It’s Time to Take a New Look at Transformation (Because We’ve Messed Up the Old Way)

If the biggest question asked by kids in a car is “Are we there yet”, it’s a question that could be applied with a small modification to our network transformation activity.  My suggestion is “Are we going to get there?”  The turn of the tide in publicity on NFV and even SDN is clear; we now see a lot of quotes about failures to meet business cases or issues with operations costs or agility.  I’ve suggested that it may be time to jump off the NFV and SDN horse in favor of something like CORD (Central Office Re-architected as a Datacenter) just to get some good ink.  What’s really happening with the SDN and NFV opportunity.

I ran my models over the last couple days, and interestingly enough the forecasts of the pace of benefit realization from SDN and NFV haven’t changed materially over the run last quarter.  So if somebody asks you whether SDN or NFV have failed, they have not—providing we judge them by my numbers on their realization of benefits.  They’re still on track.  One thing happening now is that my numbers, which were modest to the point of being unappealing to vendors, are now (without changing) becoming mainstream.

It’s the other thing that’s happening that’s important.  The impact of SDN and NFV on vendors is becoming more unfavorable, and that is probably the reason why we’re seeing a change in the tone of coverage on SDN and NFV.  There are more vendors than operators, more salespeople trying to make quota and disillusioned with their progress.  All that griping is coming to the surface.

The long-term impact of SDN and NFV, implemented properly, would be to realize a reduction of about a third in “process opex”, which equates to about ten cents per revenue dollar.  Right now, operators would be prepared to spend about six cents additional to secure the ten cents of benefits, so the opex improvements could increase capex by that much, which is more than 27%.  That’s an opportunity that would make the average sales management type salivate, and while these exact numbers aren’t usually shared or even known, it’s why SDN and NFV have been exciting to vendors.

When SDN and NFV first came along, it was generally expected that there would be a period of technology build-up during which costs would actually run ahead of benefits.  Operators know that “first cost” or pre-deployment in advance of benefits, is a given in their world.  As a result of this, my original forecast for 2015 and 2016 showed capex actually increasing due to SDN/NFV, and then tapering down after the positioning deployments were complete in 2018.  Obviously we didn’t get SDN or NFV in quantity in either year, but most significantly the SDN and NFV we did get was the “Lite” version that didn’t really change infrastructure much overall.

Had we gotten a strong SDN/NFV benefit story in 2014 we could have expected to see an improvement in operations efficiency and service agility two years earlier than the model now says we will.  That would have created enough opex/agility benefits in 2015 and beyond to largely eliminate pressure by operators to improve profits through capex reduction.  Since we didn’t get the benefits early enough, operators have embarked on a new approach that’s likely to reduce capex, and we’re seeing the signs of it now.

The biggest indicator is the interest in open-source.  Why do we now have four primary open-source activities associated with NFV?  Answer:  Because we didn’t get the right result through specs alone.  Operators have relied on vendors to support transformation, to field offerings that made business cases and to take the risks and absorb the R&D costs associated with transformation.  It’s harder to do that when a technology is expected to reduce spending, because those vendors are now being asked to invest in their future loss, not their future profit.  Operators now want to drive the bus for themselves, and they can’t do that in a standards body because the US and EU (for example) would then accuse them of anti-competitive collusion.  Open source offers a possible solution.

It also creates a pathway that further erodes benefits for the vendors.  Can you make money selling a full-spectrum NFV solution?  Yes, as long as somebody isn’t giving it away, and it’s very obvious that operators are advancing their open-source approach to the critical aspects of SDN and NFV—the high-level service operations and orchestration stuff that makes the business case.  If they succeed, then SDN and NFV will be commoditized where it matters most—where the story meets the budget.

This isn’t a slam dunk, though.  The SDN/NFV vendors could still pull their chestnuts out of the fire, providing they took some critical steps.  Open-source isn’t a rapid-response approach, and it may be years before the right solutions to all the critical problems are in place.  Right now, we don’t see an indicator that open-source projects already out there are addressing everything they need to address.

