Make it pay
Wouldn’t you pay a premium to the guy who can offer proof of a higher quality-of-service?
Nagi Rao, Surgient Networks

With the current state of the economy and the slowdown in infrastructure spending, the networking-infrastructure industry must show its customers how we will directly impact their top-line growth. It is no longer adequate for us to simply show better price/performance and drive down the cost of ownership. We must enable our customers to directly generate revenue through the deployment of new infrastructure. Had this happened five years ago at the edge, many of the failed dot “bombs” would have survived and possibly flourished.

Bandwidth providers realize that simply providing a quality-of-service (QoS) guarantee within their service-level agreements in no longer adequate. Over-provisioning bandwidth and then simply hoping that peak loads won’t degrade service is no longer good enough to differentiate WAN services. Customers now expect their providers to prove it. Being able to prove that a service provider can provision, meter, and bill customer bandwidth by class and QoS level is increasingly important in differentiating service offerings.

Consumers of bandwidth will naturally stratify themselves in classes of service that reflect the criticality of their need. Those service providers that deploy in this manner will find themselves servicing more customers with higher-margin products than those who don’t. Face it: Wouldn’t you pay a premium to the guy who can offer proof of a higher quality-of-service? If you had a business-critical need, you would be foolish not to.

But that’s just the beginning. Imagine you own some pipes and are selling a class-and-QoS product that you can verify every day. Now, how do you continue to make money as others follow you and begin to commoditize your differentiation?

This is the same problem that almost destroyed the airline industry. In the old days, a seat was a seat. Cutthroat pricing was driving all of the profitability out of the industry and airlines were failing. American Airlines solved this problem (and others followed) with the concept of yield management. Yield management established a means of selling a cheap seat to a leisure traveler who had planned ahead while selling an expensive seat to the business traveler who made last-minute plans and was therefore willing to pay a premium.

Similarly, forward-thinking providers of bandwidth could create a varied pricing structure for the same commodity. Then class and quality would continue to differentiate service providers for the long haul.

Infrastructure equipment providers who cannot show a direct link between the deployment of their products and this “monetization” of traffic will struggle to succeed in the current difficult business climate. Service providers must manage class and QoS, from the content stored on disk, through the application, across the data-center, and across all the services possible. If they can, the willingness of customers to pay in a yield-managed context creates a very bright future for those service providers with vision.

Author information

Nagi Rao is the president and CEO of Surgient Networks.