Lippis Report 172: A Perfect Storm Clears a Path for IBM to Re-Enter the Network Market
Three strong trends are taking shape that are so powerful they threaten the status quo of the networking industry. These trends are more like storms than new markets; in fact they represent a major industry discontinuity. The first storm is happening now and is represented by merchant silicon for 10 and 40 GbE chips lowering the barrier of entry for new entrants in the Ethernet switch market. The second storm is much weaker but promises to be just as big, or bigger, than the first. This second storm is the creation of a software ecosystem in the networking industry, thanks to initiatives such as Software Defined Networks (SDN), OpenFlow, Arista Network’s EOS Central, etc. The third storm is the paradigm shift in enterprise IT spending thanks to mobile and cloud computing. These three storms are starting to interact and feed upon each other, forming a perfect storm in the networking industry. The perfect storm is already doing damage, as all major IT firms position product portfolios to navigate through it and prepare for its aftermath of making existing networking legacy.
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IBM, for example, sees the perfect storm as an opportunity to optimize performance of IBM systems for new and emerging workloads like cloud computing and analytics that require instant access to information by investing in networking. In this Lippis Report Research Note, we focus on IBM’s networking strategy and analyze its potential impact.
IBM created the System Networking group to organize its network resources and execute its strategy. It’s a strategy to implement a data center fabric that ushers in a smart compute model that federates storage, compute, memory and I/O into pools of resources that are brought together to meet business requirements. It recently acquired BLADE Network Technologies (BNT), which produces blade and Top of Rack (ToR) data center switching gear, network-aware virtualization technology, load-balancing and management software. From an organizational point of view, IBM System Networking includes BNT and an IBM group that used to be called Data Center Networking that possesses Fiber Channel and InfiniBand assets. System Networking also maintains working relationships with networking leaders such as Brocade, Cisco, Juniper Systems and Mellanox.
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IBM has been selling system networking solutions with its servers and storage offerings for decades. Systems and networking are now more interconnected, making it important to continue partnering with core networking providers like Brocade, Cisco and Juniper while enabling closer connections with IBM servers by increased investment in systems networking technology.
But why did IBM enter the System Networking business and why now? In short, IBM executives saw an opportunity to gain control of a critical data center asset, address customer needs, and add a key component to deliver on its vision of Smarter Computing. From discussions with IBM executives, they stress common concerns of their largest data center customers, which have propelled IBM into the System Networking business. Clearly, Cisco’s launch of Unified Computing System or UCS and the forecasted perfect storm also factor heavily into IBM’s calculus. IBM is hearing demand and seeing a shift in the networking industry that has opened a door for it to be a leader in data center enterprise networking, or System Networking, as IBM now calls it.
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Cloud Spec Scale
The largest data center customers are implementing cloud spec facilities that are boosting up their infrastructure spend and deployment by an order of magnitude in many cases. Yes, that’s ten times the size of their normal data centers. This scale has created unique problems that challenge linear approaches and are focusing IT business managers to seek alternative solutions to scale.
The old model of increasing capacity of memory, compute, I/O, and storage, etc., by acquiring more servers does not work any longer. IBM seeks to solve this scale problem with Smarter Computing that delivers elastic services to federate a pool of resources that are brought together to meet business needs for Big Data analytics and private and public clouds. Resources could be memory, I/O, compute or storage. The goal is to bring together the right proportion of resources to solve a particular workload.
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Why Networking Is Important to IBM
To deliver on Smarter Computing, IBM realized that to offer a federated pool of resources, it needs a network fabric that connects these assets, and thus this is what System Networking is all about. IBM let other industry players connect high-density blade and rack system with their network gear. This left IBM out of the innovation loop and control allowing others to set the rate and pace of network innovation.
The need to own the network and provide IT business leaders with vertical IT expertise has become apparent. If the data center rack is the new computer, and multiple racks are the new super pod, how does a supplier make this system look and feel like one large computer? It all starts with connecting these elements together in a very smart fashion using physical connections and software to orchestrate resources and infrastructure simpler than today’s approach.
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How can IBM make dense IT infrastructure simpler to deploy and manage as its largest customers deploy ten times more infrastructure? Most IT business leaders translate this into the need for rack infrastructure management, configuration management, and database technology to keep track of IT assets, etc. While IBM has director and utility tools, System Networking is a critical component of Smarter Computing. IBM executive management figured that System Networking will play an even more important role in solving new IT business leader requirements that include simplifying massive amounts of IT infrastructure installation and orchestration, be it physical or virtual.
At the high end of the enterprise computing market, IT business leaders are acquiring IT assets like airlines buy airplanes and hotel builders buy property. Both airlines and hospitality concerns worry about the same thing: use or occupancy rate management. Airlines want to ensure that they have the right size aircraft for a particular flight route so that few, if any, seats are left empty.
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As IT business leaders scale up their data centers to cloud spec, thanks to IT service demand, how do they ensure that the capacity acquired is effectively utilized and not over or under designed? Most, if not all, IT business leaders have embraced server virtualization as the key technology affording efficiency gain.
Without System Networking, IBM management realized that it was unable to address IT business leaders’ full virtualization requirements. The data center network needs to be virtual machine aware. In fact, this is one of the biggest reasons why IBM acquired BNT as IBM needed BNT’s network virtualization expertise.