The first problem is opening the ecosystem.  With both SDN and NFV we have a new architecture that’s composed of a bunch of elements from different sources.  NFV is the most complicated—virtual functions, servers, managers, orchestrators, not to mention operations and management processes and lifecycle tools.  All of this has to fit into a defined structure, which we have yet to define.  What isn’t defined isn’t going to connect, and that means custom integration and substituting professional services costs for capex.  A vendor could create an open framework broad enough to fit all the elements, and systematize the building of the new network.

Every component of SDN and NFV has a place in an overall model.  There should be a set of APIs that represent all the connections, and these APIs should be defined well enough to translate into software without additional work.  Everything that has to connect to a given API set then has a blueprint for the changes that will be needed to support those connections.  Vendors could produce this, at least those with a fairly complete NFV implementation.

The second problem is educating the masses.  While it’s an exaggeration to say that vendors think all they need to do to sell SDN or NFV is to go to the operators’ headquarters with an order pad in hand, it’s not that much of one.  In the last month, almost two-thirds of vendor sales personnel who’ve emailed me on their activity say that the problem is the operator doesn’t understand the need for modernization.  When you dig in, you find that means that the vendor sales type doesn’t know how to make a business case, so they’d like the buyer to forget it and just transform on faith.

We need people to understand where NFV and SDN benefits come from and how they can be achieved.  When you say “capex reduction” how much money is really being spent on the equipment you’re impacting, as a percentage of total capex, and what realistic percentage of change can be expected?  If there are assumptions about economies of scale, how much will it cost to reach that scale?  If you’re proposing to reduce opex, what is it now and how is it made up?  You’d be amazed at the small number of vendors who have any idea what opex is today.  Without that, how could you reduce it?

A related issue is riding the horse you created.  The vendors have created the hype wave for SDN and NFV with advertising dollars and favorable editorial participation.  Now it’s clear that this has been a hype wave, and there’s a need to create favorable publicity again and in a different way—like CORD.  But it has to be toward a better goal, which is the framework of SDN and NFV that can actually deploy and make a difference.

This isn’t easy.  This blog will run more than three times as long as the average story on SDN or NFV or CORD, yet it doesn’t begin to explain the real issues and opportunities and benefits.  It would take over 10,000 words to do that, which no reporter is going to write and no editor is going to run.  What those reporters and editors could do is accentuate the real and not just the positive.  Most of what’s said about SDN and NFV has been, and is, absolute crap.  Find what’s not crap and write about it if you’re in the media, and say true things (even if it’s just to play to the climate of reality) if you’re a vendor.

The final problem is setting realistic expectations.  Vendors have to make a choice here.  There is enough opex savings available in 2016 and 2017 to fund a fairly aggressive SDN/NFV deployment, if you can support the right capabilities and if you’re prepared to take the time to make the business case.  The problem is that you won’t see a single dollar of that this year unless you’ve already gotten smart and already started selling the right way.  If you have, none of your customers have recognized it and told me!  On the other hand, if you want to make some money on SDN/NFV today you can do that by whacking at all the low apples.  If that happens you will build nothing extensible and you’ll run out of steam next year, with no chance of improvement thereafter.

Sales people tell me their management expects too much, and they’re right.  I don’t know of a single vendor who has a realistic and optimal strategy for SDN/NFV sales, even the half-dozen who have all the pieces needed.  They see transformation as being self-justifying.  They cite “IP convergence” as an example of why nothing complicated is needed, forgetting that IP convergence was a direct result of consumer data service opportunity created by the Internet.  We had a business case ready-made.  We don’t have that now.

We can still get it.  All the elements of a good business case for transformation are available right now in the marketplace.  All the knowledge needed to apply them is also there.  Yes, it’s going to be harder and yes, you’re going to have to wait a couple years for the money to roll in.  The thing is, you are not winning now as a vendor or as an operator, in the game you’re playing.  Reality has to be better.