In the New IP, the communications vendor landscape is changing -- and fast -- as software-defined networking shifts the traditional buying models used by many service providers.
No longer are service providers buying network hardware with the associated software. Instead they are shifting to a model that includes licensing software that runs on standard compute, according to Nico Fischbach, director of strategy, architecture and innovation at Colt Technology Services Group.
Earlier in the year, The New IP reached out to industry experts to get their take on how buying and selling is going to change in the New IP realm -- from why it will change, to how the move to software-defined networking (SDN) and network functions virtualization (NFV) will affect sales and revenue in 2015, to whether the telecom industry in general needs to address the issue of new pricing and business models around software-focused technology, or if it's more of an issues to be negotiated individually between network operators and their vendors.
In the first of a series of articles on "Buying and Selling in the New IP," we will look at what's happening today and the impact of those changes.
Want to know more about the New IP? This will be just one of the many topics covered at Light Reading's second Big Telecom Event on June 9-10 in Chicago. Get yourself registered today or get left behind!
What's happening today is not so much a shift from hardware to software, rather it's the disintegration of software and hardware, according to Stephen Vogelsang, vice president, Strategy & CTO – IP Routing and Transport Business Division, Alcatel-Lucent. "Instead of purchasing integrated systems that include both the hardware and software, network operators would like to purchase hardware and software separately," he said. "The idea is that the hardware becomes homogeneous, meaning that the same hardware should be capable of running a variety of software network functions from different vendors."
The idea of homogeneous hardware is making some suppliers nervous, as Light Reading's Founder and CEO Steve Saunders pointed out in a recent blog about his interview with Cisco's CEO John Chambers, who said he expects Cisco's principal competition to come from "white box" solutions (open source software running on generic server and switch hardware, rather than the proprietary solutions from incumbent providers). (See Think Outside the White Box.)
Another important part of the transformation underway is how service providers and vendors will interact in the New IP world, and how service providers will interact with their customers, too, according to Colt's Fischbach.
"This is a radical change that obviously causes a shift (more complex procurement, likely more professional services required, new "refresh" cycles, etc.), but it's nothing new, especially for those service providers who have been offering managed IT and cloud services," Fischbach said. "The experience with new models where customers are able to change service in real-time is key and will also be pushed upstream to vendors (versus more static licensing)."
Along with the disintegration of hardware and software comes the expected pricing revolution because, as noted by Ruth Zamir, Product Marketing, Network Cloud Service Orchestration, Amdocs, "One of the main aspects of the New IP is how flexible it is, which will be illustrated by dynamic and automated management of resources. But if resources are therefore going to be consumed dynamically, why shouldn't this be reflected in the pricing?"
As a result, Zamir said she expects to see the emergence of new value-based pricing models introduced both between vendors and service providers, as well as between service providers and their customers.
"For example, in our discussions with service providers on network cloud service orchestration, one thing we're starting to see is that providers are contemplating charging business customers for service based on actual usage, time of day, quality of service levels or willingness to be flexible about the quality of service they receive (under well-defined terms)," she said.
But the flip side of pricing flexibility is uncertainty when it comes to spending, Zamir added. "While fixed up-front investment in hardware has its down-side in that it makes it harder to introduce new services, at least it enables financial predictability."
Because both service providers and vendors are now used to the existing models, and financial predictability is clearly an important priority, the pricing revolution may be slow to pick up at first, Zamir added.
Along the same lines, software licensing models allow service providers to take advantage of "pay as you grow" and "usage-based pricing" that share risk and reward between the customer and the vendor, according to Kelly Herrell, senior vice president, Software Networking Group, Brocade.
"Infrastructure no longer needs to be heavily over-provisioned since capacity can scale elastically," he said. "Vendors can offer term-based or usage-based pricing models for both software and hardware. In effect what this does is introduce software-like commercial dynamics regardless of whether the infrastructure is software or hardware."
All of these changes which reflect the openness of the New IP ultimately reduce the dreaded vendor lock-in, noted Herrell, and enable service providers to plan for shorter periods during which they have to live with a given decision and shifts the balance of power even more to the service provider's benefit.
Keep following The New IP for more in our new "Buying and Selling in the New IP" series.
— Elizabeth Miller Coyne, Editor, The New IP