Joe Weinman at GigaOM Structure 2011

The public Internet and the cloud shouldn’t mix, according to a paper out today from Joe Weinman of HP. Cisco seems to agree, if Tuesday’s announcement of its CloudVerse suite of products is any indication. A growing number of endpoints, the multiple services built within web applications, and the infinite variety of demands made on any web-based service mean the network can’t be trusted to run over the top.

The network is the cloud, so it needs to be agile, smart and billed based on usage.

Instead, the industry will need to move to pay-per-use, dynamic networks where possible to improve the economic benefits of cloud scenarios and deliver defined quality-of-service for applications that will require low latency, argues Weinman. Weinman, who moved over to HP from AT&T last year, is a deep thinker on the economics of cloud computing. He also argues that bandwidth will eventually be charged on a pay-per-use model for both consumers and enterprises.

He makes a good case for the importance of a smarter network in the context of delivering cloud services, something Cisco’s CloudVerse announcement Tuesday also supports. CloudVerse basically organizes Cisco’s existing networking products for the data center and links them back to the networking gear already in carrier and service provider networks, with the idea being that an intelligent network can take the fuzziness out of managing applications in the cloud.

Complex apps and infinite endpoints make quality of service more important.

It’s true that applications are growing more complex and relying on more protocols to deliver a variety of services over the web. Take, for example, an application like Google+. There are real-time streaming elements, a video conferencing set-up and document sharing. Each different element requires different levels of network quality, which is why Weinman argues for networks that run faster, not just on a megabit-per-second basis, but also with less latency. From the paper:

Human performance studies show that 200 to 250 milliseconds is acceptable for multimedia conferencing and collaboration applications. However, interactive tasks such as keystrokes and mousedowns must be responded to within about 150 milliseconds [10], and emerging online games require even lower latencies.
There are also empirical results showing the importance of low latency not just in terms of user experience, but in terms of revenue. Lower latency directly correlates with increased revenue [11].

Add in the complexity at the end point in terms of the number of devices that connect to the network and it gets worse. Sensor networks, plus more devices per person and more concurrent streams coming in per device (as in personal video recorders) require more bandwidth. It also requires more intelligent bandwidth that can allocate resources and deal with emergent effects like in-office or in-home congestion and odd spikes in traffic in case of unexpected events. For example, a pipe breaking in a sensor-equipped home in the middle of the afternoon when the house is empty may create a sudden spike in traffic as humidity sensors activate, power gets shut in certain areas and you check in via a home camera system to see why your home network is going crazy. But because that’s an unexpected spike in a normally dull time, will your service provider have the bandwidth capacity to meet that event?

Of course, there’s something on cloudbursting and software-defined networks.

Weinman also offers the Holy Grail of true cloudbursting as an example where adding network intelligence makes it easier to scale a workload from one data center to another in times of peak demand. He lists five ways of doing this, beginning with the simplest idea of dividing up tasks between various clouds, which requires little to no network intelligence. He concludes with a network that can push a huge amount of data as needed and very quickly, but which would require infinite bandwidth. Since this last approach is impractical, he suggests providing pay-per-use bandwidth as the easiest way to instantly replicate data while keeping costs in line.

To help deliver the type of fine-grained control that intelligent networks will need, Weinman believes software-defined networks, such as those created using protocols like OpenFlow, are a way to add intelligence and flexibility. Using open protocols to create the networks are a good way to make sure that the added intelligence doesn’t act as a way to lock in users. Weinman also covers additional topics that will require research in bringing forth these new networks for cloud computing, and I highly recommend folks check out his paper.

This sounds great; so how do we co-opt it to sell products?

So what does this have to do with Cisco’s marketing effort around CloudVerse? Essentially, with the suite of products that wrap data center networking in with the networks of service providers for wireline and mobile broadband, Cisco is recognizing that a holistic, intelligent network could be a huge selling point for those concerned about piecing together their own fragmented network elements to deliver web services and cloud services. A quote from the Cisco release sums up the news nicely:

“Until now cloud technology resided in silos, making it harder to build and manage clouds, and to interconnect multiple clouds, posing critical challenges for many organizations,” said Padmasree Warrior, Cisco senior vice president of engineering and chief technology officer. “Cisco uniquely enables the world of many clouds – connecting people, communities and organizations with a business-class cloud user experience for the next-generation Internet.”

Cisco and Weinman are not alone. Alcatel-Lucent recently outlined its vision of as service provider cloud that adds intelligence to the network in a way that many enterprise and business customers will find appealing.

Could someone build a fully functioning network without resorting to all-Cisco gear, or perhaps even Weinman’s view of the intelligent network? Yes, but it takes skill and dedication that places such as Google, Yahoo, Facebook and other webscale operators have, and other companies just don’t seem to want to bother with.

