While hardware and software prices of devices will go down, enterprises still have to pay for SDN controllers and applications. The use of controller software and applications are an additional cost to the network hardware.
Vendors who look at the SDN platform as a way to extract additional revenue from customers have got it wrong. IT budgets are not increasing. Network budgets are not increasing. Vendors selling SDN platforms must or will be forced to understand that the network budget is not going to grow to include SDN, no matter what features or functions are added. Thus, vendors will be forced to lower costs elsewhere to balance out the money being spent on SDN platforms.
This problem is further exacerbated by the perceived lack of innovation by networking vendors for the last decade. Whether that statement is true or not, the majority of customers perceive the network as a problem that needs to go away because it's not revenue generating.
SDN Licensing and Vendor Revenue
SDN platforms will be priced on a consumption model to align with public and private cloud pricing models. This is a significant change for both enterprises and vendors.
Today, networking is capital intensive. Vendors get product revenue BEFORE the customer generates value from the assets. Vendors will need to accept a significant loss in short term revenue before SDN licensing begins to sustain longer-term purchasing.
Vendors also have to spend a lot of money to establish a new product in the marketplace, and may expect to charge generously for new products. But the SDN market is crowded with at least a dozen vendors competing for sales. All vendors will commit significant resources to sales and marketing in the year ahead.
On the customer side, customers might pay less for SDN in the early stages because capital investments are dramatically reduced, but over time the recurrent licensing revenues will approach current market revenues. This reduction might even offset the project and institutional costs needed to fund the migration projects.
Big Changes Ahead
Software-defined networking is a major market transition for established vendors. SDN platforms mean delayed product revenue transitions from capex to opex, and it likely will be several years before software licensing revenue replaces capital revenues. When combined with increased sales costs to defend market position through the transition, SDN represents serious risk to shareholder value. Vendors should be nervous and customers should be confident.
At the same time, SDN cannot be ignored or taken out of play. Even Cisco's relatively late arrival to the SDN market after years of denying SDN as a customer requirement is a clear sign of this transition.
Join Greg Ferro at Interop New York for his must-see workshop "Building Your Network for the Next 10 Years." Register today!]
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