The most inconvenient truth about the cloud is this. Eventually it all becomes software.
That day is hastened by a move to open source, in which everyone works together to create something that works, and everyone shares in the benefits of that effort.
So Juniper's (JNPR) announcement that it is working hard to create an open source network controller will look like a head-scratcher to some.
But it shouldn't be. This is how open source gains traction. A competitor sees someone else grabbing monopoly profits on the low-end of a market, and works to limit those profits by supporting an open source alternative. It has worked for Google (GOOG) with Android, so why not Juniper?
Part of the company's problem is that there are already a number of start-ups working on just this problem. Specifically, there is the OpenFlow protocol, which Juniper now says it supports (sort of), but only as a low-level protocol. What Juniper wants is an industry-supported stack, something that might be embraced as a project by Apache or Eclipse.
The point being that these are early days in Software Defined Networking, or SDNs. Just as these are pretty early days in software defined storage, which Red Hat (RHT) is working on through Glusters. But it's easy to see the future from here, and it's standards-based software.
That said, there is increased skepticism in the analyst view of Juniper. Richard Saintvilus of TheStreet recently suggested selling Juniper in favor of such rivals as Brocade (BRCD) and F5 (FFIV). It's really the last that is the target of Juniper's latest open source move, not Cisco (CSCO), which Saintvilus now likes - a lot.
For investors, the question is one of time horizons. Software defined networking is coming, but it's some years away, and it will take some more years for open source to perfect its version of it.
If you want to make money today, FFIV is the better bet. That company now sports steadily-rising revenues and operating margins of 25%, while JNPR, which has four times its revenues, has stalled out on the top line, and is now facing pressure on the margin side. FFIV is also still small enough, with a market cap of $8.25 billion, to interest an acquirer. Plus its PE ratio is just 30, about one-fourth lower than that of Juniper.
What Juniper is telling you, in the near term of the next year or two, is a head fake. Try FFIV instead.
Disclosure: I am long GOOG.