The Wall Street Journal gave Brocade free advertising with the article Network Specialist Brocade Up for Sale back in October. 5 months later Brocade is still for sale – and despite the HP/Cisco network wars it still isn’t clear why anyone might buy them.
Brocade’s acquisition of 10GigE developer Foundry Networks was supposed to make them a purer networking company, but Cisco’s market share doesn’t leave a lot of room for anyone else. Brocade is losing share in the Ethernet market and stock analysts are cutting their forecasts.
A weak foundation
Brocade’s troubles have been years in the making. The company put itself in a box with its go-to-market strategy and hasn’t found a way out.
Brocade’s troubles reflect the dangers of an OEM strategy when your partner’s strategic interests are different than yours. None of them wanted Brocade to succeed as a networking company.
A key reason for the excitement around storage networks in the late ’90s was the hope that the network effect would drive storage costs and commoditization
the way it had with Ethernet. But that didn’t happen.
The major vendors paid lip service to interoperability – plug feasts at SNW – but production-quality interoperability never happened. With all FC switches coming from either Brocade or McData it should have been easy – but since the storage vendors realized that there was no business advantage in openness, it never did.
Brocade was powerless to press the issue since the OEMs controlled the product support. No enterprise customer would buy a switch that his array vendors wouldn’t support.
So Brocade was stuck with a profitable business that wasn’t going anywhere. Except south. They needed better strategy advice than they were buying.
None of Brocade’s customers want the company either. Other customers won’t want to buy from them – EMC buying switches from HP? not for long – so the company valuation looks rich from a 5 year cash flow perspective.
The StorageMojo take
The OEM channel is popular in tech because it removes the expense and exasperation of selling to end-users. You work with fellow engineers at the OEM to qualify the product and their sales people do the work.
You don’t think you need much marketing – really, you do, but few realize that – and very few sales people. And the sales people you do need are the cool, savvy relationship cultivators, not the high-pressure closers. It’s almost all good.
The bad is the loss of control. Other people position you, test you, support you and ultimately use you for their gain. That can work well if, like DEC early on, your widget is buried inside another product and you’re free to market to end-users.
But as Brocade illustrates, you can’t rely on OEMs to build your brand. You have to do it yourself.
The WSJ article suggested HP and Oracle might buy Brocade. But the only valuable part is Foundry’s 10Gig products. And that piece is heading south too.
Courteous comments welcome, of course.