The Lippis Report

In this Lippis Report Research Note we offer our 2010 top ten predictions for the biggest issues that the IT industry will confront. Our predictions span technology, industry structure and IT budgets. This Research Note is based upon a Lippis Report Podcast recorded with Nick Lippis and Zeus Kerravala of the Yankee Group. This end-of-year, forward-looking analysis is one of our most popular research notes, so we offer it to our subscribers as a holiday gift with wishes for a great holiday season and prosperous New Year.

Prediction Number 1: Virtualization Becomes Primary IT Building Block


Nick Lippis: Our first prediction is the expanding role of virtualization, especially server virtualization, its progression out of the data center to desktops plus homes, and its role as a fundamental IT building block of cloud computing.


Zeus Kerravala: There’s no question that virtualization’s become a core piece of technology for companies today. In fact, discussions with CIOs have led me to believe that it’s probably the most important piece of technology implementation moving forward. And I think, to date, what we’ve seen is virtualization be used largely for server consolidation. In 2010 is when we start seeing cloud computing being built in earnest.


There are lots of ways this could play out, but it will start with early adopters building private clouds. We’ll see more public cloud offerings too, but largely the impact of cloud will be on the private cloud side, which will benefit infrastructure vendors probably more than the cloud providers. But that will give way to public clouds as the market matures.


Nick Lippis: The virtual machine (VM) is now the new sub-atomic component within IT, becoming the new organizing principle on how data centers are built and information technology is managed. We’re seeing all the major server companies such as Cisco’s unified computing, HP’s converged infrastructure, IBM’s Dynamic Infrastructure and Dell, preparing their blade systems to scale up support and management of VMs.

Prediction Number 2: 802.11n Wireless LANs Cannibalize Wired Port Growth & WiMAX


Nick Lippis: Our second prediction is centered around mobility, meaning wireless local area network WLANs). The industry ratification of 802.11n in 2009 was a very important industry milestone, which will translate into continued WLAN growth and market expansion. 802.11n will provide competitive pressure to WiMAX while corporate consumption of WLAN devices skyrocket. 2010 will be the year that companies like Aruba, Ruckus, Meru will be potential acquisition targets from the larger companies that don’t possess a solid WLAN offering.


Zeus Kerravala: The ratification of 802.11n was a very significant turning point for the industry, because at n speeds, there’s really no experience degradation for the end-user, whether you’re wired or wireless. And from a worker flexibility standpoint, 802.11n is a game-changer in wireless. I’m very surprised, in fact, that there aren’t more wired companies that have strong wireless offerings. HP acquired Colubris. Cisco bought Airespace. 3Com just announced their own WLAN solution in Nov 2009. When I look at Juniper, Brocade and Extreme Networks and all the other networking companies, I wonder where they are in this space, and I think Juniper will likely launch their own WLAN solution in 2010. But you have to wonder, if you’re not in the space now and you try and build your own, are you going to miss the early adopter wave, and if you don’t want to, then probably an acquisition may be the better way to go.

Prediction Number 3: Converged Fabrics Deployments Take Off


Nick Lippis: Yeah. Prediction number three is that converged fabric or unified fabric in the data center proves successful in early pilots setting up 2010 as the year converged fabrics are implemented in earnest. This is a really hot area as the value proposition is so strong around cable reduction, power reduction, equipment reduction and cost reduction; also with the ratification of most data center ethernet standards 2010 will be the year that converged fabric deployments occur in earnest. A converged fabric is the replacement of a storage and a network card on a server with one converged card that supports Fiber-Channel-over-Ethernet, InfiniBand, and/or iSCSI. This interconnect reduction also reduces the amount of networking fabric and also switching fabric required, driving a major consolidation of cabling, equipment and cost. 2010 is the year in which we start to get a large amount of the industry offering unified fabric solutions resulting in an uptick in the deployment thereof.


