If you take stock of the network equipment earnings thus far, you definitely get a picture of an industry under pressure. I’ve commented on the main players as they’ve come out, and one of the common themes has been that you can’t expect network operators or enterprises to spend more when you’re presenting them with a static or declining ROI. More service revenues for operators, or more productivity gains for enterprises, are essential in preserving the health of the industry.
In this context, things like SDN and NFV are both risks and opportunities. For at least some of the supporters of each of these new initiatives, the goal is to lower the cost of network equipment, offload some high-value features to servers, and generally commoditize the market. For some, the goal is to improve network agility, support cloud computing better both as an end-user service and as a framework for building other services, and enhance operations. Clearly vendors with market share risks should be addressing only the latter goal and those who hope to gain market share might think about supporting both goals.
In truth, it’s hard to see what vendors are trying to do in either space. In the world of SDN, all of the focus of the centralized/OpenFlow revolution have been pushing what’s arguably control without context. An application (from what source? Not our problem) can drive a controller to make changes. Great, but it cedes the utility, the business case, to that undefined application. In the NFV world, the challenge is devising an architecture for hosting functions that can present significantly lower cost than current discrete devices would present, and at the same time add agility and flexibility. It’s too early to be sure whether that challenge can be met, much less will be met.
Our only certainty here is the notion of cloud networking. If we view applications as a set of components distributed over a pool of resources in such a way as to optimize both cost and QoE, we have a pretty good mission statement for both SDN and NFV. That kind of application vision is the inevitable result of the cloud, and that might explain our problem with creating benefit cases. If we separate the conceptual driver of change from the details of how and what gets changed, we’re likely going to lose any realistic view of ROI. What good is agile networking absent anything that needs agility? How valuable is centralized control if there’s nothing centralized to control anything?
We even need to think about the question of a “network”. In a traditional sense, a network is a collection of devices that are induced to cooperate in the creation of a delivered experience to a community of users. We induce that cooperation today through a series of control-plane, data-plane, and management standards. But if we were to view the network as a collection of components, of software elements, then we have no rigid distribution of functionality, no fixed set of things to connect, and no need for rigid standards to connect them. A service like content delivery can be abstracted as a single functional block distributed in any useful way through the cloud. It can be abstracted as a set of virtual components that make up that single block, and those components’ nature and relationship can be changed freely as long as the external feature requirements are met. In this situation, just what is an “interface”? Is a virtual device an analog of a real one, or just some arbitrary collection of functionality that makes service composition easy? Or is there never any such thing at all? The fact is that we don’t know.
There’s been a lot of talk about the impact of SDN and NFV on the network equipment space, and subscribers to our Netwatcher publication found out in the March issue that across all segments of the network infrastructure market, SDN and NFV would actually be accretive to network opportunity through 2015, and would diminish it thereafter. They also learned that SDN and NFV would be impacting nearly all network spending within five years, but that this would not likely result in major changes in market share. They learned, no surprise, that the fastest-growing segment of network spending was spending on IT elements to host features.
Amazon’s quarter should be teaching everyone something. The company’s profit line dipped because Amazon is making some massive investments in the future. Company shares have traded just a bit lower pre-market, but certainly they didn’t take a major hit, and this pattern has been followed many times before with Amazon. Network vendors should be thinking about this; if a company is investing in a credible future opportunity, the market rewards that investment in the long term, even in the face of some short-term pain. The years prior to 2016, the years when SDN and NFV will drive spending up, are the years when companies need to grab hold of the benefit side of the technologies, to take control of the “R” in “ROI” while it can be done without reducing net revenues. How many will be smart enough to do this? Based on what I’ve seen in both SDN and NFV positioning, not many. It will only take one, though, to change the market share numbers radically and put true fear in the hearts of the others.