Let's face it, paying for a reliable, high-performing campus wifi network isn't easy or cheap to do. Budgets are often tight, and wireless is just one component (although mission-critical) of the overall higher education IT landscape.
How do colleges and universities pay for today's modern campus wireless networks? What does it cost? How has the technology changed and how has that impacted budgeting for Wi-Fi? What options do colleges and universities have when funding is difficult to secure?
In today's Wi-Fi Deep Dive, Philip Wegner (CEO at SecurEdge Networks) explains the financial aspects of proper wifi planning in higher education, and offers his advice on how schools can budget and purchase the wireless platforms they require today.
Welcome to another call. I appreciate you joining me today.Hey, man, sure.We did an interview about a week ago so now with a college and it kind of brought up some questions that we've been talking about, specifically about financing and how people pay for what we provide, wireless LANs and other things. It just got me thinking. I want to pick your brain again about, specifically, how colleges and universities are paying for wireless technology today. How much does that generally cost and why does it cost what it does today?
It's kind of a loaded question because there's a lot of ways to answer that and it kind of depends on the customer's current environment, but I can give you some kind of general guidelines. Most often, when we get a call from a school, they've got a wireless design that was done three or four years ago, and that seems like not a long time in most standards. But when it comes to technology and WiFi, what's happen on college campuses is that the average student is now carrying three and half devices per student. We've seen up to 12 devices in dorm areas and stuff like that which is absolutely insane.
What's happened is that the technology has changed so fast. So it's gone from being primarily a coverage model, which was really three, four, five years ago when you think about it because we were primary carrying laptops. iPhones, smart phones, and stuff like that we're still kind of up and coming. iPads and stuff, I think iPads were 2009. But still, most people didn't have them. So what's happening on college campus is it's just exploded. So you're gone from being a coverage model, if you will. So if you take an access point, an access point can cover up to 10,000 square feet in an environment. But I've gone from being able to use laptops to having a bunch more devices. And so I've gone to being more of a capacity model.
And then what's happened as well is the devices have gotten smaller and smaller. So the ability of the device to communicate with the access point's become harder and harder. I'll explain that really briefly and then we'll get back to the financial side of this because I know that's what you really want to talk about.
But think about it as wireless is a two-way medium between a device and an access point, or WiFi is. And so if the device that I'm talking to has less power, it has less ability to communicate back with me effectively. I'm an access point broadcasting a signal in a large area. And so what that means in a college campus is now, I've gotta plan for the capacity of how many people I've got and then I've got to move the access points closer to the end user.
So the answer...and I say all that to say when you're asking the financial question, a lot of what happens on a college, I can quote like, "Hey, here's how much it costs for access points and all that." But what you have to consider is what does it take to redesign that campus network to be a capacity-type infrastructure, and what does it take to move those access points closer to the devices?" Because effectively, otherwise, campuses, you're really just carpet-bombing with access points because you've got to get those access points closer. Some campuses already have enough infrastructure there to do that pretty effectively, pretty easily, and some campuses don't. But I can quote you some numbers on the access points if you like.
Okay, so you kind of think of it as in ranges as capacity. So if I have an area where there's not a lot of students, for example, I can put an access point in there for \$500, \$600 even because it's lower capacity. It doesn't require a lot of the high-end processing. If I go into an area where there's, like a conference hall or a cafeteria or student center, those access points need to be really high-density APs because I might have hundreds of people in a small area. And so in areas like that, you're talking more like \$1,000 per AP up to \$1,500 per access point in areas like that.
Yeah, do you think schools, when they start to look at either starting new or updating their existing infrastructure, you think when they start to hear these numbers, do you think they're more surprised by these numbers, or do you think it falls in line with what they're kind of expecting?
No, I think like the call we had or the article that was posted in that student paper last week or so, it's hard to say what exactly the challenges are because these are really complex infrastructures. Not only the cost for AP is the challenge, I think the challenge is the design is really complex and most administrators of schools don't realize how fast the design has changed. And in their mind, they're thinking, "Oh, we just did that three or four years ago. We should be good to go." And it just changes too fast for that.
But I think on a cost per access point basis, I don't really think they're surprised. I think the surprise comes in when they realize, "Hey, I have to redesign this whole thing." And some schools don't redesign. They just go with what they had previously as far as infrastructure and then they just change the access points. And that's when, I think, a lot of times you see in problems is that they don't realize that the design has to change with the technology.