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The sum of all these parts is a huge privacy violation

For example, when viewed in a single presentation, claims made by Netronome — a networking chip maker — that it can process massive flows of information in real-time in order to intercept unlawful packets might not be worrisome. However, when juxtaposed against the violation of human rights that the word “unlawful” can hide, it becomes part of a broader story of surveillance and what many in the U.S. would rightly regard as a violation of their privacy. From the intro to The Spy Files:

Intelligence agencies, military forces and police authorities are able to silently, and on mass, and secretly intercept calls and take over computers without the help or knowledge of the telecommunication providers. Users’ physical location can be tracked if they are carrying a mobile phone, even if it is only on stand by.

But the WikiLeaks Spy Files are about more than just ’good Western countries’ exporting to ’bad developing world countries’. Western companies are also selling a vast range of mass surveillance equipment to Western intelligence agencies. In traditional spy stories, intelligence agencies like MI5 bug the phone of one or two people of interest. In the last ten years systems for indiscriminate, mass surveillance have become the norm. Intelligence companies such as VASTech secretly sell equipment to permanently record the phone calls of entire nations. Others record the location of every mobile phone in a city, down to 50 meters. Systems to infect every Facebook user, or smart-phone owner of an entire population group are on the intelligence market.

WikiLeaks' leader Julian Assange

What people can do in reaction to the information

But will the shock of seeing the tools of our digital surveillance society aggregated together with tales of abuses be enough to stop governments from implementing ever more technical means of gathering, analyzing and using information? My colleague Mathew believes the transparency here will help address the problem, but I have less confidence. While the outrage currently aimed at CarrierIQ in the U.S. over its software that tracks users via their smartphones is intense, in a month it may well be forgotten. Lasting and real change is harder to come by when it comes to these issues, because it’s hard for enough people to sustain the outrage needed to go against something that benefits the government.

That the CIA or FBI can put GPS devices on cars without a warrant (since questioned by the courts) or attempt to access the data about web sites or on hard drives is a huge temptation even in the freedom-loving U.S.. Because of the ephemeral nature of our digital transactions, many citizens are unaware at how concrete and traceable their bytes really are. Just because you don’t recall a tweet you made six months ago, doesn’t mean it can’t be found and dredged up against you. Likewise, search data sticks around for nine to 18 months; your phones are a black box of information that the feds would love to crack; and the government and law enforcement don’t want to restrict their access to any of this digital gold mine. Unlike the Founding Fathers, who were protecting their rights after a revolution, our politicians are protecting the status quo and see surveillance as a tool to help maintain that.

As for sales to dictators and other countries that might use access to Internet monitoring, phone tracking, listening devices and GPS logging software as a means of repressing their citizens or activists, the practice may be morally reprehensible, but its unclear if it runs afoul of U.S. laws. Yes, there are laws that prevent U.S. firms from selling technology to certain governments, but the list of governments and technologies is by no means comprehensive.

But, other than shining a light on the practice and writing stories, what is there to be done? In the U.S., the courts are the best method of counteracting overreaching governments, which means someone has to get caught up in some zealous digital manhunt. The Wikileaks Spy Files may help someone realize this is going on, but it’s unlikely we’ll see laws designed to really protect privacy in the digital age. So then how should citizens, public policy groups and others take this data dump? More than the information that DPI inspection gear from Arbor Networks or data retention and analysis tools from Netezza or RainStor are used in some cases to target or suppress citizens or activists, these are the questions the report evokes.

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The report highlights the shifting values of young workers who grew up surrounded by social media and connected devices. Now, wanting these perks and getting them are two different things but the report shows the growing expectations of this generation and what employers should think about providing if they want to recruit top workers coming out of college. They’re not really perks to this generation but increasingly what they expect when they go to work.

For its second report, Cisco surveyed 2,800 workers under 30 and college students about to enter the work force in 14 countries. Here are some of the interesting findings:

• One in three respondents (33 percent) said that they would prioritize social media freedom, device flexibility, and work mobility over salary in accepting a job offer.
• 40 percent of college students and 45 percent of young employees said they would accept lower pay if they get more flexibility with regard to device choice, social media access, and mobility as opposed to a higher pay with less flexibility.
• 56 percent of college students said that if they encountered a company that banned access to social media, they would either not accept a job offer or would join and find a way  to circumvent corporate policy. One in four overall (24 percent) said social media access would be a key factor in accepting a job.
• 81 percent of college students want to choose the device for their job. They want to either receive budgeted funds to buy their own work device or bring in a personal device in addition to a standard company-issued machine. And 68 percent of employees believe their companies should allow them to access social media and personal sites with their work-issued devices.
• 77 percent of employees have multiple devices, such as a laptop and a smartphone or multiple phones and computers and one in three employees globally (33 percent) uses at least three devices for work. Half of all respondents (49 percent) said they would rather lose their wallet or purse than their smartphone or mobile device.
• 29 percent of college students surveyed feel that once they begin working, it will be their right, not just a privilege, to be able to work remotely with a flexible schedule. In fact 70 percent of college students and 69 percent of employees believe it is unnecessary to be in the office regularly, with the exception of important meetings. One in four students feel their productivity would increase if they could work from home or remotely.
•  Currently, 57 percent of employees can connect to their corporate network from some  remote locations, but only 28 percent can do so at anytime, from any location. Two in five (43 percent) consider it a critical function of their job to be able to connect to the network from any location at any time.

Now, again this is a long list of expectations for employees who, of course, will want whatever they can get. But savvy IT and HR professionals may want to take note of what this next generation expects in the office. Sheila Jordan, Cisco’s VP of Communication and
Collaboration IT, said these young workers and college students prize their devices and social networks and increasingly don’t distinguish between their personal and work worlds.

Those expectations will force IT officials to look at their infrastructure and device policies and require some companies to rethink the metrics of how they measure employee productivity and effectiveness, Jordan said. Companies don’t have to offer everything to all employees but they should think about offering more choice in a way that minimizes risk, said Jordan.  This is just a reflection of the consumerization of IT and how consumer trends are affecting the expectations of workers.

“What happens in the consumer space is happening in the enterprise. We’re seeing this way of communicating and collaborating and that expectation is coming to work. I think those expectations already exist, it’s a matter of how fast IT can accommodate them while meeting needs and minimizing risk,” Jordan said.

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On mobile networks, an undisclosed Tier One carrier is testing a new product released Tuesday from Openet, a company I wrote about last week that helps carriers implement personalized pricing plans. Today it launched a product it calls the Subscriber Engagement Engine (SEE). That sounds intimidating, but what it enables isn’t. SEE is a client that resides on a device such as an iPad, Android phone, or other connected device, and ties it back to the policy management and subscriber information on a carrier network. It acts as a bridge and as a layer of abstraction that allows a user to set up policies for their device on an operator’s network.

A portal to your broadband cloud.

For example you could set it to halt your data consumption when approaching a 5GB cap, or in a more complex scenario, you could tell it to clock your child’s access to Facebook during school hours. This would only work though if the child is using the operator’s cellular network. Once the kid flips over to the school’s Wi-Fi network all bets are off. Michael Manzo, chief marketing officer at Openet, says he uses it to limit his use of data guzzling apps while he’s traveling, such as maps and other data he’s not willing to pay high roaming charges for.

Manzo says for now Openet is marketing the service to wireless operators, because there’s a need, especially given the backlash against unexpectedly high mobile phone bills. But behind Openet’s product is a trend that is emerging as consumers carry many devices and hook up more service-dependent applications such as movie streaming or HD video conferencing to their networks.

The idea of having a broadband cloud inside your home or on the go, that you control make a lot of sense, because it allows the consumers to control a limited resource. Openet’s makes the process of letting the consumer control how they want to use their access easy for an operator to implement by adding a layer of virtualization between the customer and the operator.

Nick Feamster, an associate professor in the College of Computing at Georgia Tech, is hoping to do something similar, but he wants to do it inside the home using software defined networks and OpenFlow inside a consumer router. At a recent conference Feamster described Project Bismark, an effort to help users manage their bandwidth caps and allocate broadband resources inside the home.

Two views of the network: smart versus dumb.

As is somewhat usual in these debates over where control should reside in the network, there is a divide in how someone at Openet as opposed to Feamster views the network. Openet wants to let carriers offer these portals as a customer service and perhaps as a revenue-generating product. For example, using the SEE, a cable provider that has switched to IPTV could let customers create their own a la carte channel line up.

However, Feamster’s vision puts the layer of abstraction on a device to allow someone to create a similar portal inside the home. In his case, the network is dumb and the device is smart. Openet has carrier customers it wants to sell its software to, so its positioning is understandable. Feamster would have to convince a router marker to put his innovation inside, which someone like a Netgear might do, but someone like a Cisco, which owns the Linksys brand and has carrier customers, may decline.

Regardless of how this happens, its clear that consumers will soon get a bit more say over how their broadband networks work–both on the go and at home. And that’s something most of us will look forward to.

