|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.]
Why do your mobile transformations need to happen today? Mobile is the strategy that enterprise transformation centers on to drive customer engagement. In his general session at @ThingsExpo, Roger Woods, Director, Mobile Product & Strategy – Adobe Marketing Cloud, covered key IoT and mobile trends that are forcing mobile transformation, key components of a solid mobile strategy and explored how brands are effectively driving mobile change throughout the enterprise.
Sep. 30, 2016 03:45 AM EDT Reads: 2,231
SYS-CON Events announced today that ReadyTalk, a leading provider of online conferencing and webinar services, has been named Vendor Presentation Sponsor at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. ReadyTalk delivers audio and web conferencing services that inspire collaboration and enable the Future of Work for today’s increasingly digital and mobile workforce. By combining intuitive, innovative tec...
Sep. 30, 2016 03:45 AM EDT Reads: 3,064
If you’re responsible for an application that depends on the data or functionality of various IoT endpoints – either sensors or devices – your brand reputation depends on the security, reliability, and compliance of its many integrated parts. If your application fails to deliver the expected business results, your customers and partners won't care if that failure stems from the code you developed or from a component that you integrated. What can you do to ensure that the endpoints work as expect...
Sep. 30, 2016 03:15 AM EDT Reads: 1,747
WebRTC adoption has generated a wave of creative uses of communications and collaboration through websites, sales apps, customer care and business applications. As WebRTC has become more mainstream it has evolved to use cases beyond the original peer-to-peer case, which has led to a repeating requirement for interoperability with existing infrastructures. In his session at @ThingsExpo, Graham Holt, Executive Vice President of Daitan Group, will cover implementation examples that have enabled ea...
Sep. 30, 2016 03:00 AM EDT Reads: 1,624
There is growing need for data-driven applications and the need for digital platforms to build these apps. In his session at 19th Cloud Expo, Muddu Sudhakar, VP and GM of Security & IoT at Splunk, will cover different PaaS solutions and Big Data platforms that are available to build applications. In addition, AI and machine learning are creating new requirements that developers need in the building of next-gen apps. The next-generation digital platforms have some of the past platform needs a...
Sep. 30, 2016 03:00 AM EDT Reads: 1,933
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, provided tips on how to be successful in large scale machine learning...
Sep. 30, 2016 02:45 AM EDT Reads: 2,430
In his session at @ThingsExpo, Kausik Sridharabalan, founder and CTO of Pulzze Systems, Inc., will focus on key challenges in building an Internet of Things solution infrastructure. He will shed light on efficient ways of defining interactions within IoT solutions, leading to cost and time reduction. He will also introduce ways to handle data and how one can develop IoT solutions that are lean, flexible and configurable, thus making IoT infrastructure agile and scalable.
Sep. 30, 2016 02:15 AM EDT Reads: 1,635
SYS-CON Events announced today that Numerex Corp, a leading provider of managed enterprise solutions enabling the Internet of Things (IoT), will exhibit at the 19th International Cloud Expo | @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Numerex Corp. (NASDAQ:NMRX) is a leading provider of managed enterprise solutions enabling the Internet of Things (IoT). The Company's solutions produce new revenue streams or create operating...
Sep. 30, 2016 02:00 AM EDT Reads: 2,080
In his general session at 18th Cloud Expo, Lee Atchison, Principal Cloud Architect and Advocate at New Relic, discussed cloud as a ‘better data center’ and how it adds new capacity (faster) and improves application availability (redundancy). The cloud is a ‘Dynamic Tool for Dynamic Apps’ and resource allocation is an integral part of your application architecture, so use only the resources you need and allocate /de-allocate resources on the fly.
Sep. 30, 2016 12:45 AM EDT Reads: 2,982
IoT is fundamentally transforming the auto industry, turning the vehicle into a hub for connected services, including safety, infotainment and usage-based insurance. Auto manufacturers – and businesses across all verticals – have built an entire ecosystem around the Connected Car, creating new customer touch points and revenue streams. In his session at @ThingsExpo, Macario Namie, Head of IoT Strategy at Cisco Jasper, will share real-world examples of how IoT transforms the car from a static p...
