The Battle of the Network Switches

Cisco_Media_Convergence_ServersYesterday Facebook announced that it has successfully built an open-source network switch. This is really big news in an industry where Cisco and Juniper together have more or less cornered the switch market. The Facebook switch has been named Wedge and is operated by an open-source software platform they called FBOSS. This has been created as part of the Open Compute Project (OCP) started by Facebook but now involving many other companies. The goal of this project was to radically change the way companies buy hardware and software, and it is starting to achieve those goals.

 

This announcement is going to shake up the $23 billion Ethernet switch market in the same way that the introduction of the softswitch killed the duopoly on voice switches once held by Nortel and Lucent. I’ve written earlier about how the Ethernet switch industry is moving towards software-defined networking (SDN). The goal of SDN is to take features that have baked into hardware, such as security and device management and make those functions software controlled.

 

Cisco has already introduced their own version of SDN and they now have software that will control their various devices. But honestly this is only a modest change for them, because at the end of the day all of their hardware and software is proprietary. We are all very familiar with network engineers who need multiple Cisco certifications just to be able to operate the Cisco gear. Cisco’s SDN doesn’t really change that need for network engineers or lower the cost. It just layers a new software over top of the old platform.

 

The industry was ripe for this change because Cisco has grown into the same kind of company that we saw in Lucent and Nortel at their peak. The Cisco pricing model now includes a permanent 15% annual fee on top of any hardware you buy from them. This fee is ostensibly for upgrades and maintenance, but the people who write the checks for this don’t feel like they are getting much value from these annual checks. This sounds exactly like the kinds of pricing practice we saw in the voice industry when it was a duopoly of Nortel and Lucent.

 

Cisco has been reported to have a 60% profit margin, and so they are ripe for a challenge. Cisco is not going to go away easily and they have been very clever in the way they have shaped the network switch market. That market is operated by and decisions made by switch engineers, all of whom Cisco has made certain have a long list of Cisco certifications. And frankly, the OCP initiative is aimed directly at getting rid of those network engineers, in the same way that cloud computing is doing away with server engineers.

 

Certainly Cisco has already lost the largest customers in the market. Facebook will be going with their own new technology. It’s been reported that Amazon, Microsoft and Google all are working on their own versions of SDN servers as well, although none of them are reported to be headed towards open-sourcing like the OCP initiative. But one would think that this is going to put a massive amount of price pressure on Cisco in a few years, as ought to happen with any company that has gigantic profit margins. There are still going to be a number of network operators who are going to go with traditional Cisco for a while simply because it works and is comfortable for them. But as the OCP hardware becomes readily available and proves able to work in the market it’s going to get harder and harder to justify buying expensive and proprietary servers.

 

It took a full decade for the traditional voice switch manufacturers to fail after the introduction of the softswitch. And Cisco is probably better equipped to fight back against this change than were Nortel and Lucent. But in the early days of the softswitch I saw some of my clients cut their hardware and maintenance costs in half by going with a softswitch and it was obvious then that the newer technology would eventually win. This Facebook announcement is the first day of the decade that is going to transform the way we buy and use network switches.

 

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