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Stuart Elby, VP and network architecture & technology chief technologist for Verizon Digital Media Services, laid out how the promise of software-defined networking could make the company’s cost curve match its revenue by cutting down on the need for expensive gear that is costly to buy and even more costly to operate. In a conversation before his presentation, Elby explained how Verizon’s network can view every single packet on the network, but how keeping track of those packets is both a big data problem and expensive from a network management perspective.

For a while already, Verizon has been trying to host as much of its network as possible on commodity boxes, running commodity servers and some Sun boxes at the core of its network and keeping the big, expensive gear from the likes of Juniper and Cisco at the edge of the network. Elby was cagey about how his preference for lower-cost bit delivery might affect Verizon’s big suppliers, especially since he was seated onstage next to David Ward, CTO of Juniper. When Elby said he wasn’t planning on ditching any of the recent Juniper boxes he’s just bought, Ward quipped, “I appreciate that, Stu.”

However, Elby is dealing with his costs exceeding his revenue, which he explained was coming in “a matter of years,” although he didn’t specify how many. The chart above is not limited to Verizon. Nick Mckeowan, an ONF board member and a pioneer of the protocol, said that he has seen charts like that one from other carriers, including Deutsche Telecom. It’s also a topic we at GigaOM have covered many times in the past.

So how exactly does a new protocol help?

OpenFlow is a protocol that allows someone to separate the intelligence inside a switch and router from the hardware itself. The promise of OpenFlow is that operators can create software-defined networks that are programmable. For more on the topic, see this video explaining it or this GigaOM Pro article (sub req’d). For an operator, it could make it far easier to direct the packets flowing around their networks because they could have more freedom and flexibility in programming their networks to do whatever the operator wanted.

Elby, for example, proposed several use cases, including traffic steering, which involves understanding what service a packet represented and what the subscriber’s plan was and then shunting that traffic over to the most appropriate path. This might mean recognizing that a succession of packets coming from Netflix is a streaming movie, so it could be sent on its way without further investigation, or it could eventually be a way to manage heterogeneous networks.

Another example comes form the data center world, which Verizon doubled down on when it bought Terremark this year for $1.4 billion. Elby describes a scenario where a customes trying to send huge files from one data center to another could guarantee their delivery by upping their bandwidth capacity on demand as opposed to paying for a consistent connection. In this way, Verizon begins to deliver capacity as a service in a manner similar to how Amazon delivers compute as a service.

Elby described more options, but the message underlying his talk was that OpenFlow and software-defined networks could lower Verizon’s costs, but it also turns Verizon into a service provider with a change in the type of cost model it will have. Understanding the technology as Verizon implements it and how it will change its spending on equipment and operating its network is one thing. Understanding the new business models that Verizon can implement as it provides what can become a multi-tenant, shared network model even for enterprise clients is another. It’s going to be fun, but I’m not sure if it will actually result in a lower mobile phone bill.

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That’s the prediction of Bob Friday, the CTO of wireless for Cisco, who is helping push this vision along. Cisco is a major driver behind Hotspot 2.0, an initiative that will use 802.11u, WPA2-Enterprise and EAP-based authentication to create easy Wi-Fi roaming for devices looking to move from cellular networks onto Wi-Fi networks or between Wi-Fi networks. Essentially, it will bring the ease of cellular roaming to Wi-Fi, something Stacey has written about before.

“The vision is to bring cellular-like authentication to Wi-Fi. Hotspot is trying to be the SIM card for Wi-Fi. We’re trying to bring connectivity to the general public,” Friday said.

This kind of roaming, Friday said, will make Wi-Fi a much more versatile tool for wireless operators because it will greatly simplify the way people jump onto Wi-Fi networks. He said by automating the authentication process, tying user identity to a SIM card and making it seamless for users, their devices can easily shift over to Wi-Fi networks without having to enter in credentials. And that will help transfer the data traffic burden on to Wi-Fi while giving users a better experience indoors and at crowded venues.

But it could also allow carriers to charge their users for access to Wi-Fi. That’s something we’ve talked of before, and it remains a potential byproduct of easier Wi-Fi roaming. Carriers, as they do with cellular roaming, could charge users when they jump on to other networks and track their usage using their SIM card. Friday said it’s possible that users would pay to roam on international Wi-Fi networks, but he wasn’t sure that would be the case domestically, if carriers signed agreements between each other. But it could be another source of revenue for carriers interested in bolstering their bottom line.

In the larger picture, Wi-Fi will become a much more valuable weapon in their arsenal and along with femto cells and small cells, will make them focus on delivering broader connectivity, regardless of the technology. Through their own Wi-Fi networks and roaming agreements with other Wi-Fi network providers and owners of hotspots, the operators can better construct a comprehensive system that keeps their users connected. Users will not only be able to jump on to Wi-Fi networks seamlessly but they’ll also be able to move between Wi-Fi networks.

