Acquiring Network Infrastructure
It’s good news all around in the CFO world!
In the current economic climate, where companies hesitate to make significant capital investments, the operating expense model of cloud services providers is rapidly becoming more and more attractive. So, how does Network as a Service [NaaS] step in to change the way IT infrastructure is acquired?
Your day might just get better – cloud computing has given us a new trend so acquiring IT network infrastructure is soon to be a thing of the past!
Let us give you some background information here. Over the past decade, IT systems and IT infrastructure have been one of the key spending categories, and companies usually acquired their IT networking infrastructure through two models:
- Cash purchase (CapEx purchase)
- Term lease – Hardware Leasing (OpEx)
As we’ve noted, hardware leasing has been very popular for many years. Startups and smaller enterprises might still prefer to own the equipment outright as having access to leasing means satisfying various conditions. But for middle-sized companies that qualify, moving from CapEx hardware purchases to making leasing payments was a first logical way to move to OpEx.
As for large enterprises, it seems that days when companies were setting budgets to readily acquire IT networking infrastructure are far gone.
As today’s agile business platforms combine powerful new technologies and must address evolving demands of things like cloud Big Data computing and the almighty Internet of Things (IoT), both midlevel and Enterprise IT departments are on the verge of failing to design and implement network infrastructures that can meet current and future needs. Why?
It’s because networks are becoming increasingly complex with too many unforeseeable and almost impossible-to-plan-for enhancements and demand specialized equipment. Setting budgets is one thing. Setting them for such a rapidly changing component of IT infrastructure is another.
Decision making – CFO Calls The Shots
So, what does a wise CFO do? He looks at the numbers, no doubt!
“The CFO is increasingly becoming the top technology investment decision-maker in many organizations,” according to a recent study by Gartner and the Financial Executives Research Foundation. In nearly 500 enterprises surveyed, 42 percent of all CIOs report to the CFO, and in three out of four companies, the CFO has a significant hand in all IT spending.
Traditionally for technology investments, CFOs most often prefer capital expenditures over operating expenses because they could take advantage of amortization and depreciation of those investments over an extended period of time.
A growing argument is, however, that operating expenses (OpEx) have advantages over capital expenditures (CapEx). For one, network gear needed for a service provider to open a new cloud data center can be as much as $ 750,000, varying according to center’s size.
As existing network gear reaches the end of its useful life, the company must pay for replacement costs. Once the technology is purchased, the company is stuck with it – despite technology advancements or changes in company growth. Other inherent difficulties with CapEx spending on technology include:
- Error-prone estimates for IT infrastructure and capacity needs
- Lengthy processes for budget estimation and approval block the necessary acquisition
- On-premise solutions require ongoing maintenance charges
Dave Michels, contributing editor, and analyst at TalkingPointz, says:
“Don’t get caught up in OpEx vs CapEx. The shift to cloud computing is actually the buyer shifting the responsibility for actual results to the provider. It’s a combination of pay-as-you-go, the reduction or elimination of capital equipment, and shorter-term commitments.”
Service Oriented Architectures: network as a service benefits
Network-as-a-Service, as the term suggests, is designed to provide on-demand network services to businesses. Unlike some traditional network purchases which involve CapEx for bandwidth usage and network circuits, NaaS offers an affordable alternative. For instance, one of the NaaS service models, managed services, makes it possible to consume network services without the need to own any of the network infrastructure at all. But can NaaS be any different, you’ll ask?
Although implementations vary, NaaS can include flexible and extended Virtual Private Network (VPN), but also bandwidth on demand, as well as custom routing, multicast protocols, security firewall, intrusion detection and prevention, Wide Area Network (WAN), etc. There is no standard specification as to what is included in NaaS. Some basic modalities of the service are:
- Managed Network Service: This is literally consuming a cloud managed network from a service provider. You have a computer, internet connection, and you are good to go. Plug-and-play almost, don’t you think? The very good choice for start-ups.
- Virtual Private Network (VPN): Extends a private network and the resources contained in the network across networks like the public Internet, enabling a host computer to send and receive data across shared or public networks as if it were a private network.
- Bandwidth on demand (BoD): Technique by which network capacity is assigned based on requirements between different nodes or users. Under this model, link rates can be dynamically adapted to the traffic demands of the nodes connected to the link. This means applying bandwidth usage charges to purchase network circuits from carrier providers to plug your traditional network equipment into.
- Mobile network virtualization: Model in which a telecommunications manufacturer or independent network operator builds and operates a network (wireless, or transport connectivity) and sells its communication access capabilities to third parties (commonly mobile phone operators) charging by capacity utilization. A mobile phone operator does not own the radio spectrum or wireless network infrastructure over which it provides services.
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Software-based business model, using a WLAN platform that lets customers easily service a network from the cloud.
From the business standpoint, NaaS services are trending!
Cisco recognized the trend when buying Meraki in 2012, a privately held WLAN vendor, who had simplified network management by moving it to the cloud. Cisco wanted to be the first to benefit from Meraki’s decision to move network controller functions into a cloud computing service in order to better serve its small to mid-sized customers and let them easily service a network from the cloud. Today, its equipment lease plus its subscription NaaS model generate excellent fiscal results!
Starting in 2015, Global Capacity, a Chicago based NaaS provider acquired the network services unit of MegaPath, which provides a managed network NaaS. Some network businesses including mobile communication giants like Telefonica and Infinera have been venturing into the NaaS space, as well.
One of the industry players that did a good job of offering NaaS type services is Brocade, with its Network Subscription (BNS) service solution, which is based on network management and maintenance subscription model plus equipment lease alternative. As a growing data center provider, we at phoenixNAP have looked into a few NaaS models and have decided that Brocade is the right match for us. With the use of this solution model, now we can design and deploy network services for our clients with more agility and scale. Our customers get to enjoy greater flexibility, resource optimization, scalability, network efficiency and cost savings.
In addition to this, we are now able to provide more significant analytics and disaster recovery options based on these Brocade-powered services that would be difficult to deploy in an in-house IT infrastructure instance. Also, an added benefit of Brocade network architectures is their close compatibility to Cisco ’s, which makes for the smooth transition for those looking for a new consumption model.
In Conclusion, NaaS Providers
Here at phoenixNAP, we celebrate the shift from CapEx to OpEx for a plethora of reasons.
But the main one being that we can simply serve our clients better. In addition to it being a more flexible solution, and lets us work with the most up-to-date technology.