Is the cloud eating up traditional networking?

  Cloud services will ensure a shrinking IT spending pie. As companies increasingly replace networking infrastructure with cloud services, we see a meaningful direct impact on existing networking vendors.

Networking is an essential part of infrastructure that enables leverage of information technology resources in an organization.   Networking involves many things – from network cards in personal computers and laptops, the cables, the communication racks on the wall or the data centre, all put together what is called as a local area network, which we see.  Then there is wide area network which connects offices across cities.  Finally, the Internet – where there are unlimited amount of resources, people and data that gets exchanged on a daily basis.

Networking technology has changed most over a period of time.   Many factors have been at play. “The profile of a networking team has changed significantly in the last decade.  From dial-up modems to wi-fi hotspots to access internet, our solutions have changed based on customer and consumer needs today,” says, business owner of NetTree solutions, Mr. Krishna Kumar, based in Trivandrum.

“But there is a huge loss of business for traditional network products and services.  Both enterprises and small businesses have stopped building their data centres. So work like cabling etc., for my own company has come down to around 65% in the last two years,” he adds.  The business is now really tough – as his sales team struggles to find new customers for traditional networking solutions – including voice and data.  According to a report by Baird Equity Research Technology, for every dollar spent on cloud, saves $ 3 to $4 on traditional hardware including networking.

Even voice solutions are affected. Earlier there was revenue from EPABX sales; installation and support on a regular basis but now enterprises are moving towards voice cloud solutions provided by large telecom players like Airtel or Reliance. Business is down to 10% here, he says.  Anybody can get into a cloud by running Virtual Private Networks on cloud he says.   Mobile phone applications on Android or Windows phones can easily help achieve this cloud telephony.

Another instance of loss of revenue is purchase of both networking and computing hardware.  Krishna Kumar says this has been the biggest loss.  Banks used to have local servers to compensate for lack of bandwidth.  If connectivity improving in the form of high bandwidth MPLS, leased lines and Virtual private networks, the entire server farm is centralized, essentially moving all data centrally, and access through a private cloud.   The loss of branch hardware is a big loss for NetTree, he says.

But the investment is happening elsewhere.  Large cloud service providers are investing in networking hardware, typically high end to create infrastructure to meet the fast growing demand.   From traditional hosting, now things are gaining major pace towards offering cloud services like – Application, Platform or Infrastructure as service, which have enabled release of upfront capital investments from the customer’s perspective.

Krishna KV, CEO of Spudweb Infrastructure Solutions, talks about how one part of his business has gained and another lost due to this shift in paradigm.  He offers MPLS and hosting solutions from Sify, a leading hosting and managed networking solutions provider. Spudweb also supplies, integrates traditional networking hardware for small and medium enterprises.  “Overall, the networking capital investments have gone down, and more hosting, cloud requirements have gone up.   This balance is evident when I meet customers for contract renewals.  More and more customers have started enquiring about options,” he says.

Smaller enterprises are clear – they want to keep as much cash as possible, and hence operational expenditure is the way to go.  In these cases, he is able to position a bigger pipe with a committed bandwidth to access data that is hosted on cloud.  Startups are more bothered about cash out flow than security.  But as a solution provider, Krishna says that Spudweb insists on taking up reasonable security packages so that customers achieve the balance between the need vs investments.

Larger enterprise have plans which are more structured.  Armed with better planning machinery, specific applications have been identified, and the connectivity infrastructure for the same is planned.  This includes Bring your own devices (BYOD) which basically allows employees to bring their own devices allows employees access information and data from applications on the move.  This is possible establishing private cloud.

Between the two – the large cloud service players – IBM, Google, Amazon, Microsoft, Oracle, are now taking cloud specialists who have experience in handling scalable data centres, Layer 7 switches and next generation routers.   With more customers on board, redundancy is becoming more critical, while the need for Tier 4 datacenters is only increasing.   Players like Sify are scrambling to invest in more cloud based infrastructure to meet the anticipated demand.

Customers want lesser headache managing infrastructure or applications.  They are looking to completely outsource, including connectivity infrastructure.  However, the last mile has to be anyway ‘installed’.  That part of the business which is typically 15% of the business does not change, both Krishna of Spudweb and Krishna Kumar of Nettree agree.   The last mile paradigm has changed but the basic infrastructure like local area network, a router, and a voice infrastructure is always available.

However, even here, customers are willing to look at an opex model.  So rental, and leasing options come into play if the volumes justify economics for the vendors.   Mostly the customers are mid-sized who have large requirements, but are not willing to spend upfront.

Companies like Nettree and Spudweb also have worked on alternate channels of business.  For example, Nettree now offers on-campus Closed Circuit TV solutions, which have turned out to a hit because he offers them to the same client space, he used to offer traditional networking solutions.  Leveraging its earlier tie-up with Sify. Spudweb has increased its offerings like cloud based managed services, hosting services which are now gaining more traction with startups and even few medium scale enterprises.

The smaller players either have to adapt to technologies that are part of the cloud or diversify.  This is the simple mantra, both Krishna KV and Krishna Kumar agree.   The larger players have already started to reorient themselves to this changing paradigm.  The sales teams have been re-engineered or reduced.   Krishna KV says that he has reduced his team by 30% because the days of box-selling is over. Customers are seeking options, and only sales team members who can handle consultative selling survive.

Cloud was there for a long time – but the questions arising on security, reliability are being answered now.  And the answers have prompted customers to take decisions.   And the paradigm shift is affecting a stable networking environment – both product and solution providers in a big way.  The challenge is to adapt and survive. And organizations like Nettree and Spudweb are showing the way in adapting to this change.