|By Michael Bushong||
|April 24, 2014 11:30 AM EDT||
From a cost perspective, the networking dialogue is dominated by CapEx. Acquisition costs for new networking gear have historically been tied to hardware, and despite the relatively recent rise of bare metal switching, networking hardware remains a high-stakes business. But SDN is changing this dynamic in potentially significant ways.
The first point to clarify when talking about CapEx is that CapEx does not necessarily mean hardware (at least not the way that most people mean). While there is a strict financial definition for CapEx, in the networking industry it has become shorthand for Procurement Costs. Because networking solutions have been predominantly monetized through hardware, we associate procurement costs with hardware, but this is changing.
The fact that the ’S’ in SDN stands for software is reason enough for people to look beyond the chassis. But the reality is that while vendors have monetized the hardware, the value has been increasingly moving to the software side for more than a decade. So long as everyone was selling hardware, it didn’t really matter that much whether the cost was tied to the hardware or the software, so we have been a little bit lazy collectively in determining a deliberate pricing mix.
More recently, however, there have been additional solutions that are offered entirely through software. With virtual networking devices, for example, there is no physical hardware (unless you count the servers and the network that connects the servers). A common sales tactic for these types of solutions is to point out how expensive physical solutions are. Why pay for all that sheet metal when you can get the same functionality in a virtual form factor? Of course, you are not really paying for the sheet metal; your check also pays for the software and all the features that go into that sheet metal. But the argument is pretty compelling.
The point here is that the only thing that really matters is how much you pay for the whole solution. Whether the price is affixed to hardware or software is an accounting detail – important for some people, but not really the most important thing for the majority of buyers. Rather than calling it CapEx, we ought to be referring more broadly to procurement or acquisition costs. All in, Solution A costs X dollars to bring in house, and Solution B costs Y dollars.
This would certainly simplify the conversation some. But even then, it isn’t all about procurement costs anymore either.
Depending on the solution, the procurement costs account for roughly one-third of the total cost of ownership. The remaining two-thirds of the cost is ongoing operating expense (power, cooling, space, management, support, and so on). The models here for most solutions start to get pretty squishy. While we can fairly formulaically determine things like power, space, and support, when it comes to estimating the cost of managing a device, the models are so dependent on uncontrollable things that they border on useless. And even when the models are sound, most companies have not sufficiently instrumented their network operations to really know what they are spending.
But just because it is difficult to model OpEx does not mean that network teams should ignore it.
If there is one thing that the gaming industry has taught us, it is that there are all kinds of creative ways to separate someone from their money. In the early days of video games, 100% of the cost was procurement cost. After you bought the install media, you had paid everything you were ever going to pay. Before long, some of the more popular games figured out that they could lower initial costs (make the barrier to entry lower) and then charge for ongoing use through subscriptions.
As the networking world adjusts the pricing mix – associating more of the cost with the software – we should expect that charge models will mirror what we have seen on the consumer side. It is not a big stretch (and in fact already happening) to see massive up-front hardware costs replaced with more palatable hardware pricing combined with either higher software or potentially support costs. This has the dual benefit of making it easier for customers to select a vendor, and creating annuities for said vendor.
But the evolution of game pricing models did not end with subscriptions.
For anyone who has gotten sucked into the hell that is Candy Crush, you are already well aware of in-app purchases. The initial game is free, but if you want to get a special advantage or unlock a level, you can make an in-app purchase. They have cleverly priced the in-app purchases to feel like you are hardly spending anything. It’s less than a dollar. I should just go ahead and get that spotted donut thingy! Of course, by the time you add up all those just a dollar moments, you end up paying far more than you ever would have up front.
The magic of this type of pricing is that most of this is not really known up front. When you first get Candy Crush, you don’t really think you are going to buy the special extras. And Candy Crush doesn’t tell you that the levels get progressively harder to the point that they are nigh impossible without a little extra help.
Before you write this off as not applicable to networking, consider a few points.
First, despite the huge open source push, there are still a lot of companies pursuing commercial grade versions of the otherwise free software. Sure, you might buy into the open source controller, but if you need the networking version of the spotted donut thing, what do you do? This is essentially the networking equivalent of the in-app purchase. Call it the in-arch purchase. Once you buy into a particular architecture, the switching costs are prohibitively high. If you have to pay more for the commercial software, can you really say no?
Second, some of the tiered pricing models that are taking root make it more difficult to accurately model ongoing license costs. If you are not thinking about how the costs will scale with the number of ports, users, VMs, or whatever, you might find out down the road that your solution is contributing more ongoing costs than anticipated. For example, buying one VM from Amazon might seem easy enough, but what if you need thousands? It doesn’t stay cheap forever.
