Koch Industries embraces networking as a service

Koch Industries has joined a growing list of enterprises where the IT organization is evolving into becoming a general manager of IT that is consumed as a service rather than via platforms built and maintained by an internal IT team.

That shift in the case of the privately held conglomerate not only encompasses cloud platforms but now also network services delivered via Alkira, a provider of a wide-area network (WAN) service that Koch Industries is starting to rely on to interconnect a highly distributed computing environment that spans the globe.

Rather than deploy, secure, and maintain routers, switches, and firewalls, along with all the hardware and software required to deliver enterprise-class networking services, it’s becoming more economically efficient to simply consume networking services much like any other cloud service, said Koch Industries CTO Matt Hoag.

Alkira constructed an Alkira Cloud Services Exchange (CSX) using $76 million it raised from Koch Disruptive Technologies (KDT), the venture capital arm of Koch Industries, along with Sequoia Capital, Kleiner Perkins, GV (formerly Google Ventures), and others. That WAN aggregates multiple points-of-presence that can be provisioned via a console that Alkira customers access as a cloud service. The security capabilities of the Alkira WAN are provided by firewalls and other offerings from Palo Alto Networks that Alkira also manages on behalf of customers.

The Alkira approach eliminates both the need to acquire networking infrastructure and the need to hire the specialists required to maintain it, noted Hoag.

The decision by Koch Industries to employ the Alkira networking service is part of a larger series of initiatives to reduce the amount of IT that needs to be directly managed by Koch Industries personnel, said Hoag. “We don’t have own or manage all the underlying infrastructure,” he said. “It’s not our business.”

Koch Industries has made a strategic decision to focus its internal resources on building applications that make a strategic difference to the business, added Hoag. Everything else going forward will be consumed as a service as much as possible. The plan is to elevate the role of the internal IT team organization to one focused on the management of services rather than, for example, installing networking equipment, noted Hoag.

IT as-a-service

The conglomerate is joining the ranks of an increasing number of enterprise IT organizations that have grown more comfortable consuming IT as a service. A recent report published by Information Services Group (ISG) noted demand for technology and business services continues to rise sharply as the economy recovers from the downturn brought on by the COVID-19 pandemic.

In the first quarter of 2021 the annual contract value (ACV) for as-a-service and managed services offerings that exceed $5 million reached a record $17.1 billion, up 11% over last year and 4% from the previous quarter. Overall, the cloud-based as-a-service market rose 15% to a record $9.9 billion in the first quarter. Managed services reached $7.2 billion in the first quarter, up 7% year over year.

It’s not clear at what rate IT will be consumed as a service by enterprises that have historically preferred to deploy and maintain their own infrastructure. Consuming IT as a service not only provides more flexibility to scale services up and down as required, but it enables organizations to finance IT as an operational rather than capital expense. The financing option frees up more capital that can be invested in, for example, a manufacturing plant rather than servers, switches, and storage systems.

For the time being, the bulk of IT systems still reside in on-premises IT environments that are managed by internal IT teams. However, even on-premises IT environments are being increasingly managed by vendors such as Hewlett-Packard Enterprise (HPE) and Dell Technologies or third-party managed service providers (MSPs).

It’s not clear how the rank and file that make up IT teams will ultimately be impacted by this shift. Many of them will wind up working for IT services providers. Others will evolve into managers of services provided by those third-party providers. However, as IT services become more automated, it’s clear the number of IT professionals required to manage IT may not be as large as it is today.