September 22, 2011
Brocade isn’t the loudest networking vendor on the block, but more than two weeks ago it released a subscription switching service that should have sent a shockwave through the industry. With Brocade Network Subscription,customers pay for their network infrastructure on a monthly basis. Sadly, the new service was not some new xfabric or new-fangled technology, the industry was quick to dismiss the news as anything more than another cloud announcement, and so Brocade’s subscription program registered only a murmur. What was missed was that the service helps to solidify I&O as a business unit on the same level as manufacturing, services, energy, and other businesses.
I’ve written extensively about how networking solutions need to support two business realities: 1) Enterprises are embedding themselves in their customers’ lives, and 2) businesses are forming symbiotic relationships with their vendors. In regard to the latter, businesses want to ensure that their vendor is creating products and solutions that are in the best interest of that company, and so there is an expectation that their partners will carry some of the financial risk and burden, ensuring that they will stay committed. On the vendor side and with respect to embedding themselves, the reasoning is twofold. First, Wall Street rewards recurring revenue streams, and this is more likely if the vendor can create something the customers can only get from that particular source. Second, vendors know it costs ten times as much to find new customers and would prefer to have a customer keep coming back to keep their operating costs as low as possible.
As a result, there has been a shift to a subscription service model. Take for example three distinct markets that support this strategy:
- Services. Like law and accounting firms, service companies bill their clients for the number of resources working on a project, typically billed on an hourly basis. Customers can increase or decrease the resources depending on their resources and time frame and can turn off the services whenever they want. Although some may offer blocks of resources at a discount as incentive, most services are driven by what the customer uses.
- Manufacturing. Gencorp’s Aerojet division is a tier two aerospace company that focuses on rocket motors and engines for NASA and the Department of Defense. During the defense downturn of the ’90s, Aerojet used its expertise in exothermic manufacturing to become a supplier of intermediate compounds using ethanol, acetone, phenol, and other chemical compounds for pharmaceutical companies like Glaxo, Roche, Pfizer, and others. Ethanol and acetone are used for washes, so they are used across multiple batch orders. Depending on sales or regulation issues with pharmaceutical goods, orders may spike or an order batch may be cancelled. I saw this happen when one of the drugs didn’t get past the FDA a day before its launch. Consequently, Aerojet arranged with its supplier to only pay for the amount used, even if a tanker truck needed to go back to the site and unload 2,000 gallons of ethanal sitting in the tank.
- Retail. Consumers are a finicky group. When companies have products they believe will sell, they need to get them on the shelves in front of customers. Retailers are hesitant to stock new products because they don’t want to be stuck with inventory, so suppliers will create a consignment scenario on the retailer’s shelf. Both entities take a shared risk when the retailer allocates space and the supplier inventory. They are both rewarded when the product leaves the store.
Although Brocade’s model is crude at this point, it’s really the beginning of what will come from them and the industry. With increased monitoring and reporting capabilities being required of the infrastructure, I&O could be paying a lot less if they were billed by usage. If you’re an I&O executive, I’d encourage you to pay closer to attention to this trend than you may have otherwise. Challenge your network teams to transform the economics of running their network by asking them:
- How many ports are really being used?
- What is the average port utilization on the entire network? Do your printers, HVAC sensors, and other controls really use GbE connections?
- Is the business constant?
- Are they using all the features?