Right, so they go in and they have the same design and they just say, "Well, it's been three or so years. Let's just put the newest access points, crank them up, and we should be fine with that same design." However, you're saying that's not the case.
The classic one is the AP's down the hallway, where the design used to be. "Hey, we're gonna put an AP in the hallway," and this is the coverage model. And then the AP is omnidirectional effectively so it's gonna cover, hopefully, the dorm areas. But the dorm areas were on high capacity. And then the technology change.
Now, it you have AC, for example, AC WiFi, and you have it down the hallway, it actually degregates the performance in a lot of the manufacturers' platforms because it's a reflective technology. It actually makes the performance suck, worse, so you've gotta actually move that into the dorms which is a pain for the campus network because they've gotta figure out how, "I, now, have to wire something into the students' dorms." That's really inconvenient. But the good news about that is that once you do it once, that design should stick through a few iterations of the newer technology. So it's just a pain for the campus. So a lot of times, you just get on the hallway, replace it. And then they spent millions of dollars.
We actually had a...not the article we had last week but we had another customer a couple of weeks ago, or another, they were a customer. They called in because they were having problems. And the director called and said, "Hey, we just spent millions of dollars upgrading our infrastructure and it's worse than what it was with the old technology."
That's probably the worst-case scenario.
Worst-case scenario. I felt bad for...but the issue was the design. They stuck with the old design. They spent millions upgrading infrastructure and then they call us in a panic. And it can be fixed.
But with your design, if you designed it wrong, does that mean you possibly spent more than you needed to on the equipment because the design was improper? Or maybe you didn't spend enough because you don't have enough infrastructure because your design didn't call for enough and then you have to go buy more, or in the case, sometimes, you bought too much?
Well, I've seen it both ways. We had a...and I'll give a couple of examples. One school that we worked with, and they heard from the manufacturer, "Oh, we need to put an access point in every classroom." Of course, the manufacturers are pitching that. And sometimes, that's a good design. Sometimes, it's not, depends on what the walls are in between the classrooms, the meeting halls. What happens in a lot of cases is it creates too much interference with the access points. So we've seen some scenarios where they've overbought and they just spend way too much money. We went in there, and part of what we had to do to make it work correctly is we were turning off access points. So now, I purchased all these APs that are sitting on the shelf because I don't need them.
And then we've also seen the reverse obviously, which is there's no design and they've designed a coverage and it's wrong and nothing works right. Because when the system gets overloaded, it doesn't perform well. And so we've had to do it as well. But the short answer is that you have to have a good design. You really need somebody to work with you on that side. Otherwise, you're gonna overspend, you're gonna overspend.
You kind of wonder what feels worse, knowing that you spent too much or knowing that, thinking you got a good deal and now, you have to shell more money. I don't know what would feel worse on the end user.
I think both situations suck because you got to explain to somebody else why it's wrong.
I guess, if you overspent, you probably just hide that, "We reallocated some access points." If you understand, then I've gotta go back and ask finance for more money. That's probably bad.
So then, when looking at colleges, universities, how are they typically, when it actually comes to money, how are they actually buying their net, their system platforms, their systems? Is it one-time capital expense or is it...are they funding some of this stuff?
Typically, there's three ways we see it, and I'm gonna cover the first two now and I'm gonna cover the third one, which is the one that I'm gonna preach on. The first way is you capitalize in the building. So I'm building a new building. I've got a bunch of money. If I'm building a building for \$15 million or \$20 million, whatever, then your technologies are rounding it. So I add in a \$100,000 for that. It's not a big deal because I've already got the funds. And that's the way a lot of people do is they capitalize it, tie it into that building and infrastructure, and that's a great way to do it as long as they're prepared to upgrade it through three years.
And then the second way is that every school has a certain amount of ongoing budget. The challenge with the ongoing budget, the operational budget, is that they'll go and they'll put a certain amount in that operational budget or in that yearly budget, if you will, if you think of it as yearly. And I go to my higher ups and every year, I say, "Hey, I need a certain amount of money," and that changes year to year based on budget. So a school might say, "Hey, I want \$300,000 this year or \$1 million this year to upgrade my WiFi infrastructure," and they go, and that money may or may not be approved, and then that gets put into their budget for that fiscal year, okay?