Zeus Kerravala: It’d be interesting to see how this plays out, because there’s multiple angles you could take on this. You mentioned just a few. There’s iSCSI, Fiber-Channel-over-Ethernet and the InfiniBand vendors. They all offer data center connectivity and what’s happening is all these different technologies are getting to a point where they can support the purpose that the other technology was built for. In short, there is increasing overlap and less differentiation between the three approaches. So right now, if the market really only becomes Fiber-Channel-over-Ethernet, that creates a market for just Cisco and Brocade. But there are indications that companies like Mellanox, which historically is an InfiniBand vendor, is entering into the FCoE space. Voltaire’s been looking at it too. Emulex and QLogic make the adapters, so this is a market that’s going to get crowded real fast and I think this will be an area that you do see M&A activity too.


Nick Lippis: I agree, and converged fabric also offers another virtualization play. Basically, it’s the virtualization of I/O. Another technology to add to this space is soft switches as it allows the portability and the mobility of workloads both within a data center and over time outside of a data center.

Prediction Number 4: No Surprise The Industry Will Continue to Consolidate


Nick Lippis: We’ve already seen more consolidation in our industry in the last 12 months than we have ever seen. 2010 offers another major wave of M&A activity. Zeus, we had a discussion before this recording about Avaya and their Nortel Network Enterprise division and how that might play out. Won’t you share that with everyone?


Zeus Kerravala: From talking to Avaya I get the sense that the networking division of Nortel will be sold off. At least, that’s my guess. I have no official word from them, obviously, but what you have there is really 5 percent of the ethernet switch base that’s up for grabs. And for somebody like an HP that just acquired another 9 percent to bring their share to 20, or a Juniper who’s looking to grow in this space, or Brocade, who’s got 3 or 4 percent now – 5 percent of the market could actually be significant. And this customer base already has shown a proclivity to buy something other than Cisco, so flipping Nortel customers to the buyer’s base actually may not be that difficult a task, so I think it’ll get sold off. I don’t think it’ll be very expensive, probably not more than a couple hundred million, but I do see that piece of the business moving. Extreme is another company whose customer base could be up for grabs. Let’s face it, they’ve struggled. When you get rid of your CEO and you lay off 70 people and you have your worst quarter since ’99, the only thing left of value there is probably in the installed base, of which they have a pretty significant one, so that could be another feather in an acquirer’s cap.


And when I look at the M&A activity that’s happened in 2009; the industry needed this. There’s too many vendors and when you look at the computing vendors trying to move into networking there’s just not enough market to support everybody in this space now. So it’s healthy for our market to consolidate down, just overall, it’ll create a much stronger market if this happens.


Nick Lippis: The major black hole that’s pulling the M&A activity has been around data centers and the convergence of computing, storage and networking, which brings us to IBM and Dell. Those are two companies that will find it increasingly difficult to add value to their blade systems if they don’t have a significant networking offering, which means they’d be looking at a Juniper, an Extreme, maybe the Nortel Network Systems business, Blade Network Technology, Brocade, Arista Networks, Mallanox, Myricom, Voltaire, et al. But IBM and Dell need to add a strong networking offering to their overall portfolio.


Zeus Kerravala: I agree. Right now, there’s fulfillment through OEM’ing Brocade and Juniper. Brocade’s another acquisition candidate as well, and with that you’d get a pretty decent chunk of the fiber-channel business. But, clearly both these companies have recognized they need to do something, which is why they entered the OEM relationships. The question is, are they going to do more, and IBM’s very surprising. When you look at the moves HP’s made, I’m surprised IBM hasn’t been a more aggressive.


Nick Lippis: Absolutely. The other major observation here is that we now have computing companies chasing a very limited number of networking companies, which increases the value of networking in the overall IT portfolio.