The Wi-Fi Alliance and Wireless Broadband Alliance in June announced plans to collaborate on developing Hotspot 2.0 to ease Wi-Fi roaming. Trials are being conducted this year with further testing and a rollout expected to take place in the first half of next year, Friday said.

It’s unclear if all the operators will sign on, which would undercut the usefulness of Hotspot 2.0. Japan’s KDDI is already pursuing its own proprietary solution with a network that utilizes seamless switching between the cell sites and 100,000 Wi-Fi hotspots with a WiMAX overlay. Other companies are also putting together their own tools to help with Wi-Fi roaming. But Friday believes operators will be motivated to wait for Hotspot 2.0 to achieve a more comprehensive roaming system.

“It’s in the interest of the operators (to support Hotspot 2.0). It’s the same drive for cellular authentication that will drive them to Wi-Fi authentication,” Friday said.

This is going be key especially with the explosion of Wi-Fi hotspot use. In-Stat recently estimated that by  2015, wireless hotspots will account for nearly 120 billion connect sessions. And by 2013, there will be one million hotspot locations available. With so many hotspots available, having a comprehensive program to ensure easy roaming will facilitate the kind of sharing that has helped cellular operators. And it will mean more utility for users, who will have fewer restrictions in moving between Wi-Fi networks.

And just like KDDI is already proving, carriers will increasingly operate more heterogeneous networks that utilize a handful of technologies to connect users. It makes sense for the carriers to stay on top of exploding data traffic and it gives users a better experience and potentially more lower prices. The only questions are will the operators wait around for Hotspot 2.0 or pursue their own solution now? And will they charge for all this additional Wi-Fi service?

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The gist of the problem, by Gillis’s thinking, is that work has become something that we do rather than a place that we go. That means a firewall that simply allows access to data from internal sources while shutting out external sources is fast becoming an antiquated solution because there’s no definite beginning or end to the corporate network. Now, Gillis explained, traffic is coming from everywhere and on a variety of different devices, which means security products need to learn some new tricks.

Among the highest-priority new capabilities might be wrapping corporate data in security protocols that safeguard in dynamic manners beyond what traditional firewalls do. For example, consumerization-inspired security methods will have to recognize who has access to data without necessarily relying on the IP address of a specific physical server. It could just as easily be any number of virtual machines or mobile devices from which employees or applications are legitimately trying to gain access.

But although it’s hard work trying to solve security for consumerization (and, to a lesser degree, virtualization), Gillis thinks it’s critical that security vendors and IT departments try to do so. For one, he said, consumerization is going to happen regardless whether companies allow it. In this regard, it’s similar to how Amazon Web Services instances and VMware virtual machines started popping up all over enterprises without consent from above. The best bet, Gillis said, is to embrace the trend and figure out a way to make it secure. It’s “almost absurd” at this point to be the guy who says no, he added.

And when it’s all said and done, companies will likely have happier employees. Gillis noted that employee satisfaction among his team within Cisco skyrocketed when employees were allowed to use their own Macs instead of the company-issued Windows machines, despite the fact that employees had to pay for and service Macs out of their own pockets.

Gillis thinks virtualization might be the trick to solving security for consumerization, but he sees plenty of work still to be done. Right now, he explained, “there’s a gap … that needs to be filled” between delivering enterprise applications to devices via virtual-desktop-like methods and putting a hypervisor right on the device to separate it into a personal VM and a corporate VM. The former creates problems around display and functionality, especially if you’re talking about putting Windows apps on non-Windows devices, and the latter can be a serious performance hindrance, Gillis said.

VMware, which announced a mobile virtualization and application-delivery strategy at VMworld last month, might take some issue with Gillis’s assessment of the situation.

Whatever path companies take to solve these problems, though, Gillis said whoever can do it will be in a good position to lead the security market going forward. It’s like a NASCAR race, he analogized, where we’re heading into a blind corner and whoever best maneuvers it will come out ahead.

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What’s stunning about this isn’t that college students and young professionals (defined by Cisco as folks in their first job out of college) are being interrupted, it’s Dave Evans’ assessment that these interruptions are now part of the way of corporate life. Evans, who is Cisco’s chief futurist, conveniently points to more survey data showing that seven out of 10 respondents friend managers and coworkers on Facebook as well as follow them on Twitter. Evans says that they work there. Given that young people are conducting work online via social media sites, and that they are both multi-tasking and being interrupted, I wonder if we need to rethink the billable hour?

