Is Lucent wise to the enterprise?

By David Rohde
Network World, 07/05/99

AURORA, COLO. - You only have to look at Lucent's just-completed acquisition of Ascend and recent multimillion dollar bid for IP router vendor Nexabit to figure out Lucent's No. 1 priority: the carrier and ISP equipment market.

But Lucent officials say they're committed to the enterprise data network market for the long run, insisting the company's current enterprise product lineup will continue to expand beyond mostly high-end Ethernet and ATM switches. They also say Lucent's variety of new voice/data products, such as unified messaging and IP telephony offerings, will deepen its role in corporate networks.

Yet Lucent officials say the company won't buy leading enterprise data-network companies just to achieve market share, even though that's precisely what Lucent has done in the service provider data market.

Enterprise users say Lucent's oft-stated strategy of approaching its PBX user base to sell data equipment has not translated into a whole lot of sales calls. Instead, they say Lucent seems more interested in selling service contracts to install and manage networks - often using its competitors' products - through its NetCare professional services division.

Network World has learned that Lucent Chief Operating Officer Dan Stanzione was challenged a week ago during a meeting with Lucent employees to explain why the company continues to lag far behind competitors in enterprise equipment sales. He was reported to have responded that Lucent "needs to do more with the enterprise."

And NetCare Division President Jeff Akers - another Lucent star - makes no bones that his mission is to sell and support multivendor networks rather than push Lucent boxes.

Akers estimates that 96% of the time that companies come to Lucent NetCare, they have "already made their technology decisions," including which data network vendors to use - and that's usually not Lucent. "They say, 'I'm pretty sure it's going to come from these two or three [other] guys,' " Akers says. But then they need help designing the network and deploying it across thousands of locations nationally and internationally. "And that's what we do for enterprise customers," he says.

Where are the resellers?

Technically, Lucent already has an enormous enterprise business, with its Business Communications Systems division logging just under $2 billion in sales in the first quarter, compared to $5.1 billion for service-provider sales.

But that revenue is overwhelmingly voice-related, and Lucent's quarterly statements invariably attribute the enterprise growth rate - currently at 15% annually compared to 40% annually for carrier sales - to PBX, call center and related sales with no mention of data-equipment products.

Indeed, for a company whose name is now commonly uttered in network industry circles in the same breath as Cisco and Nortel Networks and often ahead of 3Com and Cabletron, Lucent's enterprise data market share remains amazingly paltry. For Gigabit Ethernet, Lucent has taken almost 10% of the market for Layer 2 switching, but overall, its share of the LAN switching market is still less than 3% (see graphic).

"The strategy has never been to buy market share in the enterprise," says Doug Ruby, product marketing vice president of Lucent's campus switching group. Ruby claims that in recent years, no other new player has achieved the kind of growth that Lucent has in the enterprise.

Company officials claim that in addition to their direct sales force, they have developed an indirect sales group of 150-200 resellers, largely those that were selling products from Lucent's past data product company acquisitions, such as Prominet and LANNET.

But other sources question how much these resellers are really pushing Lucent products. "The fundamental problem they have is that Lucent really doesn't have a sales channel to address the data-networking side of the house," says a prominent former Lucent employee who worked in both voice and data networking and left earlier this year.

Users haven't seen much evidence of such a channel, either. One voice telecom manager from a company that primarily uses Lucent PBXs and Cisco routers says Lucent has merely sent the telecom department literature about the data products and asked the department to direct the material to data-network administrators. That was until the voice and data network managers together decided to ask Lucent for a presentation on convergence after returning from a Cisco convergence presentation.

Lucent's foot-in-the-door strategy may not be enough, says the former employee. "It was always quite a struggle to get the attention of data-networking managers," he says. "Once they had something that worked, it was hard to justify changing it."

Ironically, the data-switching users that Lucent has gained seem delighted with the products. "In terms of performance, this thing has been much better than anyone expected," says Mike Hannigan at Pacific Research & Development, an international insurance company affiliate in Long Island, N.Y., that uses Lucent's Cajun P550 switches.

But Pacific Research obtained the switches through "pure, dumb coincidence" after the company learned of Prominet - the original manufacturer of the P550 - in a phone call about 3Com's competing CoreBuilder product.

Taking their time

Ruby says Lucent will continue to expand its product line - for example, by selling Ascend's Pipeline access routers directly into the enterprise market - rather than wait for carriers to place the products on customer premises as part of their services.

But Lucent has avoided most low-margin commodity workgroup and desktop product markets. Analysts say that's partly because Lucent has so much investment tied up in Bell Labs and still retains some characteristics of an old-line telecom-equipment house.

"Large corporations are not designed to make widgets or to make low-end LAN devices when what's necessary is to have very high margins to meet the needs of shareholders," says Frank Dzubeck, president of Communications Network Architects in Washington, D.C. Cisco faces a similar challenge but has an advantage because it's moved so heavily to Web-based selling, he adds.

And the former Lucent official says that despite Cisco's purchase of an IP PBX company and other voice initiatives, Lucent feels it will take several years for Cisco to make its presence known in voice, so Lucent feels it can move in a measured way. Ruby agrees, in a way. "This is not a short battle. It's a long, drawn-out war," he says.

Yet Lucent shows no such hesitation on the service provider side of the house. At Lucent's Network Reliability Center outside of Denver, Lucent has built not only a state-of-the-art network operations center but also wines and dines potential carrier clients so frequently that it has hired a full-time French chef to prepare meals. And throughout the Denver area, Lucent's employee base of 7,600 is overwhelmingly concerned with PBX and call center training and support as well as service provider support.

Lucent NetCare does maintain an operations center in the Tampa, Fla., area that specializes in fully managing 160 enterprise data networks - and indeed NetCare actually claims to have helped install or support 10,000 enterprise customers. But much of that business actually comes as a subcontractor to carriers such as MCI WorldCom to provide rollout support for carrier-managed contracts, NetCare's Akers acknowledges.

In the end, the former Lucent official says it's no mystery why top Lucent corporate officials have stressed the service provider opportunity: It was too juicy to pass up. Many carriers were reluctant to buy switches from AT&T when it still owned what is now Lucent, for fear of letting AT&T in on their rollout plans.

"But when Lucent got unbundled from AT&T, the phones were ringing off the hook with regional Bell operating companies and other telephone companies saying they wanted Lucent's products because theirs weren't as good," the former Lucent official says. "And the calls haven't stopped." o