Now, and that, typically, is a yearly cycle. And they figure out what they need to do and they go present it. And then every year, they go to that process of asking for money. And then it's just a decision if they have the money or not. Then the third way, and this is really kind of the more...and this is, I'm going to call it progressive because I think it trains the campus to think of it the right way. And then a lot of these big organizations like Cisco or HP or whatever, all these big manufacturing companies or these big technology companies, they typically have an arm at that company that does finance. And a lot of people don't really think about it, but their job is to sell more of the products. So if I'm Cisco Capital, my job is to sell more Cisco equipment. If I'm HP Capital, my job is to sell more HP equipment.
So when you look at...yes, they are financing arm, yes, you pay a percentage. But when you look at it from an HP's perspective, their job is to drive product sales. And they have a division that just does, effectively, leasing, which is financing for a customer. If you do that on a \$1 buy-out, when you look at the numbers, it does a couple of things. One is I can buy more products at once, which if I buy more products, if you buy \$100,000, you get a certain discount. If I buy \$1 million, I get a much deeper discount. So when you look at buying it in bulk, you actually lower the cost of the equipment overall, which means that you get bigger buying power and then it pays for the financing, if I make sense. So you can wrap something in.
The other thing you can do if you do it that way is you can tie that capital or that money into the refreshed cycle of that equipment. And the problem that we see a lot of times is that customers don't think of it as, "Hey, this is just like power. I have to have power to the building." You never question, "Oh, I'm gonna spend \$1,000 a month on power for this dorm or whatever," but you do want WiFi because I've capitalized the WiFi and the other environment. "And I've got to go back for money three or four years to get it again." And that's why you end up with the college campuses infrastructure. It's been there for seven years. We have some schools literally, that we installed in 2008, I think, and we're just done refreshing that, and the technology is so old and so crappy.
It's terrible. And the students complain. It goes up to the student council. They're writing about it on newspapers. And then finally, the executives of the school approve it. "Okay, we can't...we're losing students if we don't upgrade. So we're gonna have to replace this WiFi." But if they would have, and this is just my opinion obviously, finance that on a four-year refresh cycle with the \$1 buy-out, you go and buy it all one time from HP Capital or Cisco Capital, whatever, depending on which infrastructure you've got, and then you finance that out of four years, and then at that four year period of time, you can buy the equipment for a dollar, which means you've effectively, you're just financing a year, or you go refresh it.
But what you've done is you've trained the CFO of the school to think of this as power. I've gotta spend a few hundred thousand dollars a year on power. I've gotta spend a few hundred thousand dollars a year to get my WiFi infrastructure up to date. That's kind of what we typically...
So they're ending up paying for it, and that scenario almost sounds like monthly or annually?
It's all monthly. Just like a recurring bill you have for anything.
Yes, so instead of...the way it works for the CFO...instead of going to the CFO every year...because every year, you're having a fight, right?
Every year, you gotta go, "Hey, I need half a million dollars, I need a million dollars to upgrade WiFi." They always say, "No. What do you really need?" "Well, students are really complaining at this part of campus so how about give me half of that." So you're always in that fight. Well, when you know that it's always gonna be a refresh in the network every four years...I mean, that's what's happening right now is, really, four years is your max. You can really push it.
And so you just put it on a four-year refresh cycle and then you're going to the CFO. Instead of saying, "Hey, I want a million dollars," you're going in and saying, "Hey, I need \$300,000 a year." And that's it, forever. And that's the hard part from the CFO's perspective is you've gotta have, you've gotta budget every year as an operational versus a capital cost. But when you think about WiFi the way that you should be thinking about it, and that is, "Hey, man, this is just like power in a building," you've got to sell that kind of thinking, I guess.Like a utility.
So really, that's sort of a new...is that new?
Not really. I think what's new is how fast the technology changes. As soon as we had smart phones, the smart phones were on the network. We upgrade our smartphones, when you think about it, about every year and a half.Maybe even quicker sometimes.
And the technology change is always better, always faster. And then there's a complete refresher technology, in other words, the chips that your phone is using completely changes every three years. So you go from N to AC Wave 1, and then you go AC Wave 2, and there's already the next favor of WiFi that's coming out. And all those chipsets, they change. So you've got to keep up with that technology. So you can only push up that refresh cycle three or four years before your system just can't communicate effectively to those devices, unless it goes back to the old stuff. It's the way it is today and I don't think it's ever gonna...we're never going back to not having it changed fast.