Maybe the in-arch costs are just extra features or capabilities. Or ongoing support and services. Whatever the source, these types of costs contribute to the ongoing operating expenses. And because the primary purchasing criterion is CapEx (procurement costs), burying some of these costs a little later in the product lifecycle and making them a bit smaller in magnitude (but larger in volume) will be attractive.
The punch line here is that we are on the cusp of a change in monetization strategies. You might think that pricing and costs will be transparent, but has the networking community given us a real reason to believe that to date? If you think so, consider this: why do buyers celebrate 50% discounts? It’s because pricing is ridiculously obfuscated in this industry. Until we all start expecting more, I just don’t know why this would change.
Along those lines, my colleague Bill Koss posted some facts about Plexxi costs. In the interest of transparency, it’s worth taking a look here.
[Today’s fun fact: The wettest spot in the world is located on the island of Kauai. Mt. Waialeale consistently records rainfall at the rate of nearly 500 inches per year. That’s enough so drown 7 6-foot-tall men standing on each other’s heads.]
SYS-CON Events announced today that IceWarp will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. IceWarp, the leader of cloud and on-premise messaging, delivers secured email, chat, documents, conferencing and collaboration to today's mobile workforce, all in one unified interface
Aug. 31, 2015 04:00 AM EDT Reads: 396
SYS-CON Events announced today that DataClear Inc. will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. The DataClear ‘BlackBox’ is the only solution that moves your PC, browsing and data out of the United States and away from prying (and spying) eyes. Its solution automatically builds you a clean, on-demand, virus free, new virtual cloud based PC outside of the United States, and wipes it clean...
Aug. 30, 2015 11:45 PM EDT Reads: 395
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome,” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Aug. 30, 2015 10:00 PM EDT Reads: 344
Any Ops team trying to support a company in today’s cloud-connected world knows that a new way of thinking is required – one just as dramatic than the shift from Ops to DevOps. The diversity of modern operations requires teams to focus their impact on breadth vs. depth. In his session at DevOps Summit, Adam Serediuk, Director of Operations at xMatters, Inc., will discuss the strategic requirements of evolving from Ops to DevOps, and why modern Operations has begun leveraging the “NoOps” approa...
Aug. 30, 2015 06:45 PM EDT Reads: 369
SYS-CON Events announced today that G2G3 will exhibit at SYS-CON's @DevOpsSummit Silicon Valley, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Based on a collective appreciation for user experience, design, and technology, G2G3 is uniquely qualified and motivated to redefine how organizations and people engage in an increasingly digital world.
Aug. 30, 2015 05:00 PM EDT Reads: 464
SYS-CON Events announced today that Micron Technology, Inc., a global leader in advanced semiconductor systems, will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Micron’s broad portfolio of high-performance memory technologies – including DRAM, NAND and NOR Flash – is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of tech...
Aug. 30, 2015 01:30 PM EDT Reads: 223
This Enterprise Strategy Group lab validation report of the NEC Express5800/R320 server with Intel® Xeon® processor presents the benefits of 99.999% uptime NEC fault-tolerant servers that lower overall virtualized server total cost of ownership. This report also includes survey data on the significant costs associated with system outages impacting enterprise and web applications. Click Here to Download Report Now!
Aug. 30, 2015 01:30 PM EDT Reads: 189
SYS-CON Events announced today that Pythian, a global IT services company specializing in helping companies leverage disruptive technologies to optimize revenue-generating systems, has been named “Bronze Sponsor” of SYS-CON's 17th Cloud Expo, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Founded in 1997, Pythian is a global IT services company that helps companies compete by adopting disruptive technologies such as cloud, Big Data, advance...
Aug. 30, 2015 01:00 PM EDT Reads: 287
Introducing Containers & Microservices Bootcamp at @CloudExpo Silicon Valley | #Containers #Microservices
SYS-CON Events announced today the Containers & Microservices Bootcamp, being held November 3-4, 2015, in conjunction with 17th Cloud Expo, @ThingsExpo, and @DevOpsSummit at the Santa Clara Convention Center in Santa Clara, CA. This is your chance to get started with the latest technology in the industry. Combined with real-world scenarios and use cases, the Containers and Microservices Bootcamp, led by Janakiram MSV, a Microsoft Regional Director, will include presentations as well as hands-on...
Aug. 30, 2015 12:00 PM EDT Reads: 270
Cloud and datacenter migration innovator AppZero has joined the Microsoft Enterprise Cloud Alliance Program. AppZero is a fast, flexible way to move Windows Server applications from any source machine – physical or virtual – to any destination server, in any cloud or datacenter, using its patented container technology. AppZero’s container is also called a Virtual Application Appliance (VAA). To facilitate Microsoft Azure onboarding, AppZero has two purpose-built offerings: AppZero SP for Azure,...