For lawyers, contractors, accountants and many other professionals, following, responding to and interacting with clients and coworkers via social media isn’t the type of work that can be broken down into hour-long chunks. Plus, as we tote smartphones and fire off quick emails on the fly, that does take a toll on our family lives and intrudes on the mental break we may need from our work. These two-minute tasks are no longer a side element to work, but make up a considerable chunk of it. The nature of work is changing, and perhaps the way contractors and other professionals charge people for it should change as well.

Other data worth noting from the survey includes:

• Two out of three surveyed would choose the Internet over a car.
• Two of five college students surveyed globally said the Internet is more important to them than dating, going out with friends, or listening to music.
• More than one in four college students globally (27 percent) said staying updated on Facebook was more important than partying, dating, listening to music, or hanging out with friends.
• One of every three college students and employees surveyed globally believes the Internet is a fundamental resource for the human race – as important as air, water, food and shelter. About half believe the Internet is “pretty close” to that level of importance.
• Two-thirds of students and more than half of young employees cite a mobile device (laptop, smartphone, tablet) as “the most important technology in their lives.”
• Smartphones are poised to surpass desktops as the most common tool from a global perspective, as 19 percent of college students consider smartphones as their “most important” device used on a daily basis, compared to 20 percent for desktops.

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That question won’t be answered today, but Intel is in the very least trying to avoid being a mobile loser as Qualcomm and other vendors using the ARM architecture make strides inside tablets and smartphones. Intel’s fighting to control the consumer computing market as consumers want low-power portable devices, while also trying to continue its expansion on the server side, where it has seen tremendous growth.

The Haswell products, which unfortunately won’t be out until 2013, will have 10 days of standby battery life, which puts Intel into the same league as ARM’s designs. However, it’s unclear where vendors such as Nvidia, Qualcomm, Samsung, Apple and other ARM licensees might be in terms of performance and power consumption at that time. And while software platforms are now tuned to Intel and ARM-based chips, Intel lost out on a huge advantage by being slow to cut power consumption. A year ago, before Microsoft committed to support ARM-based chips, Intel had a significant advantage.

Intel is also going to have to fight to get its way into handsets, which can take a long time. For example, Nvidia launched its first application processor in 2008 and only scored some major wins in devices in 2011. Handset makers aren’t eager to pick up new-fangled chips in their devices, so it can take a while. However, in the tablet market, Intel could pick up traction, as enterprise customers are already in favor of using Intel on the devices judging from Cisco’s efforts with the Cius tablet.

Haswell, which Intel showed off running on a solar panel, also may have a spot in the micro server market, according to Andrew Feldman, CEO of SeaMicro. SeaMicro makes a rack of servers that use Atom chips today, but could end up using high-end Atom chips or low-end Haswell chips. By covering both ends of the low-power market, Intel is signaling it’s serious about low power, both for the client side and on the server side.

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The move sent the stock up, as Wall Street apparently felt comfortable with where Cisco has ended up after layoffs and cutting 10 business lines, including the Flip camera division and the Eos media software division.

A successful and quick restructuring is a positive for the networking giant, but there are some cautionary notes around Cisco’s gross margins. Mark Sue with RBC Capital Markets wrote in an analyst note that Cisco said its gross margins, which have decreased from the 70 percent range to about 65 percent, will stop falling at between 62 and 60 percent. That’s not great, but it could get ugly, as Nikos Theodosopoulos, an analyst with UBS, noted. From the UBS research note:

A key risk to Cisco’s long-term GM may be Switch assumptions. Cisco expects Switch [margins] to remain above avg, which may depend on price/competitive actions by Huawei, HP, Dell, Juniper, Brocade and others. All in, we think Cisco’s position is strong, and JNPR may be most vulnerable to Cisco competitive actions near-term.

So there you have it: the good, the bad and the ugly of Cisco’s lowered growth estimates. If Cisco can focus on its core businesses, perhaps the ugly scenario doesn’t play out and it can indeed keep gross margins in the respectable 60 percent range. Investors can mourn the loss of high growth from the network giant, but slow growth is better than no growth, especially if it can keep those margins.

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Cisco may have stopped focusing on core markets and let interlopers take ground, but when it comes to the PBX and corporate telephony market the global economic malaise didn’t help. According to data out today from Telegeography, revenue from enterprise telephony equipment sales has fallen by 4 percent during the second quarter of 2011 when compared to sales for the same period last year. Those sales include PBX/KTS systems revenues, voice gateways and IP telephony.

