Defending Low Entry Barriers

Read a news report that Cisco has announced it’s intention to acquire Meraki Inc., a California based privately held provider of cloud based solutions. From what I understood, Meraki’s solutions allow Cloud based Management of on-premise networking gear. Looks like Cisco intends to use Meraki’s solutions along with Cisco’s Unified Access platform. This prompted me to ponder about defending low entry barrier businesses. Let me explain why…

Open Environments

In my view, over the last two decades, because of the continuous process of convergence between computing and communication technologies, there has been three by-products that typically encouraged competition so that the technologies could be appropriately exploited to the benefit of mankind.

Standardisation has been a relentless exercise that has pushed makers of component parts to interact with each other seamlessly. In the last quarter century, we have moved away from Government Agencies driving standards at ITU, a UN body, to industry forums driven standards, quite in-keeping with privatisation of telecom networks across the world.

A second important outcome has been what is called the API platforms. Once a network node’s internal behaviour is standardised, it is now possible to generalise the node as a finite state-machine that can be triggered to move from one state to another. Building a small software layer that allows other software applications to manipulate the state-machines has been ongoing since the late 90’s. Initially, these application programming interfaces were provided using Corba, Java RMI, DCOM based distributed computing mechanisms. With the advent of XML, today we have web-services and RESTful APIs.

A third interesting competition enhancing aspect has been that of open-source movements. Way back in late 90s and early 2000, the open source movement contributed a lot in building new technology solutions quickly – from protocol sacks to nodal components.

As can be seen all this chips away and lowers the entry barrier for new players to enter the fray and exploit new technologies. This obviously places a lot of pressure on the big players to retain their dominance by showing value beyond the common denominator.

The Defence

In recent time two mechanisms have come up in the arsenal of big players – Managed Services and Cloud based software.

Both these options come with their own challenges and the success stories, so far, have been a mixed bag of results. Like double-edged swords, it is important that these options are wielded appropriately.

Managed Services

Providing Managed Services, enables big technology players to add value that comes from their capability to deliver services across the globe and not just a solution or a platform whose exploitation is left to the ingenuity of the buyer. This is difficult to replicate for new players, unless they are able to align with a non-product pure-services player and take it to market.

For the big technology players too, this has not been a cakewalk. We have seen a number of technology players – notably those losing ground to Chinese Equipment Manufacturers – pulling out of Managed Services deals in recent times, unable to address cost pressures of the business and threatened on their home turf of product sales.

Cloud Based Software

The other key strategy could be to bring up a set of software that can be consumed on-demand in a Cloud based model. Typically, product vendors favour SaaS models over PaaS models, because this enables the Service Providers that typically use the software to white-label and deliver the services to an end customer. Computing capacity from large Data Centres, security considerations and credibility to deliver a reliable service is easily associated with the big players than the newcomers.

However, this approach too has its risks for the big players – basically, like the Managed Services model, this too creates OPEX dependent revenue streams that are typically lower in magnitude to outright purchase, putting margins of big players under pressure.

In Conclusion

We can see that both models are justifiable as TCO reduction strategy to counter low cost offerings from new players and can help defend the low entry barrier.

Whether Cisco’s decision will help them overcome similarly is difficult to guess. But, one thing can be said, that this decision has the potential for success, if the execution is done correctly, is beyond any doubts.

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