How to Determine the Real Cost Savings of Software Defined Networks

By Matt West

Director of Telecommunication Services, NPI

March 08, 2017

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When it comes to network technology, one of the hottest areas of growth is Software Defined Networks (SDN). The definition of SDN is an elastic one as the market evolves, but it encompasses various network technologies that are capable of enabling functions like automated provisioning and network virtualization. Research firm IDC has estimated the worldwide market for SDN will be nearly $12.5 billion in 2020. If so, that will represent 54 percent growth in a few short years.

As with most new networking technologies, SDN is expected to drive savings – both direct and indirect. Direct savings include the underlying cost of network services and hardware, while indirect savings come from resource efficiencies in the deployment and management of enterprise networks.

Fortunately, these savings will be real for many enterprises – not just sales spin. But will they be as significant as vendors claim? Probably not. Enterprise customers can expect carriers to present lopsided ROI models that don’t tell the whole story. The model goes like this:

Customer's current spend is X
Carrier proposes SDN costs of Y, where Y is less than X
Savings presented by Carrier is X - Y

But here is what the model doesn’t take into account:

1. If spend X is more than 18 months old, then simply renewing on X is probably really between 0.75X and 0.85X.

2. Is this the best-in-class price for Y? (It’s hard to know whether you’re getting a good deal, especially for emerging solutions.)

In the first example, if renewing the current network is 0.75X and the carrier presents Y with a 25 percent savings, then there really is no savings with solution Y. This represents good leverage for the enterprise customer to drive further savings in the proposed carrier cost.

In the second example, even if the carrier presents savings in Y, are there more savings available by paying fair market value? The only way to know is to perform a benchmark analysis to understand what constitutes a best-in-class price for that specific proposal. In short, even when a carrier presents a compelling savings scenario, assume pricing and terms have still not yet been optimized – there may be even MORE savings to be had.