New era for network pricing

It’s time to improve network pricing.

Cloud is flourishing, software-defined networking (SDN) is taking off, and plenty of other trends are apparent in the information technology (IT) of 2013. These trends aren’t just engineering accomplishments; they invariably have important business components. Business aspects come together in an intriguing way specifically in organization-level networking.

A common anecdote underlying cloud expansion is this: a department needs an IT service that its own organization provides, but chooses an outside software-as-a-service (SaaS) vendor instead. The outside vendor is often no less expensive than the organization’s own IT department, but the commercial vendor offers more polished support, more agility–quick response to turn up or down the scope of the SaaS–and is happy to accept credit cards or other lightweight payments. These retail amenities are no surprise now, and smart IT departments know to recommend external SaaS in many situations.

Other cloud consequences are more subtle. Cloud is only practical when built on reliable networking, and this only arrived recently. Computing powerhouses like Google, Microsoft, and Amazon are not the only companies experimenting with cloud as a horizontal product extension; nearly every network-service provider, from AT&T on, has a cloud product line.

At an abstract level, cloud reliance shifts the local computational load from processors and storage to networks: what matters for a cloud-based operation is not to have hot chips and arrays of terabytes, as much as to have high-speed, low-latency connections.

This is one point at which the business implications become … cloudy. IT departments are relatively sophisticated about charging for CPU or storage; networking is often treated as undifferentiated overhead, comparable to janitorial services or break-room snacks. That made sense in the past, of course, but not now. Not only is networking arguably the single largest IT sector budget item, but the whole point of SDN is to make networking more flexible and valuable.

We’re clearly headed for a collision. Departments will increasingly acquire digital services on their own, with no chargeback to internal IT. In doing so, they’ll burden organization-wide networks more and more–but with no price signals to ration the use. Do you see where this is headed? Departments and divisions aren’t just trading capitalized license or development fees for “pay-as-you-go” monthly expenses; a significant part of the expense is either invisible, or paid by someone else! All the usual tragedies of the commons come into play.

The solution is apparent: IT needs to “tax” stakeholders to fund a healthy networking infrastructure. This won’t be easy, though, not just because of banal difficulties with organizational politics, but also because IT collectively knows so little about how to price networking. While Amazon Web Services (AWS) leads the industry in the precision of its complicated retail pricing model, networking is its most opaque part. Where is the value in networking? Is it bandwidth, latency, reliability, or security, and in what combination? With advances in SDN, engineering teams will explore whole new frontiers of the Internet Protocol (IP) continent that have been closed off to this point.

While the industry as a whole figures out “best practices” for network pricing, make sure you protect yourself. If you’re responsible for IT budgets, recognize your interchange bills might spike as users demand externally-hosted IT. If you’re an SaaS consumer, add to the bills you have to pay an allowance for what happens when you overload the networking infrastructure already built into the walls and closets of your office.