Does Lower cost bandwidth foretell a decline in Expensive Packet Shapers ?

This excerpt is from a recent interview with Art Reisman and has some good insight into the future of bandwidth control appliances.

Are you seeing a drop off in layer 7 bandwidth shapers in the marketplace?

In the early stages of the Internet, up until the early 2000s, the application signatures were not that complex and they were fairly easy to classify. Plus the cost of bandwidth was in some cases 10 times more expensive than 2010 prices. These two factors made the layer 7 solution a cost-effective idea. But over time, as bandwidth costs dropped, speeds got faster and the hardware and processing power in the layer 7 shapers actually rose. So, now in 2010 with much cheaper bandwidth, the layer 7 shaper market is less effective and more expensive. IT people still like the idea, but slowly over time price and performance is winning out. I don’t think the idea of a layer 7 shaper will ever go away because there are always new IT people coming into the market and they go through the same learning curve. There are also many WAN type installations that combine layer 7 with compression for an effective boost in throughput. But, even the business ROI for those installations is losing some luster as bandwidth costs drop.

So, how is the NetEqualizer doing in this tight market where bandwidth costs are dropping? Are customers just opting to toss their NetEqualizer in favor of adding more bandwidth?

There are some that do not need shaping at all, but then there are many customers that are moving from $50,000 solutions to our $10,000 solution as they add more bandwidth. At the lower price points, bandwidth shapers still make sense with respect to ROI. Even with lower bandwidth costs  users will almost always clog the network with new more aggressive applications. You still need a way to gracefully stop them from consuming everything, and the NetEqualizer at our price point is a much more attractive solution.

Related article on Packeteers recent Decline in Revenue

Related article Layer 7 becoming obsolete from SSL

Network World Blog missing the boat on Packeteer’s decline in revenue

The one thing bad about being a publicly traded company is that you cannot hide from your declining sales, in the following network world blog post and related comments ,the authors make some good points as to where and why they would choose Cisco Wan Optimization over Blue Coat and vice-versa. They also comment on all sorts of reasons why Blue Coat’s revenue in this area is declining , although they neglect one obvious reason.

Prices of bandwidth have fallen quite rapidly over the last 10 years. In some larger metro areas  Internet access runs for as little as $300 per month for 10 megabits. The same link 10 years ago would have run close to $5000 per month or more. Despite falling bandwdith prices,  WAN optimization solutions from the likes Blue Coat, Cisco and Riverbed, remain relatively high.  Many ptential WAN optimization customers will  simply upgrade  their bandwidth rather than invest in new optimization equipment.  You would think that vendors would lower their prices to compete, and they are to some degree; however the complexity of their core solutions requires a mimumum price floor.   The factors that create the price floor on equipment are related to, methodology  of the internal technology, and sales channel costs,  and unfortunately these fixed cost factors cannot keep pace with falling bandwidth prices .

Our prediction is that WAN optimization devices will  slowly become a commodity with automated reduced complexity. One measure of the current complexity is   all the acronyms being tossed around describing WAN optimization. The sales pitches filled with accronyms clearly corrolate that perhaps these devices are just too complicated for the market to continue to use. They will become turn key simple and lower cost or die. No player is bigger than the Market force of cheaper bandwith.

Related articles:

ROI calculation for packet shaping equipment

Does lower cost bandwidth foretell a decline in bandwidth shaper sales?

Why is NetEqualizer the low price leader in Bandwidth Control

Recently we have gotten feed back from customers that stating they almost did not consider the NetEqualizer because the price was so much less than solutions  from the likes of: Packeteer (Blue Coat), Allot NetEnforcer and Exinda.

Sometimes low price will raise a red flag on a purchase decision, especially when the price is an order of magnitude less than the competition.

Given this feed back we thought it would be a good idea to go over some of the major cost structure differences betwen APconnections maker of the NetEqualizer and some of the competition.

1) NetEqualizer’s are sold mostly direct by word of mouth. We do not have a traditional indirect sales channel.

– The down side for us as a company is that this does limit our reach a bit.  Many IT departments do not have the resources to seek out new products on their own, and are limited to only what is presented to them.

– The good news for all involved is selling direct takes quite a bit of cost out of delivering the product. Indirect  sales channels need to be incented to sell,  Often times they will steer the customer toward the highest commission product in their arsenal.  Our  direct channel eliminates this overhead.

-The other good thing about not using a sales channel is that when you talk to one of our direct (non commissioned) sales reps you can be sure that they are experts on the NetEqualizer. With a sales channel a sales rep often sells many different kinds of products and they can get rusty on some of the specifics.

2) We have bundled our Manufacturing with a company that also produces a popular fire wall. We also have a back source to manufacture our products at all times thus insuring a steady flow of product without the liability of a Manufacturing facility

3) We have never borrowed money to run Apconnections,

– this keeps us very stable and able to withstand market fluctuations

– there are no greedy investors calling the shots looking for a return and demanding higher prices

4) The NetEqualizer is simple and elegant

– Many products keep adding features to grow their market share we have a solution that works well but does not require constant current engineering

%d bloggers like this: