Welcome!

Linux Containers Authors: Elizabeth White, Cloud Best Practices Network, Yeshim Deniz, Liz McMillan, Harry Trott

Related Topics: SDN Journal, Java IoT, Linux Containers, Containers Expo Blog, @CloudExpo, Cloud Security

SDN Journal: Blog Feed Post

Networking: CapEx, OpEx, and… In-App Purchases?

The fact that the ’S’ in SDN stands for software is reason enough for people to look beyond the chassis

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.]

The post Networking: CapEx, OpEx, and… In-App Purchases? appeared first on Plexxi.

Read the original blog entry...

More Stories By Michael Bushong

The best marketing efforts leverage deep technology understanding with a highly-approachable means of communicating. Plexxi's Vice President of Marketing Michael Bushong has acquired these skills having spent 12 years at Juniper Networks where he led product management, product strategy and product marketing organizations for Juniper's flagship operating system, Junos. Michael spent the last several years at Juniper leading their SDN efforts across both service provider and enterprise markets. Prior to Juniper, Michael spent time at database supplier Sybase, and ASIC design tool companies Synopsis and Magma Design Automation. Michael's undergraduate work at the University of California Berkeley in advanced fluid mechanics and heat transfer lend new meaning to the marketing phrase "This isn't rocket science."

@ThingsExpo Stories
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.
"Matrix is an ambitious open standard and implementation that's set up to break down the fragmentation problems that exist in IP messaging and VoIP communication," explained John Woolf, Technical Evangelist at Matrix, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
"A lot of times people will come to us and have a very diverse set of requirements or very customized need and we'll help them to implement it in a fashion that you can't just buy off of the shelf," explained Nick Rose, CTO of Enzu, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
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.
Who are you? How do you introduce yourself? Do you use a name, or do you greet a friend by the last four digits of his social security number? Assuming you don’t, why are we content to associate our identity with 10 random digits assigned by our phone company? Identity is an issue that affects everyone, but as individuals we don’t spend a lot of time thinking about it. In his session at @ThingsExpo, Ben Klang, Founder & President of Mojo Lingo, discussed the impact of technology on identity. Sho...
"Operations is sort of the maturation of cloud utilization and the move to the cloud," explained Steve Anderson, Product Manager for BMC’s Cloud Lifecycle Management, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
"I think that everyone recognizes that for IoT to really realize its full potential and value that it is about creating ecosystems and marketplaces and that no single vendor is able to support what is required," explained Esmeralda Swartz, VP, Marketing Enterprise and Cloud at Ericsson, in this SYS-CON.tv interview at @ThingsExpo, held June 7-9, 2016, at the Javits Center in New York City, NY.
The buzz continues for cloud, data analytics and the Internet of Things (IoT) and their collective impact across all industries. But a new conversation is emerging - how do companies use industry disruption and technology enablers to lead in markets undergoing change, uncertainty and ambiguity? Organizations of all sizes need to evolve and transform, often under massive pressure, as industry lines blur and merge and traditional business models are assaulted and turned upside down. In this new da...
Bert Loomis was a visionary. This general session will highlight how Bert Loomis and people like him inspire us to build great things with small inventions. In their general session at 19th Cloud Expo, Harold Hannon, Architect at IBM Bluemix, and Michael O'Neill, Strategic Business Development at Nvidia, discussed the accelerating pace of AI development and how IBM Cloud and NVIDIA are partnering to bring AI capabilities to "every day," on-demand. They also reviewed two "free infrastructure" pr...
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo 2016 in New York. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place June 6-8, 2017, at the Javits Center in New York City, New York, is co-located with 20th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry p...
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his Day 2 Keynote at @ThingsExpo, Henrik Kenani Dahlgren, Portfolio Marketing Manager at Ericsson, discussed how to plan to cooperate, partner, and form lasting all-star teams to change the...
SYS-CON Events announced today that delaPlex will exhibit at SYS-CON's @CloudExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. delaPlex pioneered Software Development as a Service (SDaaS), which provides scalable resources to build, test, and deploy software. It’s a fast and more reliable way to develop a new product or expand your in-house team.
SYS-CON Events announced today that IoT Now has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. IoT Now explores the evolving opportunities and challenges facing CSPs, and it passes on some lessons learned from those who have taken the first steps in next-gen IoT services.
The explosion of new web/cloud/IoT-based applications and the data they generate are transforming our world right before our eyes. In this rush to adopt these new technologies, organizations are often ignoring fundamental questions concerning who owns the data and failing to ask for permission to conduct invasive surveillance of their customers. Organizations that are not transparent about how their systems gather data telemetry without offering shared data ownership risk product rejection, regu...
SYS-CON Events announced today that WineSOFT will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Based in Seoul and Irvine, WineSOFT is an innovative software house focusing on internet infrastructure solutions. The venture started as a bootstrap start-up in 2010 by focusing on making the internet faster and more powerful. WineSOFT’s knowledge is based on the expertise of TCP/IP, VPN, SSL, peer-to-peer, mob...
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, discussed 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.
With billions of sensors deployed worldwide, the amount of machine-generated data will soon exceed what our networks can handle. But consumers and businesses will expect seamless experiences and real-time responsiveness. What does this mean for IoT devices and the infrastructure that supports them? More of the data will need to be handled at - or closer to - the devices themselves.
SYS-CON Events announced today that Dataloop.IO, an innovator in cloud IT-monitoring whose products help organizations save time and money, has been named “Bronze Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Dataloop.IO is an emerging software company on the cutting edge of major IT-infrastructure trends including cloud computing and microservices. The company, founded in the UK but now based in San Fran...
Big Data, cloud, analytics, contextual information, wearable tech, sensors, mobility, and WebRTC: together, these advances have created a perfect storm of technologies that are disrupting and transforming classic communications models and ecosystems. In his session at @ThingsExpo, Erik Perotti, Senior Manager of New Ventures on Plantronics’ Innovation team, provided an overview of this technological shift, including associated business and consumer communications impacts, and opportunities it m...
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).