Penny Wise Dollar Foolish: IT Network Spending

by Sorell Slaymaker

Most large enterprises spend 15% of their IT budget on networking and communications.  Your network service providers and hardware/software suppliers are incented for enterprises to spend more, not less on services. 

Enterprise network bandwidth requirements double every 2.6 years and the number of devices on the network doubles every 1.8 years, which keeps network managers and engineers busy just keeping up.  Most enterprises look to get the best discounts for what they buy, but they end up saving pennies on the dollar compared to starting from scratch with a new architecture and sourcing model.   After years of conducting enterprise networking workshops, I find that smart enterprises can cut spending by up to 50%, starting with these 3 strategies:

  • 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. 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 network services and provides a managed service such as MetTel.  The same holds true for services from Communication Platform as a Service (CPaaS) providers such as Vonage/Nexmo and Twilio that offer services such as SIP trunking and long distance rates of less than a cent per minute.
  • 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.
  • Right Architecture – Too many enterprises 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.

To improve network performance, reliability, agility, and security while cutting network costs requires a totally different approach than what the traditional carriers and vendors sell.  Cloud providers have adopted the above strategies along with leading enterprises who have a proven track record that getting more out of your network for less is possible.

While it is easy to spend money, it is hard to save money!