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More Business Goes Online
The reason why IT business leaders are deploying so much more infrastructure is that more of their business is going online. Just think about your average day. When communicating to each other we text, email, VoIP and videoconference. When you want to go see a movie, you book it online. You bank online. You pay your bills online. You trade stock online. You make airline reservations online. You read news online, your photos are stored online, office productivity tools are online, etc. As more and more business goes online, the scale of IT infrastructure needed increases.
In addition to more business going online, IBM’s big analytics business needed networking too to be first class. IT business leaders are putting in place more analytic systems, decision support systems and data warehousing systems so they can mine their depositories of vast amount of information that they have about customers, business, products, competitors and supply chain, etc., so they can make smart important business decisions.
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This is why data warehousing, data mining, smart analytics or solving the big data equation is so important to IBM. This is why IBM acquired Netezza. Now, what is the difference between a good data warehousing engine and a great one? The answer: how fast data can be transported to and from the analytic engine, or how fast is the network. For IBM to be a successful player in smart analytics and be recognized as the clear leader in this large and very important market, it realized that it needed to be in the networking business.
Controlling TCO at Scale
As data centers have been scaling up, so too has Total Cost of Ownership or TCO. For every dollar that CFOs spend on servers and storage, they spend between 15 and 25 cents on networking. IBM is not able to control a customer’s TCO as it has no control over 15 to 25% of the IT budget. Therefore, how could IBM profess to solve the TCO equation when it can’t provide a credible solution to 15 to 25% of the TCO problem? IBM needed to have a voice and solution for TCO, thus this too factored into its thinking of re-entering the networking industry.
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The change in IT buying requirements is the first of three storms that IBM saw as IT business leaders are building private clouds and experiencing scale issues associated with them. Data center buying criteria is changing as scale, density, deployment, orchestration management, efficiency and utilization, security, being able to extract meaningful decision support information out of information repositories, as well as cost of ownership become high priority items. The merchant silicon storm stirred up by companies such as Broadcom and Fulcrum Microsystems got IBM’s attention. IBM got a close up look at this storm, as BNT built its new ToR switches with Broadcom’s Trident-1 10GbE and 40GbE chips and decided to invest by acquisition. It was these two storms and its forecast of a third in the creation of a network software ecosystem emerging that in the end tipped IBM’s hand and led it into the data center system networking industry, or System Networking, as IBM now calls it.
The New IBM
IBM realized that not having System Networking was a competitive disadvantage especially in its analytical systems business. There was an underlying reliance on the network that IBM didn’t control. IBM realized that System Networking is a strategic asset, and it needed to invest.
IBM is now a three-stack business with its platform business including compute, storage and networking, then software and lastly, services. Software is the biggest business followed by services, and then its platform business. Without networking, IBM’s business model was incomplete. How can you drive innovation in software and smart analytics, etc., and all the services to go around it, if you have one or two missing pieces in the platform equation?
Others to Follow
IBM is not the only large vertical IT player to beef up its networking business. Clearly there is HP, Oracle, IBM, Dell and Cisco. Cisco possesses a different portfolio mix than the others with its dense networking portfolio. HP, on the other hand, possesses approximately $2.5 billion worth of networking products/revenue, but lacks data center networking.
Consider Oracle and IBM—they are both focused on the data center. With Oracle’s recent acquisition of Sun, it too is viewing the perfect storm as an opportunity to enter the networking market. But the fundamental thing that is different about IBM is that it is singularly focused on the data center. This contrasts with Cisco’s network focus while HP strives to be the low cost alternative to Cisco, plus its huge consumer line of products, such as printing and personal computing. Dell, on the other hand, is focused on transitioning away from the personal computing market into higher margin businesses, networking being one of them.
What all of these firms are searching for is a new networking model to emerge, and the perfect storm may very well provide it. With low cost merchant silicon that competes with custom ASICs, network switching is fast, low latency, low power consuming and low cost. With software defined networking (SDN), a new software ecosystem could emerge that challenges established network services and in the process, starts an innovation race between established vendors and a new software industry. SDN is critical if a new networking model is to emerge as it could enable innovation that differentiates common merchant silicon-based network switches. In short, the perfect storm could enable the large IT vendors to leapfrog into a new system networking paradigm.
IBM has its work cut out for itself. BNT has expanded from Ethernet embedded blade server switches to ToR switches. IBM will enter the aggregation space with the implementation of technologies such as TRILL (Transparent Interconnection of Lots of Links) and 802.1Qbg, the Edge Virtual Bridging (EVB) standard that will seek to break the model of large centralized mainframe like modular switches. And, through partners such as Brocade, Cisco, Juniper and Mellanox, IBM System Networking offers a portfolio of Fibre Channel and Infiniband as well as Ethernet solutions, for servers and storage from network edge to core. IBM’s point is that if servers and storage can scale out then why can’t networking?
IBM is developing new networking products that it hopes would enable it to change the networking landscape and how people think of networking. It seems that IBM System Networking is working on a scale out networking model that allows IT business leaders to start smaller and expand as needed without large upfront capital outlays. It is looking to make networking a bit smarter.
IBM System Networking is focused on building what it calls “a scalable fabric,” which connects servers, storage and networking. Thus IBM advocates to keeping network intelligence close to servers and storage making its fabric fast, low cost, virtual and reliable.
Time will tell how successful IBM is in System Networking, but one thing is for sure, cloud computing has kicked up quite a perfect storm for it.