Penny Wise, Dollar Foolish

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Most large enterprises spend 15% of their IT budget on networking and communications. Smart enterprises spend half this amount by following these simple principles:

  1. Buy Wholesale – Instead of bringing 1 or 2 Network Service Providers (NSPs) into the enterprise and paying retail rates, enterprises should go directly to the 1,000 plus fiber providers who provide Ethernet services. This can be accomplished two ways. First is providing connectivity into a carrier neutral co-location provider, such as Equinix. The alternative is to go with a virtual network operator that buys wholesale services from the NSPs and provides a managed service such as MetTel. The same holds true for services from Communication Platform as a Service providers such as Twilio that offers services such as SIP trunking and long distance rates of less than a cent per minute.
  2. New Business Models – Instead of paying for hardware/software upfront, pay for consumption and value. One reason the cloud is taking off is the opex and success based business model. All networking and communications is going to software that runs on commodity off the shelf hardware. There is no need to have to pre-pay for this software. Enterprises should also negotiate with their vendors to have maintenance start when the service goes live, not the day it is ordered. Paying for maintenance on legacy gear is also a waste of money. E-Bay and other websites sell legacy hardware and organizations can self-spare. Enterprises self-insure on healthcare, and they can do this on IT hardware.
  3. Right Architecture – Too many enterprise backhaul their Internet destined traffic through their data centers. This private to public Internetworking is expensive and hurts performance. An enterprise that has the best MPLS and Internet retail rates, but has an architecture where all branch traffic must route through a data center to go to the Internet, are paying for bandwidth twice. Most enterprise see upwards of 80% of their branch traffic is Internet destined. The same holds true for mobile data going through a mobile device manager that is in the enterprise data center. This is why SD-WAN is forecasted to be a 6B market by 2020

Enterprise network bandwidth requirements doubles every 2.6 years, and the number of devices on the network doubles every 1.8 years. Enterprises can choose to tightly manage their networks or just over build the network and not be a barrier that slows the business down. With the above principles, enterprises can overbuild their network and services versus trying to tightly manage. This is what the cloud providers do, and enterprises should follow suit.

Sorell Slaymaker