Inside Packet Fabric's Cloud Networking Price Disruption

Packet Fabric just made a very interesting marketing play that could forever change the cloud networking industry by announcing flat-rate cloud connectivity pricing of 1 Gbit/sec per month for $100.

PacketFabric will now offer hosted hybrid cloud connections up to 1 Gbps per month for both metro and long-haul capacity in the United States and Europe. Bottom line: $100 for 1-gigabit speeds across the country is, well, pretty cheap.

The launch came with some flashy marketing and entertainment. Russ Hanneman, the fictional billionaire from the cable comedy show Silicon Valley, loves the idea -- and introduced the new offer.

"One Gig for 100 buckaroos... " said Hanneman (played by Chris Diamantopoulos) in an ad produced by PacketFabric. "You can instantly create private and secure cloud connectivity to cloud service providers all for $100. I mean, if that doesn't make you feel so oowy-oowy-woo inside, than I don't know what will."

PacketFabric says in a company statement that this strategy "makes cloud connectivity egalitarian across the tech landscape."

It's a bold play and Hanneman makes me laugh. But let's drill down into the technology specifics to find out why it's possible and what it means.

Another Assault on MPLS

So... why does this matter? One of the real people behind the story -- PacketFabric CEO Dave Ward -- explained it all this week in an interview with Futuriom. Earlier this year, Ward left a high-profile job as Cisco's chief technology officer (CTO) and chief architect of networking and security to become PacketFabric's CEO.

PacketFabric has drastically lowered cloud connectivity and bandwidth pricing to make it the same for metro or long-haul, says Ward. Most network providers charge higher fees for long-haul connectivity between regions.

"What we did that’s fundamentally different is we took out all long-haul pricing," Ward told us. "The entire U.S. is considered a metro area, for $100 a month, one Gig. That is a big Internet business architecture change. Other telcos are going to give you a cloud on-ramp pricing and then they are going to give you a long-haul pricing. We extended it all across the country."

This is a classic disruptive play on the industry, which leads to the next question: Is it just a bold grab for market share with venture-capital money? No, says Ward. When I asked him if PacketFabric will lose money on this offer, he said, "Absolutely not."

How can they do this without losing money? Ward, who at Cisco helped some of the largest enterprises and service providers in the world design networks, says the legacy networking service providers are inefficient and are still dependent on artificially high pricing of MPLS networks.

Ward says the new economics of PacketFabric's own network fabric, driven by next-gen routing technologies such as Segment Routing MPLS (SR-MPLS), replicate the security and efficacy of legacy MPLS while lowering the cost of delivery. Ward says PacketFabric can lower the cost of by using its own equipment and leased fiber, without the overhead of large service providers.

In addition, Ward points out that PacketFabric has built a mesh network -- or "fabric" -- to connect various Internet peering sites and cloud points of presence (PoPs), rather than selling expensive point-to-point MPLS or Ethernet links.

This development is likely to point to pricing pressures and challenges in the established telecommunications industry, which charges high fees for fixed private networking, often locked up in long-term contracts.

The move by PacketFabric could also point to the acceleration of the demise of expensive leased lines based on MPLS, the legacy networking technology that was used to connect private data centers and was first assaulted by the software-defined wide-area networking (SD-WAN) vendors.

Extending SD-WAN into the Cloud

PacketFabric, as well as a large group of next-generation cloud connectivity providers such as Alkira, Cato Networks, Megaport, and PurePort (as well as many others), are taking a playbook out of the software-defined wide-area networking (SD-WAN) market, which used more efficient and flexible virtualization technologies to replace MPLS for enterprise branch and data-center connectivity. PacketFabric is doing to the network core what SD-WAN has done for the enterprise WAN.

Says Ward:

"MPLS as a technology is not expensive. Services delivered by a telco or a cable company are expensive. That architecture, when you build an MPLS VPN — point to point or point to multi-point, is a statically built MPLS. PacketFabric uses MPLS but we have built a fabric. When you get a port, you can get to any of the public clouds just by getting on the fabric. We don’t build a static VPN. What’s expensive about what the telcos build is the static networks and the high operations costs. It’s the legacy operational environment. Because we are cloud-based, API-driven platform, we do not have that huge operational cost."

Interesting stuff, from the man who helped build MPLS and router solutions for the telcos at Cisco. PacketFabric's bold cloud connectivity pricing plan is likely to have reverberations in the industry and point to yet more disruption for incumbent service providers.