More than a sales partnership?
On the face of it, the answer to this question is yes. And the company is clear to mention how long they have been thinking about partnership – 13 months – possibly to stave off the response that this is a quick reaction to the changing market dynamic formed by the Nokia-Alu merger. But there are two ways to do partnerships. One is to compete where competition is appropriate, but work together where you have less cross-over or a clear client preference of supplier. The other is to align development and “architecture”, so you are delivering much more of a united front to the market.
The second option is of course much more radical, but there are hints that, certainly in some elements of SDN and in NFV, this is where the companies may be headed. Hans Vestberg himself said this goes “way beyond” any normal strategic partnership. Analysts probed on whether Ericsson would keep selling its edge routers (ie compete directly with Cisco) and the answer was a bit of a fudge from Vestberg, saying that the product is “out there” and Ericsson would continue to “support it”.
The big follow up question to this is of course, in that case:
“WHY NOT MERGE?” And the answer that Vestberg and Robbins gave is that they wanted to be able to move right away, delivering joint capabilities as soon as possible into the market, without going through the full merger process. Interestingly, there was no philosophical objection raised to a merger, and neither man ruled it out. So… not exactly a speculation killer.
Impact on Innovation
This is the second follow up question to the impression given that the companies are going to be working pretty closely together. Operators like standardised architectures, but they also like competition in price and innovation. How far will the strategic partnership go in aligning product development, and if the answer is “quite far” (Ericsson and Cisco have joint engineering teams working on SDN-NFV management, for example), then has the market just lost one player in terms of competitive differentiation, and also in terms of potential innovation that arises? The CEOs both made mention of the complementary nature of their product sets – number one in IP (Cisco) and number one in radio (Ericsson) – and so the likelihood is that they continue to develop their own separate product lines, but aligned under a management architecture.
The biggest potential is surely in the cloud and IP environments, where both companies are full out on NFV – and the deployment of VNFs – and the control and flexibility of networking enhanced by SDN, but are coming at it from different angles. Robbins mentioned the need for more autonomous networks, and flexible networks. Here in this Virtual and Software-Defined crucible is where that happens. So Cisco can surely benefit from Ericsson’s deep telco networking knowledge – and Robbins namechecked its OSS capabilities, for instance. And Ericsson can benefit from Cisco’s knowledge of virtualisation in the data centre and the enterprise space. Both companies are hot on the analytics-fed, smart network. Pooling thoughts here could create some new value for service providers. This is the “Service Provider Transformation” sweetspot that forms one of three main target areas for the partnership (the other two are mobile enterprise and the IoT).
Ericsson’s Vestberg said there would be “synergies” of a billion Kroner from the partnership, with that coming from manufacturing production, R&D, as well as go-to-market and sales costs. Clearly there is going to be some element of joint endeavour. How much will really determine if this partnership looks more like a JV, or the more usual partnerships we seen between the liks of, say, Juniper Networks and Nokia Networks.
One of the stated aims of the strategic partnership is: “Creating the mobile enterprise experience of the future through a highly secure technology architecture for seamless indoor/outdoor networks.” OK, so how far does this extend into what products actually sit under that architecture? Cisco has a reseller agreement with Spidercloud for indoor small cells in large enterprise environments in licensed spectrum. Ericsson has its Radio Dot System which sits under a very different architecture than Spidercloud’s. Should Spidercloud be worried? (TMN has asked both Spidercloud and Cisco for a comment on this.)
You can view the slides Ericsson and Cisco used during the analyst and media presentation. The commentary comes from TMN, not from Cisco or Ericsson.