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When Etienne Handman wants to buy a Cisco Systems Inc. router, he doesnt call Cisco or one of its resellers. Handman first clicks through deals on online auctioneers such as eBay Inc. to see what kind of deal he can get on used equipment.
And since the plunge in the technology market, the deals have been good. The last time Handman, chief technology officer at online lender E-Loan Inc., bought a Cisco 3640 router on eBay, he paid 22 cents on the dollar compared with what he would have paid for a new one—about $1,000 for a router that new goes for about $5,000. This year, hes planning to spend almost half of his companys networking-gear budget—primarily for products made by Cisco, 3Com Corp. and Check Point Software Technologies Ltd.—on eBay or other sites offering used IT equipment.
“Ive always believed in getting value, and you can buy late-model used at a savings over new,” said Handman, in Dublin, Calif.
Judging from the ongoing flow of bad financial news from the networking industry, Handman is far from the only IT executive pinching pennies on networking gear or holding off on purchases. While reports such as a recent CIO survey by Merrill Lynch & Co. Inc. indicate that IT budgets should rise 3 percent this year after dropping 1 percent last year, spending on communications equipment remains stuck in the slow lane, with only a 0.5 percent increase forecast for this year. That comes after a 2001 that saw a 16 percent decline in revenues for networking-gear manufacturers compared with 2000, according to In-Stat/MDR, in Phoenix.
The glut of networking gear on the market—a legacy of the telecommunications and dot-com startup era—is only part of the problem that continues to plague the industry. As they gather at this weeks NetWorld+Interop show in Las Vegas, vendors are also struggling to cope with a market in transition. Enterprise customers are no longer focused just on expanding networking bandwidth to satisfy the needs of internal operations; theyre now more interested in figuring out how to better connect remote telecommuters, offices, customers and consumers at speeds as great as those on the enterprise network.
Until flexible, inexpensive broadband access and service offerings such as reliable metro Ethernet are there to let them do so, however, IT managers said theyll hold off on many new, key, networking-gear purchases. When they do spend, it will be for specific network needs such as better security through virtual private networks and authentication technologies. And it will be with an eye toward rock-bottom prices.
“The enterprise has done just about all it could do within its own purview,” said Michael Kennedy, managing partner at consultancy Network Strategy Partners LLC, in Boston. “In the next wave of investment in enterprise networks, [spending] has to be tied to the customers getting the services and having broadband access.”
Matt Kesner, CTO at law firm Fenwick & West LLP, in Palo Alto, Calif., is waiting on just that kind of flexible, affordable, broadband access before investing in VOIP (voice-over-IP) applications and gear. Kesner finds himself in a common trap: He needs more bandwidth, but the next-highest offering available to him includes more capacity than he needs at prices beyond his budget.
In Kesners case, two-and-a-half years ago, the law firm needed to move beyond a T-1 line providing Internet access for all three of its locations. The only option seemed to be to move to a traditional T-3 connection with 100 times more bandwidth than the firm needed and at a cost of $18,000 a month, rather than the $1,800 Fenwick & West had been spending on the T-1 connection.
Just before Kesner was to sign for the service, however, he found an alternative: startup Yipes Communications Inc., of San Francisco, which offers metro Ethernet services. He liked what he saw. He could get the bandwidth he wanted—10M bps—for about $6,000 a month. Kesners problem seemed solved until March, when Yipes filed for bankruptcy protection, a victim of a depressed telecom market and high operating costs.
While Kesner remains happy with the Yipes services and hopes the provider will survive, hes had to begin planning for alternatives and is finding that incumbent providers such as SBC Communications Inc. have been slow to embrace the flexible bandwidth of metro Ethernet services. Kesner is worried he may be forced into choosing from among less desirable options such as DS-3. Meanwhile, hes had to go slow on VOIP. Uncertain broadband access and problems getting fiber-optic cabling installed have so far limited Fenwick & Wests plans to install VOIP on the desktop to a trial of Ciscos AVVID products.
“That nirvana where people like me could buy more and more bandwidth at cheaper and cheaper prices seems to have disappeared,” Kesner said.
Fast, flexible WAN and Internet access delivered by technologies such as metro Ethernet will be critical for the development of next-generation network services—and increases in enterprise networking spending—experts say. Metro Ethernet, for example, can deliver up to gigabit speeds over a WAN. And that can help alleviate a common bottleneck created by the disparity between LAN and WAN speeds, said Michael Howard, principal analyst and co-founder of Infonetics Research Inc., in San Jose, Calif. Technologies such as metro Ethernet could lead to greater adoption of new network applications—from videoconferencing and streaming video to storage area networks and converged IP and voice.
So far, however, metro Ethernet startups such as Yipes have struggled, and large service providers have been reluctant to roll out offerings such as metro Ethernet in part out of fear of undercutting existing services, experts say.
“What needs to take place is not on the infrastructure side but in the service and pricing model, where carriers are comfortable rolling out metro Ethernet and are not undercutting their base of frame relay and T-1 service,” Howard said.
Bottled-Up Spending
But theres more holding up new networking investments than the unmet enterprise need for faster, more flexible connections between enterprises and backbones. For Robert Rosen, CIO at the National Institute of Arthritis and Musculoskeletal and Skin Diseases, the difficulty linking telecommuters to his enterprise network at broadband speeds is his biggest network bottleneck today.
The institute, part of the federal National Institutes of Health, in Bethesda, Md., is under a federal mandate to allow 25 percent of its workers to telecommute. As the institute pushes toward that goal, however, its finding that high-bandwidth services to homes are still not universally and easily available.
“[Digital subscriber line] is a pain as well as ISDN, and thats soaking up an inordinate amount of our attention in just making those things work,” said Rosen, an eWeek Corporate Partner. “Thats the next bottleneck we have to attack.”
But while companies are searching for more and better bandwidth options in their extended networks, many are finding theyve made more than enough investments in internal LAN capacity in recent years. Cornell Universitys Johnson Graduate School of Management, for instance, isnt begging for more networking capacity on its LAN. In fact, when the Ithaca, N.Y., school moved into a new set of buildings five years ago, fiber wiring was laid throughout the facilities. But so far it has remained dark, as speeds on the copper-line Ethernet LAN have increased with technological advances. Kevin Baradet, network systems director for the school, doesnt regret the investment but, he said, for now, the high-capacity fiber will remain dark pending a surge in demand.
“For the short-to-medium time frame, were OK on wire capacity and have put our effort into security because that is what the threat to reliability and maintainability of the infrastructure is,” said Baradet, also an eWeek Corporate Partner. “Even if you have infinite bandwidth, its no good if you cant have access to it and have your data secured.”
So, will the bottlenecks restricting networking spending ever clear? Yes, say experts. But even networking vendors said they realize it will be a long, slow, uphill struggle between now and when enterprises significantly increase networking spending once again. Graham Celine, vice president of solutions management for Avaya Inc.s multiservice networking infrastructure solutions group, in Basking Ridge, N.J., said he expects demand for networking gear wont improve significantly for about two years, when cutting-edge applications such as VOIP, streaming video, videoconferencing and other multimedia capabilities become more mainstream.
“[Enterprises] want to make sure that what theyre doing is the right thing, whereas before, theyd buy a network from us, and that was it,” Celine said. “This bout of bad economy is going to be very sobering for the industry.”