In this interview, Roth makes an interesting analogy. He claims that the Enterprise customers are more likely to "buy" data networking capacity/service from broadband service providers and ASP's rather than build-out their own private data/VoIP/VPN network using Cisco routers.
This is consistent with two major business trends & history of telecom business;
1) corporations are subcontracting out non-core services to third party vendors (just as Cisco farms out most of their manufacturing as an example). We see this trend is already well entrenched and there is no reason to doubt that the same process will occur in the enterprise data networking departments. CEO's will be asking their MIS head why not farm out data networking service to an ISP/ASP/Telco who has the experience, resources and the technology to keep up with the dizzy pace of change we are experiencing.
2) In the telco world, very few corporations buy/build their own telecom network. They buy services from the Telco/PTT carriers. I suspect that enterprises built their own data networks using Cisco in the past because the the data service providers was simply not available in the past.
Taking those two points, everything points to the declining importance of owner-operated network and the emergence of specialized ISP/ASP/E-Commerce enabling service providers who will take over the enterprise data networking requirement.
Nortel in my mind has better shot at the ISP/ASP market than the entrenched enterprise market that Cisco dominates. So this bodes well for Nortel. Sorry Cisco followers!
infoworld.com
Nortel CEO drives voice/data convergence
By Martin LaMonica and Jennifer Jones
NORTEL NETWORKS President and CEO John Roth has been the driving force behind Nortel's rise to the top tier of the networking world.
Central to the company's transformation was its $9 billion acquisition of Bay Networks two years ago, which firmly planted Nortel's fortunes around the convergence of voice and data networking.
Buying companies such as Bay, customer relationship management (CRM) provider Clarify, and optical provider Qtera has been instrumental to Roth's strategy of keeping his telecom dynasty agile enough to compete in today's landscape.
In an interview with InfoWorld's Executive News Editor Martin LaMonica and Senior Editor Jennifer Jones, Roth talks about the competition, Nortel's portfolio of acquisitions, and his strategy for directing a legacy phone company through a "right-angle turn."
InfoWorld: Currently, both the future of Nortel and the industry seem to turn on the convergence of voice and data on a single network. Where do we stand on convergence?
Roth: The real thing that is happening is that IP traffic is really on a roll. In my view, IP traffic is going to subsume all other kinds of traffic. IP protocols are already subsuming SNA and all of the others. There are two schools of thought on voice over IP. One is the tariff bypass -- put voice on the Web and pay Internet rates. But putting voice into Web sessions, in which there is [a] voice over IP session in concert with Web activity, that is where we see the real value.
InfoWorld: Is Nortel approaching convergence differently than its competition?
Roth: I think we are going faster. I think Nortel woke up to the fact that the Web is taking over everything quicker than most people did. I've always had a philosophy in my career: If you think something is inevitable, lead it. Don't debate it, lead it.
InfoWorld: Apart from the acquisition of technology, how has Bay changed Nortel?
Roth: The Bay acquisition was powerful from a number of angles. I read in the paper now where corporations outspend me buying other companies. But at the time, it was a major declaration that we were serious. Bay is really useful for agility. Speed is one thing, but agility is crucial, especially in this industry, which is changing so rapidly. Agility is more than speed because you can change directions. Speed means that you are going really fast in one direction. But can you turn?
InfoWorld: Did the Bay acquisition change the culture of Nortel?
Roth: There were a lot of practices inside Nortel that I wanted to get rid of. And it was pretty clear to me that they were practices that were really set in the culture of the company. And, I wanted to change the culture of Nortel to be consistent with a highly agile corporation. I saw inside of Bay a lot of practices that had been brought in from Intel and where have you. And these [practices] were closer to the mark than what we are doing. So we took those practices and put them across the corporation -- like bonus treatments and how we rewarded people and how we measured our progress in R&D [research and development]. The shock for folks at Bay was not really what it would have been if we had imposed a lot of Nortel's practices.
InfoWorld: So how do you measure the success of your acquisitions?
Roth: We are running a little faster than one acquisition a quarter, which is a good pace for Nortel. We can digest at that rate. In terms of measuring success, I always point to the sales ramp. The bottom line is what is the revenue ramp associated with the acquisition. Some of these acquisitions have also been highly synergistic, because we are getting piece parts of an end-to-end network.
InfoWorld: Where does Nortel make most of its sales?
Roth: Nortel's revenues are three-quarters carrier (business), one quarter enterprise (business). Nortel's strengths lie in the fact that we build networks that underpin commerce.
InfoWorld: What would the optimal network provider look like and how will Nortel get there?
Roth: The Internet backbone has got to be optical. So that is step one. Then there is DSL [Digital Subscriber Line] or wireless or cable for access. Voice over cable, LMDS [Local Multipoint Distribution Service], and third-generation wireless are just some of the things we are looking at. But then our job really becomes building networks that connect the sources of information to the receivers of information. At one time, that was people talking to each other. More and more, it has become 'I want to see what's inside of your database.' People want to see the status of their orders. And for that information, we need CRM systems to get in. And in that sense, things like CRM become very intimate to the network.
InfoWorld: Do you notice any sweeping changes in the way businesses are buying networking products and services?
Roth: A lot of people -- especially at the corporate enterprises -- just don't want to run these networks anymore. People are saying 'networking is going so fast, I just can't keep up. And you know, it's not that important that I do all this.' They realize that what they need to keep up with are the applications. So a lot of enterprises are turning to service providers, and there is such a range of service providers that offer these services.
InfoWorld: How does your service-model strategy embrace Clarify?
Roth: A package that includes CRM and networking is really appealing. And that is one of the things we really liked about the Clarify system. It has an architecture that really scales, and we see that as being run by a service provider and offered as a service to small and medium-sized business.
InfoWorld: Is that a service you would offer, or would you offer that through an application service provider [ASP]?
Roth: It would be through an ASP, and in some cases we have started to market as an ASP to get an operation bootstrapped.
InfoWorld:Do you have the software or services in place to be in the CRM market?
Roth: Not today. But that would be ready for us to do, if we decided we wanted to do that. Once the deal closes, those are some of the decisions we will have to go through.
InfoWorld: What has happened to your competitive landscape in the midst of all these acquisitions?
Roth: I think the spread is opening up between the players. I think from my perspective that Nortel was the first from our cadre -- Nortel, Cisco, and Lucent -- to start doing acquisitions. And this group is now spreading out. Nortel has rapidly moved to the top of that, and that has corresponded to the rate at which we embraced the Web. Cisco is trying to follow the traffic. As corporations are saying, "I don't want to build networks anymore," Cisco is realizing that the business they have enjoyed from enterprises is really going to flip toward service providers.
InfoWorld: Who do you now consider your biggest competitor?
Roth: Lucent is obviously a major competitor. Cisco is trying to move into the service provider space and is doing extremely well with ISPs. And we want to do more in that area. They took a big run at carriers in what I would call the Nortel space, and it didn't work out too well for them. Cisco is also now moving into optical by buying Perelli. But that is a big leap. Anyway, Cisco is becoming a direct competitor. Lucent -always. And in the wireless business, there is Ericcson -again some strong competitors in the wireless business.
InfoWorld: How do alliances fit into your strategy?
Roth: We've struck a lot of alliances: one with Intel to have our routing code put into their chips, one with Hewlett-Packard to put a PBX on their servers, and another with Sun to have our IP platforms run on their equipment. We are also really embracing Java as a neat way to put a lot of functionality over the Internet. Then we're doing work with people like Corning to push the physics of glass. You are also going to see some announcements between ourselves and people working on wireless Internet products.
InfoWorld: Do you have a significant number of those alliances centered on your routing products?
Roth: We have licensed our routing codes to about 220 companies. So if you buy a routing function from someone other than Cisco, it is probably from Nortel. Routing is no longer a product; it is a function.
InfoWorld: Does that mean that it will come down to a battle for Nortel to get developers to use those routing codes?
Roth: Yes, and the best way to win that kind of battle is to give it away.
InfoWorld: How do you put your personal stamp on all of the things that we've talked about? Why have things worked over the last three years because of you personally?
Roth: No. 1 is communicate, communicate, communicate. And this kind of detail about what we are doing, I send out to all of my folks. I get back a lot of e-mails asking for clarification, and I generally try to find the time to answer those.
InfoWorld: Will the rush for data networks cause Nortel to take a hit on the voice side, especially given the emphasis on IP?
Roth: Yes, but no one is going to notice. If Nortel had not been successful in moving ourselves to the data side, this could have been devastating. But we are so well-planted now in optical, in wireless Internet, in ATM, [and] in high-capacity routing. So if the growth in my voice products is flat, but these things are growing so rapidly at 30 to 40 percent a year, [then] we are not going to have a long eulogy about a 3 percent business. That was the right-angle turn that Nortel took.
InfoWorld: What's ahead for Nortel in the next year?
Roth: We've got a very heavy product introduction year coming up. And our objectives at this point are not even for the next year, but for the next six months. We've changed the mindset inside Nortel in terms of what time is worth. We've really raised the importance of time.
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