Now, I know in K-12, they have things like e-Rate, stuff like that. Do colleges and universities have any sort of grants or programs available?
Yeah, there are all sorts of grants for colleges, specifically public schools. Like South Carolina, for example, or North Carolina, or most states have some sort of state contract that gets them specific discounts. Some of the schools, they do get funding and they're always applying for funding and they come from all sorts of different sources. So, yeah, they just have to figure out what grants and funding programs are available to them. But most states have some sort of contracts to give them discounts, and then most states have funding programs for higher education.
What would be your ideal situation in terms of a college university? They would go do the design, like in terms of a process of, "Okay, we need to update our infrastructure," what would be that ideal process to you in terms of getting through that process, figuring what you need, and then making the purchase?
Well, I think you have to start with a proper design. It's kind of obvious. But you've got to be able to design the campus for a high-density WiFi in a lot of areas and provide that.
And you were telling me, though, that when we do a design, do we love lump that cost that...you were saying something that we give that cost back if we end up doing that?
Yes, we're very flexible in how customers wanna fund it. In some cases, we might wrap it into the total project. In other cases, they might pay for all the site surveys and stuff like that up front and then we'll credit them that back in the main project. Just depends on how they...literally, we've been doing this for so long. We've done all sorts of stuff to get creative with whatever the customer needs as far as financing goes.
How many colleges and universities are typically doing managed services?
Almost everyone. As a matter of fact, I think everyone. I think the only difference is what managed services. Some of the colleges, they have a great staff. They have wireless engineers on site and that, really, we're just here as overlay. I had a call of a school yesterday, though, that has three people...I think they had 2,500 students and less than 5 people on their total IT staff, including help desk. So just like that. A school like that, we would take a much more active role. And in that case, we would effectively, we would manage it because we can do something like that as a fraction of the cost of what they'd have to pay to bring in a true engineer. We can dedicate 5 or 10 hours a month to that customer and manage their WiFi. I don't know of a customer we have that doesn't have some sort of ongoing...Some sort of layer of advance services.Depends on what they need.
And then when they purchase that though, if they're purchasing on a traditional model, do they have to then come and ask money for that, too, or is that looked at different?
Yes, so usually, we just tie that into their operational, so they're ongoing budget. It's not expensive when they're gonna have to capitalize it. If they're doing a campus upgrade, we would tie it into that. But some customers are just on a yearly basis, just buy support, and they just put it in their budget. So they're CIO has it in his yearly budget to have us in there.
Okay. So really, you just recommend doing the design first, getting that square away right, and then obviously from there, you understand the cost of your update or your new network, whatever. And then from there, you have some options. But it kind of feels like you're saying you should at least start to consider looking at it in a new way. Obviously, it's been one way for a long time, so getting to that to switch might be a little bit different for some people. But the value is there, seems like.
Yes, I'm just saying that if you consider wireless as a service, if you will, which I think is the way you kind of have to consider it, is that when you're looking at these campus upgrades, you should consider looking at some of the financing options that are available. And that requires a discussion with the CFO and that requires a little bit different thinking. So now, if a school has sitting on millions dollars in capital and they just want to spend it, we just never have that conversation. Usually, the conversation we always have is we have a whole bunch of stuff that's broken. We have a limited amount of money on how we're gonna fix it. And so, "Hey, we know we need, we should be spending \$1 million right now, but we're gonna spend \$200,000 because that's what we have, and then we're just gonna let students complain for another year," right?
That's usually the discussion we're having. And what I'm saying is if you go to the officers, the CFO and the executives, and you say, "Hey, this is something that is really critical for students. We need a budget every year for it, this amount of money. We've done a campus design. Here's what's gonna take to do it, and you can consider this a yearly number forever." And that's something that you have to discuss with that level and really sell that idea of, "Hey, this is something that we have just have to have on campus. It's just like any other critical service." So I think once you get over that hurdle, you can get the school on a sustainable system and you get it on a consistent refresh cycle. That's kind of the advantage of it.
That's really interesting to see how it sort of evolve in that way. To me, it just seems like a unique way to...actually, kind of seems like an obvious way, if it's available, to maximize the money you have and never really fall behind.
That's a cool thing to know, that it's potentially available to some people, at least to start thinking about. Well, I appreciate you jumping on with me, man, and chatting about some finance stuff. We don't really ever talk about...well, we do but not that often on, well, how people are spending their money.