Are Traditional IT Companies Mute Spectators?

A Lucent acquires an Ascend. The
share value of Lucent, expectedly, goes up. But so do the shares of 3Com, Tellabs, FORE,
Cienna, and a host of other networking companies in anticipation of possible takeovers.
Even, the share price of Cisco, a direct competitor, expected to be hurt by this
particular acquisition, improves, after an initial drop. Suddenly, the global media is
full of stories on the acquisition, its impact on Cisco and other big and small networking
companies, and also on the likes of Alcatel, Ericsson, Nortel Networks, Siemens, and the
other telco equipment makers. The trade press talks of the future of global communication
networks and the positioning of different technologies and technology suppliers.

Some otherwise familiar names do
not even figure in these discussions like those of Compaq, HP, IBM, Microsoft, and Sun.
Are these developments too isolated from the territories that these companies operate in?
Do these M&As—Lucent-Ascend, Nortel-Bay, and Ericsson-ACC—have no or little
impact on their future? Relevant questions, these are. But, no one even has the time to
ask them these questions. They have been completely sidelined.

Most IT biggies have decided to
keep mum, with a very uncharacteristic we-are-little-concerned kind of attitude. It is
difficult to believe they are not concerned. It is also difficult to believe that these
smart, market savvy companies are living in a fool’s paradise. What is more likely is
that they have failed to act promptly. And have let a big opportunity almost go out of
their hands. Well almost, because they still have a chance to come to the centre of
battlefield. A few of them may even come up with some startling news—or at least
let’s hope so.

The Impact face="Times New Roman" size="2">

Telecom business
traditionally is conservative. IT is smart and aggressive. Then, data is winning the
battle between voice and data hands down. The data traffic in global communication
networks has surged ahead of the voice traffic. The telecom network itself is becoming
data-centric. And today, even the big telecom companies like Lucent and Nortel acknowledge
that fact.

Why then is the fuss about IT
companies losing to telecom equipment companies? There is just one reason. These telecom
companies—at least some of them—have realized and acted on the paradigm shift
much before the IT companies—the otherwise smart guys—have done. And many of
them have not been hesitant to acknowledge that they have actually done that. The Nortel
Networks CEO, for example, says that his company has taken a 90-degree turn. The IT
companies are still in their own world, hardly reacting to the change. As most computer
hardware companies in the Eighties did when they faced the challenge from software
companies. Many of them are yet to recover fully from that jolt.

It is easy to dismiss the M&A
wave as primarily targeted at addressing the needs of the carrier market. That view is
short-sighted. While it may be true that the position of the voice companies vis-a-vis the
data companies will be further strengthened in the carrier market, a more alarming factor
for the computer companies is the impact the telco equipment makers will have on the
enterprise market in the long run.

The hold over carriers will give
telecom equipment makers a route to the enterprise networks, as the role of carriers in
the corporate networks has increased manifold. Today, many carriers are actively
associated with the building of corporate-wide area networks. A strong relationship with
carriers will be a strength that smart telecom companies can play to their advantage and
get solidly into the enterprise market. Anyway, enterprise is no longer a totally strange
territory for them. The Bays and the Ascends have brought with them not only technologies,
but also the enterprise experience and contacts.

The new telecom companies with a
strong hold over both voice and data technologies will also be able to cater to the needs
of the converged enterprise networks better. Building and helping operate large complex
networks is anyway their forte. No one understands the network design and traffic
management better than them. In this aspect too, the IT companies will find them in a
disadvantageous position.

However, all is not lost for IT
companies. Their hold over large general purpose boxes—popularly known as
computers—means that they can continue to build versatile and more flexible
applications and come up with new things much faster than others. But they cannot afford
to make that fatal mistake. Of not admitting that they need to compromise wherever
necessary.

For the moment, IT companies are
sidelined. But one thing is for sure—that they cannot take the enterprise market for
granted. The telecom companies will soon offer them tough competition there. IT companies
now have to fully leverage their strengths to fight back. And they have a whole lot of
that. One of them is not telling us time and again that they are much smarter than the
"conservative" telecom companies.