Quantifying the effects of commoditization on networking hardware due to SDN

Abstract

Open Flow/SDN has the potential to simplify network operations and management while driving down hardware costs. But they would also require IT to rethink traditional network architectures. At the same time, other protocols like NETCONF, YANG etc are available or emerging that can provide many of the same benefits without requiring major changes. Thus companies housing a data-center irrespective of the scale of operations would be looking forward to adopting either of these to simplify the complexities arising in their current operations. Open Flow adoption brings in a new player namely the software providers for the controller in the value chain. This will lead to changes in the value appropriation for hardware equipment providers who traditionally were providing a coupled software and hardware solution to the enterprise networks. This vertical shift in the value chain will lead to reduction in premiums hitherto charged by the telecom providers like CISCO, HP, IBM etc. and could result in a commoditization effect on the hardware present in the networks. Our study uncovered these effects by accounting the cost savings for an enterprise customer having different scaling of data centers over a period of 5 years in both traditional and open flow models. From these, we determined how much each player in the chain could apportion using a value-sharing model. Analyzing the results, we see that premium erosions increase with scaling of data-centers ranging around 13 36% for medium to large data centers. End-customers would see cost savings ranging from 15 30%. The proposed fixed license format for software providers could become more dynamic going forward. But, irrespective of the pricing strategy followed the hardware equipment providers will experience weaning away of their margins to a similar extent