Guest Blog post by Giacomo Losio, Head of Technology – ProLabs
Original equipment manufacturers (OEM’s) have long dominated the optical components market but a new study now suggests that, as a result of tighter margins and greater competition, customers are putting quality and price before brand. Is the era of the big OEM at an end?
When asked their views of the optical transceiver market at the European Conference on Optical Communications (ECOC) in Cannes, over 120 attendees revealed a trend which indicates a paradigm shift in attitudes.
Why do they buy? What they buy? What keeps them up at night? The answers may surprise you:
Surprisingly it would seem, ‘brand’ is no longer something that influences buying patterns. Instead, purchasers are placing more focus on quality and price. In fact, respondents to the ProLabs survey overwhelmingly placed more emphasis on these two attributes as a countermeasure against squeezing margins and fierce competition – both of which were seen as the major challenges they have to face to keep their businesses running.
“The study reveals that the decades-long dominance of the OEM may be at a crossroads,’ said Nick Moglia, CEO of ProLabs. ‘It is yet another sign of a trend we have been seeing in recent years where the optical products market is maturing and customers are increasingly open minded about where they source their parts from. Buyers are becoming increasingly pragmatic and are choosing real high quality over simply ‘a label’ which attests it. No longer, to my mind, do they feel duty-bound to a particular OEM.”
This represents a significant change in attitude from even a few years ago and has important implications: The first is that it reveals a more discerning customer. One who does not follow the pack, who is more savvy about the product they are buying and one who does not buy purely based on brand reputation alone. Increasingly, service providers and datacentre operators are not scared of giving alternative suppliers a go.
For these companies, and there were many of them present at ECOC, reputation is something which must be earned through a deep rooted commitment to product quality; a flawless infrastructure and support mechanism as well as a relentless approach to continuous improvement. It is not something that comes with a logo and complacency to customer loyalty. Today’s operators are seemingly prepared to switch supplier if they feel that the incumbents do not provide a speedy and affordable solution to their problems.
The second consequence of this attitudinal shift is that it opens the market to more players if they are able to deliver reliable products at a competitive price. If borne out, the market will then become more transparent, open and dynamic – characteristics which will help reduce costs and drive wider adoption of optics as interconnect technology. With lower costs, new markets will emerge and the whole industry will reap the benefits.
The internet revolution and the advent/ proliferation of ‘over the top’ (OTT) services which run on top of the physical network has put increasing pressure on the cost of equipment shifting. In effect transferring value from service providers to content providers. Service providers have to cope with increasing bandwidth requirements, but with shrinking contribution margins.
Similar market dynamics occur in the Datacentre world where the price battle is even tougher. Simply look at the price curve of Amazon Web Services, Google Drive or Microsoft Azure. All these companies have to find ways to reduce expenses while keeping high service level agreement standards. They are constantly undertaking highly complex activities yet minimizing cost and maintaining high quality standards.
The conclusion? The time for overpriced devices is coming to an end. As customers become increasingly confident and better informed they are more and more willing to make savvy choices.
The OEM genie is definitively out of the bottle.
Giacomo Losio, Head of Technology ProLabs
Giacomo joined ProLabs in 2014. He previously served as the lead optical design engineer for the Transceiver Module Group at Cisco Systems, where he covered the product lifecycle, from feature definition to field support. He has more than 14 years of experience in optical transport systems design and eight years of experience in project and program management. Giacomo is based in the UK.