Prediction Number 5: Unified Communications Goes Mobile, Social Networking and Cloud To Boost the Experience and Productivity


Nick Lippis: 2009 has been a sleepy year for unified communications due in part to the consolidation of this market and the time it’s taking suppliers to adjust. There seems to be a major theme around how UC is going to morph or expand into three major value propositions. One is to make UC more mobile, integrate into social networking or add social functionality and third is to deliver UC as a cloud offering. UC suppliers are looking to dramatically change the value proposition of communications that we’ve had in the industry for at least 30 years, which is based upon a computer and phone at your desk, to now a mobile and softphone that gets UC from a cloud. Now that phone is being virtualized and put up into a cloud.


Zeus Kerravala: Well, I do think social media and cloud to me are pretty significant directions in which this market’s going to migrate. And in fact, if you look at what Siemens announced at VoiceCon, where they can integrate Twitter right into OpenScape and be able to change your present status based on the things you Tweet. That’s pretty cool to be able to use a social networking tool that we already use in our daily lives to alter the things in our corporate life.


I also think Cisco’s play with WebEx mail was a very good indicator that this market is moving to cloud. I think Cisco tends to make their bets at the right time, and if you believe that UC is the software play and if you agree that software is moving to SAS – and you’d have a hard time finding people to disagree with that statement – then, by logic, UC’s going to move to SAS. And when you look at something like e-mail, all the regulatory requirements around it – is that something that’d be better to be SAS-based? And if the answer is yes, that actually puts Cisco in a very good position, because I think their product is actually better than what you would get from Microsoft or IBM. And that creates a very interesting battleground for Cisco to go after Microsoft at what’s the heart of their sales strategy, i.e., e-mail.


But regardless of what happens to the e-mail market, this is a market that’s migrating towards social media faster than the industry’s really prepared for. If you look at the way a lot of the younger generation works, it is through tools like Twitter and Facebook. E-mail is not their primary work tool, and e-mail has peaked. And so you will see this industry focus a lot on the social media side.


Prediction Number 6: 2010 Is The Year Of Wide Enterprise Video Deployment


Nick Lippis: Prediction number 6 is that in 2010 enterprise video becomes legitimized and widely implemented. Video is like a heart attack, meaning if you don’t take care of yourself, or if you ignore risk factors then you’re just going to get clogged arteries and at some point a heart attack. For enterprise video, if you ignore it and don’t prepare for it, then at some point in time your network is just going to choke, and it’ll choke by being unable to deliver application performance that end-users need. 2010 is the wakeup call for most IT managers to start thinking about video, its role within their business processes and how their network needs to evolve to support it.


Zeus Kerravala: I’ll disagree with you a little bit here. I think video is a bit of a solution to no problem today. We’ve had starts and stops to this market before. 9/11 and through the economic downturn drove more use of video. But the big problem to me with video remains the fact that it’s too device- and network-dependent. So if you believe in Metcalfe’s law – that the value of a network is proportional to the square of the number of nodes on it – there’s lots of video nodes that are just not connected nodes, so it keeps the value low. And unlike a phone, where I can pick up any mobile phone or any desk phone to call anybody on any other phone, I can’t do that with video terminals.


So once that barrier falls and I’m able to just double-click something and get you on video no matter where you are and what kind of video device you have, then this market can accelerate. Cisco’s doing a lot of work breaking that barrier down, but it’s far too complex to establish a video session today to people outside your organization. So I think we’ll see more interest in video, but I think ultimately this is another market that may start and then stop again because some of those other barriers still exist.


Prediction Number 7: Cloud-to-Cloud Standards Start To Take Shape


Nick Lippis: Prediction number 7 is that standards for cloud-to-cloud communications start to take shape. Even though clouds are lightly loaded today, we know that there’s only one direction, and that’s to add load to them. As soft switches allow a VM to move from one physical machine to another physical machine without the need to reconfigure the network, IT leaders will increasing seek to move workload from their private clouds to public and between public clouds. Mobile workloads offer the beginnings of a massively different way in which business is conducted. The prediction is that cloud-to-cloud standards, which include a new way in which we think about the Internet around security, control, performance and persistence, is going to get a real inspection and become much more visible and important as 2010 progresses.


