I agree...any discounting strategy has to have a "get better" plan - some way that the capture of market share will one day result in better margins.
I guess Alcatel's "router plan" was Timetra for a while (although it's only recently that you could really think of Timetra boxes as "routers", as opposed to VPLS switches).
After the Lucent acquisition I seem to remember seeing presentations to us from a "joint" AlcaLu account team that pitched both Timetra and Juniper (Lucent had a deal with Juniper). In one meeting it was like the two Product Managers (one pitching Timetra and the other pitching Juniper) were from competing companies, pointing out drawbacks with each others' platforms. Sigh. I think Cisco got the business.
Hyperrunner, I think the ALU strategy at the time was to massively discount optical and sell more routers as a package with higher margins. Give into the optical push down, but make it up in IP products. Problem is, given the IP margins, this too did not work. Sad.
P2 is right in broad strokes, but I'm not sure I'd put all the blame on AlcaLu for discounting.
Remember when Alcatel was described as "visionary" for selling DSLAMs at loss-leader prices in the early days of ADSL rollout? That was a calculated strategy to win footprint and market share. I guess the strategy worked pretty well up until the moment they bought the boat anchor formerly known as Lucent.
Today there is one big factor that is different if you plan to pursue a loss-leader strategy. That is Huawei (and ZTE to a lesser extent).
How can a company like AlcaLu, that is following traditional business practice (ie. trying to make a decent margin) compete directly with companies who are funded by their national bank?
Apart from the scale of their debt, how is AlcaLu different from Ciena or NSN? Both of them tried discounting their way to market share, and look where it got them.
If service providers want a truly competitive optical market (unlike the duopoly of the router market) they need to think strategically about their suppliers. Optical is a cut-throat business because there are multiple, credible suppliers. But not if service providers keep letting those suppliers go to the wall.
> ALU has been discounting at an extroadinary rate for awhile. It's what go them footprint in tons of sites, that could maintain optical for awhile. But it brought everyone in the industry down with them. Marketing 101 tells you that is not the way to operate. Things in this industry suck because of what ALU has done.
Interesting to know - thanks, P2.
I think Notter was talking mainly about the router side, but the same could certainly hold for optical, too (for multiple vendors).
ALU has been discounting at an extroadinary rate for awhile. It's what go them footprint in tons of sites, that could maintain optical for awhile. But it brought everyone in the industry down with them. Marketing 101 tells you that is not the way to operate. Things in this industry suck because of what ALU has done.
Actually the router margins don't impress much either, considering Cisco & Juniper have overall gross margins in the 60s. Of course, it's not an apples-to-apples comparison, but still ... Notter is inferring that AlcaLu's lower number implies the company has gained some of its market share through price-cutting.
I'm not sure that's all there is to it, but that's one way to interpret the numbers.
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