Price competition and erosion of margins have forced network operators to create new value-added services and to enhance existing services. Service Providers speaking to KEMP see opportunity in cost optimization, especially in rethinking procurement strategy within the managed networks they build and run for Enterprise and Government. Projects to redesign supply chain, optimize Capex and Opex are not new for Service Providers and have shaped the discussions KEMP Technologies have around licensing our products.
To understand why CIOs and CFOs across wider industry continue to shift IT investment from Capex to Opex it’s important to understand these financial accounting terms. Capital expenditure (Capex) is money a business spends on major physical goods or services to expand their ability to generate profits. Operational expenditure (Opex) is the money spent on a regular basis to run a business or system. Unlike Capex, operating expenses are fully tax-deductible. Organizations are looking for more of the IT resources ordinarily obtained through capital expenditure to have its cost assigned as Opex by choosing alternative ways to consume rather than purchasing it. This can be a financially attractive option for companies improving their cash flow and preferring to deduct the total item cost for the year.
IT Departments within Enterprises have always faced challenges in planning capacity to deal with the peaks and troughs usage of normal network and applications environments. Peaks and troughs in business demand are standard for e-commerce retailers who typically experience a surge in sales before and during festive periods. Similarly, insurance companies have huge increases in demand during the last quarter of the financial year. At other times during the year application usage may shrink. Traditionally Service Providers have encouraged Enterprises to sign 3-year and even 5-year contracts by offering discounts which have put IT decision-makers in the position of pre-planning budgets for 3-5 years of usage. As IT environments become more complex with both on-premises and cloud-based technologies coexisting, predicting the enterprise application usage of large organizations over a 3-year period is bound to result in excess capacity as well as times when there is a lack of capacity. Enterprise application usage rising above what may have been predicted 1 or 2 years earlier results in a significant reinvestment to get the infrastructure to support those needs as well as even higher possible usage. Again, waste happens when or if usage decreases. The ability to offer flexible consumption models for services such as load balancing enables Service Providers to respond to these changes while delivering consistent performance for their Enterprise customers.
Service Providers regularly tell KEMP their preferences for payment based on the amount of traffic their customers put through a load balancer. KEMP’s response has been to offer Metered Licensing which allows Service Providers to preserve cash flow by aligning service costs to the exact usage patterns of their customers. Services are profitable from day one, have no contract period lock-in and offer the flexibility to scale up and down without penalties as the customer demands change.
KEMP application delivery product offerings enable Service Providers to scale and secure the environments they use to service their customers without restriction on instance count. Our Metered Licensing Agreement (MELA for short) offers Service Providers a scalable and profitable way to enhance existing services and scale as their business grows, while minimizing upfront infrastructure costs. The flexibility of Metered Licensing benefits customers and allows KEMP help customers drive success in their business.