Zeus Kerravala: Before that happens, though, the traceability and security have to become better. IT leaders will move their workloads around once they know where it’s been and how secure it is. And I think that’s a great vision to work toward, but until all these cloud providers decide to get on board and follow the same standards, it’s going be a tough, tough road to hoe.


Prediction Number 8: Droid Becomes The Blackberry Killer


Zeus Kerravala: The Droid is being dubbed by many as the BlackBerry killer and in some ways it could be, in the consumer space. There’s no question that the iPhone set the bar extremely high on what a consumer-based smartphone is largely thanks to the availability and cost model of apps. This is the path that Droid’s taken, i.e., going down the path of trying to attract as many application developers as possible. BlackBerry, while their devices are very well built and engineered and I think will always appeal more to the business user, hasn’t focused on the application side. It’s only been recently that even some of their OS’s became a little more consumer friendly. Let’s face it, the Touch was kind of a disaster. I do think that Android and iPhone create a nice one-two punch in the consumer markets. And that’s good for the industry because it’s going to pull along everybody else into having to improve their platforms or let these two companies run away with the market.


Nick Lippis: I have a slightly different twist on the BlackBerry and iPhone competitive space. I view BlackBerry as having their core market in financial services, but for other industry segments we’ll see more inroads by Apple and the iPhone, thanks to the applications.


Prediction Number 9: Wither Netbooks


Nick Lippis: Prediction Number 9: Netbooks will wither. Netbooks have seen impressive growth in 2009, but the netbook is like the Apple Newton, not enough networked applications and clumsy to use. If the industry offered more SAS offerings reducing the need for local computing and storage than netbooks might have a brighter future. But its ergonomic design does not work either.


Zeus Kerravala: 2010 is the year of the netbook fizzle. It’s had outstanding growth, but I also know that if you look at the shipment returns at Best Buys and Wal-Mart, almost one-third of netbooks that were purchased have been returned. A lot of the returns were based on the fact that, while people look at this as a small laptop, it is not a laptop. It’s a scaled-down version of a laptop with a smaller disk, smaller memory. Even from trying to do any kind of significant work on it – it’s hard to type on a netbook. And people that use the netbook tend just to keep it as yet another device. So it didn’t replace the smartphone; it didn’t replace the laptop. It became yet another device that we’d use in very specific circumstances.


So if you want a device to work on, use a laptop. If you want a small form device to view things, use an iPhone. And largely in the business world, I just don’t see a place for the netbook. There’ll be a few niche-use cases of it in healthcare and field service, etc.


Prediction Number 10: IT Spending Improves


Nick Lippis: Prediction number ten is that IT spending improves but in fits and starts. 2009 was a difficult year for the industry but 2010 is looking to be a better year for IT.


Zeus Kerravala: From people I’ve interviewed about what their spend looks like next year, I do think spend is going to be flat to up slightly. But it seems that a lot of the barriers that were in the way, that is CFO approval, seems to have gone away for now. Don’t get me wrong. The lessons we’ve learned over the last couple of years around “must prove ROI,” that my ROI must be 12 months, etc., are here to stay and sales cycles are longer. But a lot of the projects that I’d seen put on hold, like network upgrades and data center consolidation, are back, and the activity’s here. However, if we get any kind of bad news though, you could see the brakes being put back on. But I think, overall, we’ll have a better year next year than we had this year.


Nick Lippis: I agree and I’m very bullish on the data center spending.


Zeus Kerravala: There’s so much to gain by doing that.


Nick Lippis: Great. Excellent. Well, happy holidays, everyone.


Zeus Kerravala: Happy holidays as well.


Nick Lippis: Excellent. Great and looks like we end on a high note. A better year in 2010.