Bandwidth on the Run

No free rides on the infobahn -- companies have begun to apportion bandwidth expenses by business unit, by user, even by application.
Anthony SibillinNovember 1, 2001

Bandwidth-laden wires are the arteries of a healthy E-business. Clog them with MP3 files, sports scores, and the like, and you risk starving individual business units of their data oxygen. So it is alarming that few companies pay much attention to who and what is responsible for the data that traverse their network.

Still, the reasons for this neglect are not hard to find. Business units think of bandwidth in the same way as electricity — as someone else’s problem, in this case, the IT department’s. The same goes for the finance department. It pays the service provider’s bill but asks for little in return by way of accountability.

But, even if asked, most IT departments would have little “accounting” to offer. Standard network monitoring tools spit out raw traffic information that’s unintelligible to business managers. As a result, CFOs are often forced to apportion bandwidth costs on headcount alone.

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Fortunately, the shortcomings of this crude approach — namely, that managers have no incentive to manage bandwidth used by individual staff — have not gone unnoticed by billing software vendors. Traditionally, they’ve helped bandwidth providers bill entire firms, but are now tweaking their products so that these firms can, in turn, bill their own business units.

Uni-X Software is one billing vendor that has already made this transition. Its product, OpenInformer, follows every byte that flows across a company’s wide-area network (WAN) and assigns it to a particular application, user, and business unit. At that point, says Steve Shergold, a marketing manager at the German vendor, CFOs can attach a price to a byte based on its business value and the firm’s overall bandwidth expenses. “And as soon as you put a price on it, you can begin to control it,” he says.

Lawrence Orans, an analyst at Gartner, an IT research firm, observes that this allows finance staff to raise invoices, but most aren’t yet doing so. “For now, they are using the software to undertake a thorough analysis of the traffic on their network,” he says. “Some are going a step further and introducing ‘shadow billing’ in anticipation of actually charging individual units later on.”

One firm that has introduced full-blown “usage-based chargeback,” as it is often called, is Lufthansa, the German airline. Its IT division, Lufthansa Systems, implemented Uni-X’s product at the end of last year and now charges all the firm’s business units for the bandwidth each one uses. Of course, not everyone is happy about the bill they receive, admits Joerg Lenz, a senior consultant at Lufthansa. “Some units now pay more than they used to [when charging was based on headcount], and some pay less,” he explains. “But because everything is transparent, they cannot really complain.”

Transparency can work both ways. Lenz concedes that chargeback has put pressure on Lufthansa Systems to offer value for money, and business units can even wield the ultimate sanction by taking their bandwidth business elsewhere.

For the moment, however, that isn’t happening. What’s more, Lenz is finding his pioneering efforts are attracting attention outside Lufthansa. Daimler-Chrysler, the German-American car firm, has asked his team for help in implementing OpenInformer.

And if analysts’ predictions for the chargeback market are right, more companies will soon come knocking on Lenz’s door. Gartner’s Orans says less than 1 percent of big companies worldwide have implemented a billing system for WAN and internet use. But he expects this to grow to 20 percent by 2004.

Counting Competitors

The opportunity is certainly attracting the interest of other billing vendors. Uni-X already faces stiff competition from U.S.-based Apogee Networks, which recently began selling its NetCountant Accountability software to European customers. Like OpenInformer, NetCountant Accountability is priced per IP address monitored. This works out to around $250,000 for an average installation.

According to Tom Goldman, Apogee’s president and COO, NetCountant customers achieve payback within three to six months. And this is applying the software only to bandwidth. As Goldman sees it, other IT services like storage are also ripe for chargeback. “It is not the IT department’s responsibility to tell business units what they can and cannot do, whatever the service is,” he says. “They should tell them the cost of the service, make them accountable for its use, and let them decide whether it is worth it.”

While this will undoubtedly improve relations between IT teams and other parts of a firm, there’s no telling what will happen to the popularity of finance managers when colleagues see their first Internet bills on their desks.