Pay-as-you go for network equipment, says Brocade

With the economies of many countries slowing down but network demand staying the same if not increasing, many organizations are looking for alternative ways of financing IT equipment purchases.

Brocade Communications Systems has one: Pay for routers and switches on a no-term monthly basis with the ability to add or delete ports as demand grows or ebbs.

“Unlike a lease, it’s an open-ended program so the customer has the ability to scale up or scale down their network infrastructure very seamlessly, very rapidly,” Jody Kirk, Brocade’s senior director of corporate development said Tuesday.

“It doesn’t have a lot of the terms and penalties in terms of lease initiation or early termination, but it provides the same type of capital deferral.”

The organization won’t end up owning the equipment, but will be eligible to upgrade to newer gear when it comes out with no penalty.

Aimed at organizations that spend at least US$500,000 a year in networking gear, Brocade Network Subscription is particularly suited for managed service and cloud hosting providers, governments and large enterprises, the company says.

Organizations that have the ability to pay for equipment through operating rather that capital expenses may also find it attractive, said Kirk.

Pricing will depend on an organization’s network and needs, but Brocade [Nasdaq: BRCD] has an online calculator it says will give customers an idea of what they’ll face.

–a government department wanting 250 10 Gigabit Ethernet ports in a data centre network (layer 2-3) would pay US$49.84 a month. That would include Brocade’s “essential level” support;

–a large enterprise looking to put in 2,500 user connections with “premier level” support would pay US$10.82 a month for each Gigabit Ethernet port;

To compare a purchase against a subscription, a Brocade MLXe router plus a VDX data centre switch totalling 832 ports of 10 GbEthernet would cost US$1.4 million. By subscription a customer would pay US$56.34 per port (or US$46,874) a month.

Note these are suggested retail prices. A channel partner could sell for less to meet competition or to offer a volume discount.

Brocade says the chart of network spending for many organizations resembles a roller-coaster, going up one year and down the next. The subscription would even that out, it argues.

But Kirk acknowledged that the longer an organization holds on to its equipment the less advantageous is the subscription model. “But on a more reasonable refresh cycle network subscription is very compelling economically relative to a capex purchase,” he argued.

Most Brocade equipment is open to the subscription program except certain low volume gear and storage area network systems sold by storage providers.

“For the right customer it makes a lot of sense,” said Zeus Kerravala, senior vice-president of research at Yankee Group. That may not include most enterprises, he said, where the size of staff doesn’t vary so their network demand is relatively stable.

On the other hand, he said, it might appeal to universities, which see student bodies swell in September and drop off in the spring.

Hosting providers, who could build the cost of a Brocade subscription into the fees they charge customers, might also be attracted, he said.

One of Brocade’s test customers for the subscription program is San Antonio, Texas-based Rackspace Hosting, which offers hosting, managed and cloud services. In a news release Paul Rad, the company’s vice-president of technology said the subscription model “provides networking capabilities on a metered basis as we need them, very much the same way our customers utilize our own services. The pay-as-you-go model reduces our capital outlay so we can invest in other growth areas of our business.”

Andre Kindness, senior network analyst at Forrester Research, said he’s “pretty bullish” on the concept because it will allow organizations to making “bite-sized” payments.

Other networking equipment manufacturers will adopt it if Brocade gains business, he predicted.