Sep. 30, 2016 12:00 AM EDT Reads: 1,680
Fifty billion connected devices and still no winning protocols standards. HTTP, WebSockets, MQTT, and CoAP seem to be leading in the IoT protocol race at the moment but many more protocols are getting introduced on a regular basis. Each protocol has its pros and cons depending on the nature of the communications. Does there really need to be only one protocol to rule them all? Of course not. In his session at @ThingsExpo, Chris Matthieu, co-founder and CTO of Octoblu, walk you through how Oct...
Sep. 30, 2016 12:00 AM EDT Reads: 2,381
Web Real-Time Communication APIs have quickly revolutionized what browsers are capable of. In addition to video and audio streams, we can now bi-directionally send arbitrary data over WebRTC's PeerConnection Data Channels. With the advent of Progressive Web Apps and new hardware APIs such as WebBluetooh and WebUSB, we can finally enable users to stitch together the Internet of Things directly from their browsers while communicating privately and securely in a decentralized way.
Sep. 29, 2016 11:30 PM EDT Reads: 1,219
"My role is working with customers, helping them go through this digital transformation. I spend a lot of time talking to banks, big industries, manufacturers working through how they are integrating and transforming their IT platforms and moving them forward," explained William Morrish, General Manager Product Sales at Interoute, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Sep. 29, 2016 10:30 PM EDT Reads: 4,061
The Internet of Things can drive efficiency for airlines and airports. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Sudip Majumder, senior director of development at Oracle, will discuss the technical details of the connected airline baggage and related social media solutions. These IoT applications will enhance travelers' journey experience and drive efficiency for the airlines and the airports. The session will include a working demo and a technical d...
Sep. 29, 2016 10:00 PM EDT Reads: 1,817
Developing software for the Internet of Things (IoT) comes with its own set of challenges. Security, privacy, and unified standards are a few key issues. In addition, each IoT product is comprised of (at least) three separate application components: the software embedded in the device, the back-end service, and the mobile application for the end user’s controls. Each component is developed by a different team, using different technologies and practices, and deployed to a different stack/target –...
Sep. 29, 2016 08:45 PM EDT Reads: 1,556
Identity is in everything and customers are looking to their providers to ensure the security of their identities, transactions and data. With the increased reliance on cloud-based services, service providers must build security and trust into their offerings, adding value to customers and improving the user experience. Making identity, security and privacy easy for customers provides a unique advantage over the competition.
Sep. 29, 2016 06:15 PM EDT Reads: 3,732
SYS-CON Events announced today that Commvault, a global leader in enterprise data protection and information management, has been named “Bronze Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Commvault is a leading provider of data protection and information management solutions, helping companies worldwide activate their data to drive more value and business insight and to transform moder...
Sep. 29, 2016 05:15 PM EDT Reads: 2,865
SYS-CON Events has announced today that Roger Strukhoff has been named conference chair of Cloud Expo and @ThingsExpo 2016 Silicon Valley. The 19th Cloud Expo and 6th @ThingsExpo will take place on November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. "The Internet of Things brings trillions of dollars of opportunity to developers and enterprise IT, no matter how you measure it," stated Roger Strukhoff. "More importantly, it leverages the power of devices and the Interne...
Sep. 29, 2016 04:45 PM EDT Reads: 3,483
Personalization has long been the holy grail of marketing. Simply stated, communicate the most relevant offer to the right person and you will increase sales. To achieve this, you must understand the individual. Consequently, digital marketers developed many ways to gather and leverage customer information to deliver targeted experiences. In his session at @ThingsExpo, Lou Casal, Founder and Principal Consultant at Practicala, discussed how the Internet of Things (IoT) has accelerated our abil...
Sep. 29, 2016 04:45 PM EDT Reads: 2,808
Digital innovation is the next big wave of business transformation based on digital technologies of which IoT and Big Data are key components, For example: Business boundary innovation is a challenge to excavate third-party business value using IoT and BigData, like Nest Business structure innovation may propose re-building business structure from scratch, as Uber does in the taxicab industry The social model innovation is also a big challenge to the new social architecture with the design fr...
Sep. 29, 2016 04:30 PM EDT Reads: 1,356