Cisco has kept its market share steady at 30 percent, while Avaya has gained 3 percentage points to hit 22 percent market share. However, in some areas Avaya has taken over Cisco’s top spot. From the survey:

By segment, the most notable shift in the 2011 vendor ranking is Avaya, which overtook Cisco as the market leader in IP telephony in Q1 2011, and continued to lead the market in Q2. NEC and Panasonic remain the clear leaders in the declining PBX/KTS segment, while Cisco dominates the voice gateway segment with a market share exceeding 80 percent.

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The device is a clear plastic dome hovering above and below a cafeteria table that helps focus conversations in what can be a very noisy room. There’s a video feed as well. What tripped me out was the focus spent on creating a casual environment that could be conducive to spontaneous conversation. The designers didn’t want a microphone because it would look more like a “witness stand” and the audio quality would still be poor, and claimed that for similar reasons, Skype wasn’t the answer for their needs. From the article:

[Kevin] Brown, president of Brown Innovations of Boston, came up with the idea of putting one dome above the table and another below, to capture and focus the voices and help filter out background noise.

The overhead dome has three speakers that bounce the sound off the dome and focus it toward the diners; below are three microphones positioned to collect sound from people’s mouths. The shapes of the domes create a whisper chamber-type effect, where sound is focused and directed to the listener’s ear. Brown initially rejected the idea of an overhead dome – “I realized the easiest way to do this seemed a little ridiculous,” he said – but he came back to it in the end as the best solution.

This reminds me of other efforts to connect people via broadband in more natural ways. There are the telecommuting robots that can roam physical offices while the remote employee controls the robot and “sees” what the robot sees, and offices that try to use Skype or other always-on connections to offer windows connecting two places. In fact, as companies try to boost collaboration while reducing travel expenses, there are common elements that emerge from the many efforts to create these windows or wormholes.

They are always on: A key element is the spontaneity of popping by one of these windows to see who might be there and engaging in conversation. Video conferences and even Skype video calls can lack that because one tends to check in before hopping on to take the video call. Thus, it’s not for casual conversation, but doing business or holding meetings.

They use high quality audio and video: Nothings worse than a stuttering video connection when you’re trying to tell a joke or show off a new haircut, dance move or whatever. In the same vein continually saying, “What?” kind of takes the fun out of any conversation.

They are in common areas or are voluntary: The MIT/Stanford wormhole is in a cafeteria. Some companies put Skype walls in their hallways. The key element is that these links between colleagues are in public places. I can’t think of anything more uncomfortable than having a desk right by one of these things, so my every move was being broadcast, but I’d love it if I could tune into a GigaOM HQ camera every now and then to see what’s up in San Francisco.

They rely on low-latency connections: This is tied to the audio and video quality issues, but is worth its own line. The broadband connection for the window has to be high quality enough that the video and audio travels at close to real-time speeds. It’s jarring to watch someone’s mouth move when the words don’t line up with what their lips are saying. This is why, for example, services such as Google Hangouts have a recommended minimum broadband speed for those using the service.

They are easy to use: Again, this one relates to the always-on element in some ways, but unlike the arduous corporate video conferences of the last decade, even if this window isn’t always on, it must be easy to turn on. You shouldn’t have to ask an IT person to set this up. It should be as easy as sitting down and flipping a switch, or selecting your office to look in on.

I’m sure there are other elements to consider (maybe wheels?), and some things may rank more highly for some offices or locales than others, but in general the trend to use broadband to bridge distance is one I’m excited about. As a remote worker, it links me with my team members while as a broadband enthusiast I like it as an application that will encourage faster and better broadband to develop. And frankly, until we figure out how to teleport, it’s the next best thing to being there.

For those who are keen to learn more about this sort of thing, watch my colleague Mike Wolf, interview a telecommuting robot here:

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Infographic courtesy of Cisco.

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Okay, sure, while Facebook and its sign-on, presentation, app platform and commerce only represent a portion of what a true OS would be — as Tim O’Reilly points out so well — it is perhaps the most important and unavoidable layer of the Internet OS, one that consumers will increasingly go through to find, purchase and even consume their entertainment content on the social Web.

The growing importance of Facebook as a social entertainment layer is due to two main factors. First, the social Web is becoming the new EPG for a generation of consumers. Fading is the old-world model of corporate-programmed guides and tastemakers; ascending is a world where entertainment is personalized and social, and where much of it will be driven by Facebook.

Second, time and place restrictions on media are going away, making way for anytime, anywhere on-demand consumption across any screen. And as these linear models break down and anytime-anywhere media consumption rises, Facebook can become the recommendation and consumption layer that enables, organizes and make sense of the media chaos.

So which types of media will flow through Facebook? In short, all of them. Below I break down where I think each content type is, both in terms of the maturity of Facebook’s strategy today (x-axis) and how big the potential opportunity is for the company (y-axis).

