Software Defined Networks, Network Function Virtualization, and the Resource Decoupling Disruption
Software Defined Networking (SDN) and Network Function Virtualization (NFV) are two trends in the Information and Communications Technologies (ICT) industry that are relieving constraints for carriers, enterprises, and customers alike. Most of the deployments are limited to data centers, Cloud architectures, and Software Defined Wide Area Networks (SD-WAN). As the advantages from these technologies are proven, their applications will spread further. And as the technology becomes more common, its acceptance will spread as well.
As we experience these waves of change in the industry, it is important to understand the value, and responsibility, that comes with these trends. As we gain deeper control of network capabilities, we gain responsibility to manage these capabilities too. Like any wave of advantage in any industry, those who do not move will lose business, and those who can adjust will have the advantage.
There are several use cases described by standards bodies and vendors alike which are driving adoption now. But what is most interesting at this time, early in 2016, are the applications that are to come. Those who see the advantage and position themselves ideally now will have the real estate position to thrive in the new industry.
New Use Cases Emerging with Yield Management
Here are two new use cases that are about to be discovered and made by those in position to make them. These applications have one thing in common: yield management.
- NFV – An NFV provider can be the seller of network functions on demand, for those who can access the seller’s store, and for those products the seller can resell. Though there are very many models for making this a profitable business, a simple model is one in which a network provider places a data center on its network so that all its customers can access network functions as needed, on demand. As part of a premium service, special firewalls, walled gardens, deep packet inspections, Virtual Private Network (VPN) management, and WAN acceleration capabilities can all be provided. These functions can all be shared resources across the customer base, and used only as needed. The usage can be orchestrated either through a customer portal, or automatically triggered as needed according to Service Level Agreements (SLA), or both. Those who can access the network functions can now be customers, and afford products they otherwise would not be able to purchase. And the owner of the network functions can share them across more customers, getting higher utilization, and therefore more revenue.
- SDN – At the same time, a network provider can provide bandwidth on demand for customers and potential customers who can access their network, so a provider with capacity at key points can manage that capacity across multiple customers at a premium price. Again through an orchestrator product, SLAs can trigger automatic adjustments to the services, or customers can orchestrate their service through a portal. The capacity of the network can be dynamically shared, with pricing that fluctuates. As customers can more freely manage their usage, each individual customer can spend less on capacity than would otherwise be required, and use different bandwidth on a given network as well. As a result, more customers can be served with existing capacity. Each customer may spend less than otherwise, but the provider will have customers they otherwise would not be able to serve at the previous prices, and as a result make more revenue off of the same capacity compared to a traditional WAN.
Just as the airline industry experienced in the 1990s, the telecommunications industry is poised to experience a disruption in its industry as a result of yield management. Those airlines that were capable of pricing according to demand such that they could fully book their flights were able to increase utilization of their resources, gain market share as a result, and therefore increase their competitive advantage. Margins reduced in the industry, but the battle was inevitable, and those who could differentiate in this environment became leaders in the industry. The capabilities presented by NFV and SDN enable yield management of network functions and network capacity in ways not ever before possible. These resources now expire rapidly over time, as capacity yesterday cannot be sold today, and pricing can rapidly fluctuate with demand, as demand can be rapidly met through orchestration.
Differentiation will Win
But one key thing is different in the ICT industry over the airlines: differentiation. By decoupling network functions and network capacity from the orchestration and control of these resources, we can be much more flexible. A customer of an airline could never order the service on one airline on the airplane provided by a different company, on a route run by yet a third company. But in a fully capable NFV and SDN enabled ICT environment, a customer could potentially order network capacity from one company, with services orchestrated by a second company, using network functions provided by several other companies, all on demand, with rapidly fluctuating usage over short periods of time, as needed.
A key differentiation is to control key resources needed by many potential markets, and to provide wide access to competitive markets, enabling the seller to charge more by increasing demand. A network provider that owns the resources that many others need can therefore charge a premium for that capacity, and increase revenue by increasing utilization through offering that capacity to a larger number of customers competing for that supply of capacity. By providing more network functions to this customer base, the ease of access to these functions will make it easy to sell these services to the larger customer base. The net result is an increase in the customer base, and a broader set of products to sell them.