, a 2.8% better slalom time and a 1% better skid pad grip level. So, if we grant the F430 a 5% overall performance improvement at the limits of use (none of which can be achieved on public roads or in normal networks), the F430 must be a better buying decision, right? However, the F430 costs about 4x the Corvette (slightly higher pricing differentials to those in networking). And the Ferrari gets 25% less fuel economy (again similar to the networking world), in a world where fuel economy is critical. And the costs to maintain Ferraris are legendary ($3,000 tune-ups and $8,000 clutches every 10K miles). So then, the choice is simple; 95% percent of the performance for 25% of the price and operating costs that are 25-50% less. Does the Ferrari look good now? By the way, the Corvette Z06 gets 98% plus of the Ferrari performance for one third the price and the new Z01 will be faster for less than half the price. I guess Brad would call these cars derivative due to their “merchant” roots in GM and the base Corvette.
In the end, people who buy a Ferrari do it for two reasons; they have so much money that the cost/performance trade-offs do not matter to them or they buy their cars so others will judge them by what they drive. I guess buying Cisco is similar, either you like to waste money or you buy on brand only. Comparison shopping yields different answers, as reflected by Gartner in their recent advisory to evaluate alternatives in the networking world.
Finally, thanks for putting up the family skiing picture (not sure why you choose that one versus ones of just me). In the end it is yet another analogy that further illustrates my point (I do love these analogies). While we probably could have flown to Colorado or Europe for slightly better skiing (maybe), we were skiing at good old Squaw Valley USA; equivalent skiing for a fraction of the price (when driving up from the Bay Area)!!!!!!
As you can imagine, I do not own a Ferrari, do you?
So Gourlay's a schmuck,
So Gourlay's a schmuck, fine. But regular Nortel employees are feeling like quite the schmucks, too, because they certainly won't be driving sports cars or going skiing anywhere anytime soon. Some of them may even part with their lawn mowers for lack of a yard to mow in the near future.
They're sitting here wondering why ya'll know so much about a Ferrari's oil pressure but so little about selling, say, Wimax. That sounds pretty simple, beings how its the Best. It should sell itself.
Ferrari or Corvette; Which One for You?
95% percent of the performance for 25% of the price and operating costs that are 25-50% less
So, then, the Nortel big wig announces that his product does not perform as well as his competitor's product?
That's great marketing!
Note to self: Sell Nortel stock.
The automobile/GM analogy
The automobile/GM analogy really isn't that far-fetched. Its said that Cisco is echoing Henry Ford's alleged "the customer can have any color he wants so long as it's black".
So what's GM been up to? To "save us all money", its smartly outsourced its motors abroad (see above), moved assembly lines to Mexico, etc. with the result that Michigan is now a welfare state, Detroit one of the worst US cities to live in, and conventional wisdom has it that their products can suck.
Sounds like Nortel, which is moving its ops to countries with 20 hours electricity per day, lousy wages, etc. to save us all a buck or two.
Ferrari or Corvette; Which One for You?
I'd argue that a product's worth isn't necessarily determined by its speeds and feeds (although that can certainly play a role) but in the value proposition. Faster is not necessarily better.
With that said, vendors building network equipment with merchant silicon have very little control over feature functionality included in their hardware and quite often provide little to no backwards compatibility. Advances forward are often done with the forklift instead of newer generations of sup's and line cards.
I think the option which offers investment protection is pretty clear. It probably also doesn't hurt that the speeds/feeds are usually pretty attractive with Cisco. I've been stung many times by those who build their gear with Broadcom and Marvell... I'm not even sure what Nortel uses. Last time I saw them was with the Accelar 1200 and Baystack 450's. They still make network gear?
The car analogy is an interesting one. I think instead of choosing based on spec's at a given point in time I'll take the car that suits my needs and will continue to drive for 5-10 years as it continues to get better. I'm not aware of a car offering that does that. Actually, is there much network gear that can say the same?
Quoting Analysts...
Phil,
just one correction - I think you may have confused Dell'Oro a respected analyst firm in the quantifiable statistics space with some other group.
Dell'Oro's most recent numbers in the L2/3 Modular switching space have Cisco at 75% of revenue for 71% of the ports. This seems to be relatively inline with what Infonetics and others have as well.
I am not sure where you generate your statistics from, but I am going to bet you include consumer Ethernet products like our Linksys products or NetGear. Wasn't NetGear a spin-out of a company that used to focus on networking? I think BNT was as well... this spawns an interesting line of questioning that I think I'll take the gentlemens' path of not exploring right now :)
Btw, I certainly don't drive a Ferrari, would like to try sometime though...
dg