Aug. 30, 2015 11:00 AM EDT Reads: 175
Organizations from small to large are increasingly adopting cloud solutions to deliver essential business services at a much lower cost. According to cyber security experts, the frequency and severity of cyber-attacks are on the rise, causing alarm to businesses and customers across a variety of industries. To defend against exploits like these, a company must adopt a comprehensive security defense strategy that is designed for their business. In 2015, organizations such as United Airlines, Sony...
Aug. 30, 2015 10:30 AM EDT Reads: 440
SYS-CON Events announced today that HPM Networks will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. For 20 years, HPM Networks has been integrating technology solutions that solve complex business challenges. HPM Networks has designed solutions for both SMB and enterprise customers throughout the San Francisco Bay Area.
Aug. 30, 2015 10:30 AM EDT Reads: 876
Red Hat is investing in Tesora, the number one contributor to OpenStack Trove Database as a Service (DBaaS) also ranked among the top 20 companies contributing to OpenStack overall. Tesora, the company bringing OpenStack Trove Database as a Service (DBaaS) to the enterprise, has announced that Red Hat and others have invested in the company as a part of Tesora's latest funding round. The funding agreement expands on the ongoing collaboration between Tesora and Red Hat, which dates back to Febr...
Aug. 30, 2015 10:00 AM EDT Reads: 340
IBM’s Blue Box Cloud, powered by OpenStack, is now available in any of IBM’s globally integrated cloud data centers running SoftLayer infrastructure. Less than 90 days after its acquisition of Blue Box, IBM has integrated its Blue Box Cloud Dedicated private-cloud-as-a-service into its broader portfolio of OpenStack® based solutions. The announcement, made today at the OpenStack Silicon Valley event, further highlights IBM’s continued support to deliver OpenStack solutions across all cloud depl...
Aug. 30, 2015 10:00 AM EDT Reads: 234
Through WebRTC, audio and video communications are being embedded more easily than ever into applications, helping carriers, enterprises and independent software vendors deliver greater functionality to their end users. With today’s business world increasingly focused on outcomes, users’ growing calls for ease of use, and businesses craving smarter, tighter integration, what’s the next step in delivering a richer, more immersive experience? That richer, more fully integrated experience comes ab...
Aug. 30, 2015 09:15 AM EDT Reads: 620
With the proliferation of connected devices underpinning new Internet of Things systems, Brandon Schulz, Director of Luxoft IoT – Retail, will be looking at the transformation of the retail customer experience in brick and mortar stores in his session at @ThingsExpo. Questions he will address include: Will beacons drop to the wayside like QR codes, or be a proximity-based profit driver? How will the customer experience change in stores of all types when everything can be instrumented and a...
Aug. 30, 2015 09:15 AM EDT Reads: 442
WSM International, the pioneer and leader in server migration services, has announced an agreement with WHOA.com, a leader in providing secure public, private and hybrid cloud computing services. Under terms of the agreement, WSM will provide migration services to WHOA.com customers to relocate some or all of their applications, digital assets, and other computing workloads to WHOA.com enterprise-class, secure cloud infrastructure. The migration services include detailed evaluation and planning...
Aug. 30, 2015 08:45 AM EDT Reads: 164
In today's digital world, change is the one constant. Disruptive innovations like cloud, mobility, social media, and the Internet of Things have reshaped the market and set new standards in customer expectations. To remain competitive, businesses must tap the potential of emerging technologies and markets through the rapid release of new products and services. However, the rigid and siloed structures of traditional IT platforms and processes are slowing them down – resulting in lengthy delivery ...
Aug. 30, 2015 08:45 AM EDT Reads: 580
Culture is the most important ingredient of DevOps. The challenge for most organizations is defining and communicating a vision of beneficial DevOps culture for their organizations, and then facilitating the changes needed to achieve that. Often this comes down to an ability to provide true leadership. As a CIO, are your direct reports IT managers or are they IT leaders? The hard truth is that many IT managers have risen through the ranks based on their technical skills, not their leadership ab...
Aug. 30, 2015 08:45 AM EDT Reads: 341
The Internet of Things (IoT) is about the digitization of physical assets including sensors, devices, machines, gateways, and the network. It creates possibilities for significant value creation and new revenue generating business models via data democratization and ubiquitous analytics across IoT networks. The explosion of data in all forms in IoT requires a more robust and broader lens in order to enable smarter timely actions and better outcomes. Business operations become the key driver of I...
Aug. 30, 2015 08:30 AM EDT Reads: 395