As you can see, Facebook has tackled certain content types with more gusto than others, in part because it looked to take on those media types with less complexity and lower licensing barriers. Photos — a content type to be sure but largely personal media — was the first media Facebook integrated (and dominated) in a big way. Gaming, in particular casual gaming, was the first premium content type that Facebook set its sites on; as a result it’s become the dominant social gaming platform by enabling companies like Zynga to create huge value atop the Facebook platform.

Over the past few months, it’s become apparent that Facebook is now looking to extend its platform to video and music entertainment services, capitalizing first on the strong adoption of Facebook Connect and, over time, possibly integrating the actual third-party services themselves to varying degrees.

To be certain, in the war of platforms for entertainment distribution and consumption, Facebook isn’t the only game in town. In many ways Apple already has a true entertainment OS in iOS, owning the entire stack from hardware up to application platform. Google is certainly a contender here as well, with Android and its strong adoption across many devices.

But it is Facebook, in becoming the indispensible and ubiquitous social layer across the Web, that occupies a unique position of attack in the battle to win its place as the social entertainment operating system.

To read more about my analysis of Facebook’s entertainment prospects, see my Weekly Update at GigaOM Pro (subscription required).

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Five large-cap, tech-rich companies are particularly likely to engage in M&A this year: IBM, Oracle, Microsoft, Cisco and Hewlett-Packard. Here are a few thoughts on how each of these companies’ M&A strategies might play out:

IBM

IBM has completed 17 acquisitions since the start of 2010, including its purchase of Netezza for nearly $1.7 billion, a 33 percent premium to the market price.

IBM’s ambitions to expand into mobile software and services could require the company to improve its storage and delivery solutions. Publicly traded storage and data management companies like NetApp and EMC could be interesting targets, although NetApp’s recent market cap of $20 billion would be easier to integrate than the larger EMC, whose market cap is above $57 billion.

Oracle

Since the beginning of 2010, Oracle has completed 10 acquisitions in software subindustries. Most notably, it closed its $7.4 billion purchase of Sun Microsystems in January of 2010.

Cloud technology will be Oracle’s standard growth venue going forward. As such, it could be a key area of the company’s M&A activity this year. Oracle is likely to make plays involving cloud-computing technologies such as NoSQL and Hadoop. It might also potentially target Terracotta, which IBM may also be eyeing.

Microsoft

Though it’s an exceptionally well-run company, and despite its recent $8.5 billion purchase of Skype, Microsoft is in dire need of an innovative spark to attract equity investors. It’s unlikely to expand through its bread-and-butter operating system or software units, but Microsoft still has some promising growth areas.

For Microsoft, mobile presents especially fertile soil. While Windows Phone 7 has earned mixed reviews, its biggest barrier to gaining widespread adoption is the reluctance of developers to write apps for the platform. Buying a mobile phone manufacturer could help Microsoft produce enough devices to lure developers to Windows Phone 7, and speculation has begun to mount that Microsoft might buy a company like Nokia or Research In Motion. That Microsoft opted in February for a partnership rather than a merger with Nokia suggests that it remains cautious about large-scale transactions.

Cisco

Cloud software gives Cisco the opportunity to expand its revenue streams by selling a full-service cloud stack — not just servers but virtualization and management software as well.

EMC and VMware, which is majority-owned by EMC, would fit this bill. But Cisco’s 23 percent operating profit margin in 2010 is substantially higher than those of EMC and VMware (16 percent and 15 percent, respectively). Both deals would also tax Cisco’s $40 billion cash stockpile, and a severe discrepancy between valuations (14 times earnings for Cisco versus 31 for EMC and 100 for VMware) would make a stock transaction problematic.

Hewlett-Packard

In mobile, HP could differentiate its platform with compelling services, but first it needs to turn webOS into a competitive mobile OS. An important plank in that strategy is a mobile ad network, which would make startups like WHERE, Jumptap and Millennial Media targets for HP as well as others, such as Microsoft.

HP may also be hungering for a bigger role in the cloud-computing story. Appirio — whose mandate is to help enterprises accelerate their adoption of public cloud applications and platforms — would bolster HP’s cloud services portfolio and counteract IBM’s purchase of Cast Iron Systems and Dell’s acquisition of Boomi. Other cloud-technology buys might include Opscode, rPath and Puppet Labs, which help companies automate IT infrastructures.

The field of mergers and acquisitions isn’t propelled simply by supply and demand, and in 2011, there are a number of strategic factors that could drive M&A activity. To read about those, as well as find more on each of the five companies’ potential strategies, see the full report at GigaOM Pro (subscription required).

Image courtesy of flickr user stevendepolo.

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