A Light Mist Falls on Juniper’s Soil

The Important

Mist provides Juniper with:

  • A re-energized entry point to Enterprise
  • AI-cred
  • Another Cloud-subscription business
  • Pull through of other parts of the portfolio
  • Potentially the best growth opportunity

Introduction

I’ve spoken to numerous Wall Street firms recently looking to get a review of Juniper’s prospects going forward. Juniper describes its solutions in three customer segments: Enterprises, Cloud Builders, and Service Provider. This maps approximately to how most people view Juniper’s business. Two of those customer segments are viewed as tough segments for Juniper to achieve significant growth: cloud builders and service providers. The third, Enterprise, is a customer segment which many are not sure about. That said, the Mist acquisition and growth has got Wall Street wondering.

In the July 28th, 2020 Earnings call, Juniper said:

“Mist reported another record quarter with orders rising more than 170% on a year-over-year basis and new logos increasing by more than 100% year-over-year. Mist has now secured 4 Fortune 10 accounts, and we saw a material increase in demand generation from the channel, reflecting the true differentiation of the product. In addition, Mist launched a new software subscription premium analytic that has generated strong interest due to its ability to enable use cases such as proximity tracing, journey mapping and hot zone alerting that helps enterprises enable social distancing and keep employees safe as they start returning to work…the Mist model is about 60% of the revenues recognized upfront in the form of hardware and then there was a good amount that’s deferred in a SaaS-delivered license — cloud-delivered license…it is pulling through other solutions as part of the Mist sale”

Revenue run rate is understood to have hit $100M on an annualized basis. The question Wall Street firms want to know is could this be a billion dollar business.

Re-energized Enterprise Entry Point

In 2010, Juniper acquired Wireless LAN (WLAN) company, Trapeze. It was not a big player at the time, and Juniper was not able to do much with it. Juniper eventually shut down that product line, leaving it without an in-house WLAN solution, which was a critical in the Enterprise market, because of the strong pivot towards WLAN.

Figure 1. Juniper Mist Cloud Managed services. Source: Juniper Networks

Mist re-energizes Juniper’s Enterprise solution, ticking many boxes:

  • WLAN
  • Cloud-based
  • Micro-services
  • Subscription revenues
  • AI
  • Indoor
  • Outdoor
  • Wi-Fi 6

Juniper says it has extended its Mist technology to wired and WAN use cases:

Putting aside AI, the cloud-managed WLAN model was a model that Cisco developed with its Meraki acquisition, and is clearly the right model for a segment of the Enterprise market, especially those Enterprises that have low operations capacity and capability:

Figure 2. Operations Capacity and Capability, Source: Network Design: Operations Needs by Customer Segment

Artificial Intelligence (AI)

AI is the common use term for AI and Machine Learning (ML). Initial network AI/ML visions imagined the tech being targeted at the biggest networks with the most complex problems. However, Enterprise may be the best initial target. SME/SMBs were the first to adopt the cloud-managed model, it is probably good to have a combination of centralized and distributed AI/ML tech, and with emerging tech, you want to update it frequently, with frictionless commercial and delivery models (cloud-based subscription).

Figure 2 shows SME/SMB having the lowest operational capacity and capability. AI that simplifies operations is a great fit, and is also a good fit for other Enterprise categories, perhaps diminishing as internal capacity and and capability increases. Even large enterprises, especially retailers, with many branch locations, will appreciate simplified operations. Over time, AI/ML will no doubt find its way into solutions for all customer segments.

It is always a concern when a company that cuts its teeth on large boxes for a relatively small number of customers (SPs and Hyperscalers) looks to take on a broader Enterprise motion. Will they get the channel motion right? Will they understand and execute on what is The Important for small boxes and a long tail of customers? Will they facilitate partner profitability/services? Value chains are a manifestation of value proposition, so these are not trivial questions.

Mist leadership has good Enterprise experience, and AI-simplified operations may be exactly what is needed for emerging Enterprise business sales, especially in a period of other transitions, for example Wi-Fi 6. Historically, channel-specific products were needed for frictionless transactions: simple products, easy to use, uncomplicated commercials. Part of the buzz around Juniper Mist is that it is easy to setup and use. Exactly what is needed in an Enterprise/channel offering.

The AI halo effect for Juniper may grow over time as well. Juniper executes well in Mist, establishes AI-cred, and then the halo impacts a wider portfolio.

Subscription Model

Juniper has been working on a shift to subscription models for many years now. With the exception of security, early attempts had limited success. Many reasons for this, including the cardinal principle of pricing, it must pass the “reasonableness” test for customers. Just slapping a subscription SKU on existing offerings does not change the value proposition and does not necessarily align with what a subscription is all about, from a customer perspective. A point that other equipment companies have also discovered.

Ideally, a subscription is a service, something that delivers value on a frequent/ongoing basis. Cloud-based models are good examples of this. Frequent threat updates in security products is another good example. The cloud-based portion of the Mist offering aligns well with a subscription offering, which could be good for Juniper’s long term valuation model if they can expand their cloud margins/profit/cash flow over time.

Having businesses that naturally align to a subscription model, as opposed to force-fitting, is a positive. For more on subscription best practices / how to judge a subscription offering, the following article has some good pointers: What Apple and Netflix Understand About Optimal Subscription Pricing:

  • Keep it simple
  • Tiers come later (Juniper Mist just added another tier)
  • Subscriptions can serve many functions for your business
  • Think beyond attracting new subscribers
  • Your subscription’s value proposition has to go beyond price
  • Market research can take you only so far
  • Pricing by usage can work, but only in some circumstances
  • Hiding the cancel button will cost you in the long term
  • Evaluate the ROI of free
  • Don’t copy someone else’s playbook

Conclusion

The conventional wisdom is that growth in Cloud and SP is going to be challenging for Juniper. There are some wild cards on the CW (can Juniper grab substantial switching in cloud, what will the impact of 5G be…), but if the CW is correct, then Mist maybe Juniper’s best chance at substantial growth, for example, adding another $1B to the top line; notwithstanding that Juniper’s current Mist revenue may only be somewhere in the 25-35M a quarter range, and a 1B top line would be a substantial share position. Time is good with Wi-Fi 6 and Cloud upgrades going on. Mist may also pull through other parts of the portfolio.

When I water my garden, as I do sometimes in the morning, I often like to turn the nozzle to “mist”. It provides a nice cover of moisture, without making the top soil too hard. It appears the Juniper top soil is currently getting a light mist, it will be interesting to see where it goes from here.

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