Lessons From the LAN

Will Ethernet kill Sonet? History tells us it may not be that simple

August 31, 2004

5 Min Read
Lessons From the LAN

I recently came across another article raising the question: “Will Ethernet kill Sonet?” (See Stitt: Sonet's Even More Dead.) This got me thinking about the similar battle between Token Ring and Ethernet LAN technologies in the late 1980s and 1990s, which could make for an interesting comparison.

The over-simplistic case is that Ethernet won in the LAN, therefore it will win in the WAN. But it’s more complicated than that. While I do believe that history often repeats itself, we should understand what really happened before applying the lesson. And the lessons of Ethernet vs. Token Ring are a study in competitive and strategic moves by technology vendors.

Ethernet was the first LAN technology to gain wide acceptance. In its initial form, Ethernet wiring was unstructured, the protocol itself had few tools for problem management, and it had few mechanisms to avoid traffic congestion and ensure fairness. Token Ring, championed primarily by IBM Corp. (NYSE: IBM), was designed to bring many of the qualities of Sonet rings to the LAN. It could automatically detect and isolate failures, support priority traffic, ensure fairness of access, and provide capability to carry synchronous traffic. Because of Token Ring’s robustness, it became a favorite for banks, large enterprises, and mission-critical networks. Ethernet, on the other hand, was relatively cheap, which made it popular for the masses.

Sound familiar? It gets even better. Ethernet in the LAN began to evolve. With the advent of Ethernet over twisted pair came intelligent Ethernet wiring concentrators, which allowed Ethernet LANs to provide many of the reliability features of Token Ring (sounds a little bit like RPR). On the other hand, Token Ring PC card prices dropped by 75 percent in a few short years. As the costs of both technologies continued to drop, Token Ring narrowed the price gap from 5:1 to 2:1 or less. Still sound familiar?

Unfortunately, the advances in Ethernet made even those reduced price differences hard to justify. Most LANs never took advantage of Token Ring’s priority and traffic synchronization features (VOIP came 10 years too late). While Token Ring held onto existing customers and a few applications that could justify the price difference, intelligent hubs and switches made Ethernet more ubiquitous, and it gained critical mass. The moral of the story is that Ethernet replaced Token Ring because it evolved – with perhaps a slight edge in price.

But before the RPR and carrier-grade Ethernet vendors start uncorking the champagne, let’s consider the differences in the case of Sonet versus Ethernet. First, Ethernet is not an incumbent technology, as it was in the LAN. This sets the bar higher in terms of the need to cover the technological migration cost. In addition, in the service-provider world, there exist applications that require some of the extra bells and whistles that Sonet provides (like voice and video).

Perhaps the most interesting difference is not a difference at all, but a little known fact about the true technology cost difference between Token Ring and Ethernet.

It turns out that Ethernet may have edged out Token Ring in the market place, not because it was inherently cheaper, but because of some marketing missteps by IBM. IBM engineers did their magic to reduce the cost of Token Ring chips, reducing the difference in chipset costs between Token Ring and Ethernet to an almost insignificant level. So why did the gap in Token Ring-Ethernet pricing remain substantial?

In my opinion, there were two primary reasons. First, IBM’s overhead structure prohibited small commodity products from being price competitive, even when manufacturing was outsourced. Smaller vendors, which could be more competitive, did not enjoy the benefit of IBM’s lower technology costs. Perhaps more importantly, IBM’s networking division didn’t consider LANs to be strategic and were therefore unwilling to sacrifice cashflow to protect market share. Ethernet vendors cannot assume that these conditions will translate into the Sonet world.

If the lessons of the LAN hold true, competition between Sonet and carrier-grade Ethernet may have little to do with the intrinsic cost advantage of Ethernet technology itself. The issues facing the Sonet vendors have more to do with their will and commitment. Will they have the drive and expertise to continue to decrease their product costs? Has manufacturing outsourcing resulted in a low enough overhead for them to stay competitive with smaller companies? What margins are they willing to accept to protect their market positions? Will they learn the lessons of Token Ring?

For the Ethernet vendors, what will happen to their product costs as they add the functions necessary to compete with Sonet? Will the low cost of Ethernet chips, driven primarily by LAN volumes, translate into the same low costs for WAN chips, which are likely to be very different? Can they win if the Sonet vendors can drive the costs and pricing differences to a reasonable level? Do they recognize that their advantage does not depend on Ethernet itself, but their ability to innovate faster and compete harder than the larger vendors? Can they avoid listening to their own hype?

Put the corks back in the bottles, and get ready for a real fight.

— Doug Green is founder and principal of the Bradam Group LLC, a telecommunications consultancy located in Raleigh, N.C. He previously spent 13 years at IBM, primarily in PBX and LAN R&D. He can be reached at [email protected].

For more on this topic, check out:

For further education, visit the archives of related Light Reading Webinars:

  • The Economics of Ethernet

  • Ethernet Services: The Economics Behind the Myth

  • GFP Chips: Making Sonet/SDH Systems Safe for Ethernet

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like