Understanding the Market for Network Virtualization

Network virtualization is emerging as a potentially key carrier datacenter trend, but what's it all about?

Lee Doyle

February 20, 2014

4 Min Read
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Network virtualization is an emerging technology that enables datacenter managers to ease VM (virtual machine) provisioning challenges, improve automation, and support the scalability demands of large datacenters.

Network virtualization (NV) is in its very early stages of adoption and encompasses several competing standards, a large number of technology suppliers, and multiple open source options.

Key questions about the NV market include:

  • How rapidly will service providers and large enterprises adopt NV technology in their datacenters?

    • Does the NV develop into a distinct market (VMWare's view) or become a feature of broader software-defined networking (SDN) deployments (Cisco's view)?

    • Who will be the leading buyers of NV technology? Will sales be driven by network administrators, server administrators, or datacenter managers?

      Definition of network virtualization
      Network virtualization uses tunnels to create virtual networks on top of traditional (Ethernet) physical networks. Leveraging protocols such as VXLAN or NVGRE, NV provides Layer 3 tunneling which separates the virtual network from the underlying physical network hardware, thus enabling provisioning of virtual networks and accompanying services between servers in the datacenter.

      Benefits of network virtualization
      Implementation of network virtualization provides a number of key benefits for datacenter managers, including:

    • Scalability -- the ability to scale beyond vLAN limits to support hyper-scale datacenter network requirements.

    • Multi-tenancy -- each application or tenancy can have their own network and security policy via NV traffic isolation.

    • Ease of implementation -- no need to change the underlying physical network.

    • Improved performance of VM-to-VM traffic within the same server or rack.

      Technology options
      Network virtualization is offered by a significant number of technology suppliers. Each supplier has as different take on network virtualization with accompanying strengths, weaknesses, protocols, and pricing options.

    • VMWare offers its NSX product (via its Nicira acquisition) that leverages the VXLAN protocol to provide network virtualization.

    • Microsoft bundles network virtualization functionality (using the NVGRE protocol) in its Hyper-V product.

    • Nuage, a division of Alcatel-Lucent, offers the Virtualized Services Platform (VSP) network virtualization technology. Nuage offers a number of pricing options: per server or per VM, subscription or license.

    • PlumGrid offers its IO Visor technology, which enables the creation of virtual domains that replicate the physical network.

    • Juniper offers network virtualization via its Contrail by license or subscription. Juniper also offers Contrail via free open source software.

    • Midokura offers MidoNet, which virtualizes the network to let OpenStack and CloudStack create and manage virtual networks.

      There are a number of open source options for network virtualization, including OpenDayLight and Open vSwitch. Other NV technology suppliers include: ADARA, Big Switch, IBM, NEC, Cisco, Redhat, HP, and Arista.

      NV market variables
      Forecasting the market for network virtualization market involves a number of key variables, including:

    • Pricing models: What are the NV pricing models (by VM, server, or socket) and by license (one-time fee) or monthly subscription? A key variable here is the potential for NV functionality to be built into either the hypervisor (e.g. Microsoft) or included in the network infrastructure costs (e.g. Cisco).

    • Growth of cloud service provider infrastructure: The growth of new hyper-scale datacenter designs will fuel the requirements for NV functionality. Key metrics include the growth of OpenStack and Open Compute deployments.

    • Impact of open source: The SDN community is creating a lot of free, open source software, including OpenDayLight and Open vSwitch, which has the potential to offer NV functionality. Faster adoption of SDN open source would push NV spending from software towards support and professional services.

      Current and future market adoption
      Current adoption of NV technology is in its very early phases with a few leading-edge organizations in production use and more communications service providers and enterprises in the pilot phases. Running NV software as an overlay to existing network infrastructure provides a relatively easy way to alleviate VM networking challenges. As a result, I expect NV adoption to increase strongly during the 2015-2016 timeframe. The future adoption of NV technology will be dependent on a number of key variables, including pricing, standards, and the impact of open source. I forecast that spending on the SDN software market (of which NV is a subset) will reach nearly $1.2 billion worldwide by 2018.

      — Lee Doyle, Principal Analyst, Doyle Research

About the Author

Lee Doyle

Lee Doyle is Principal Analyst at Doyle Research.  He has conducted extensive research on the inter-relationship of SDN, NFV, and COTS and their impact on intelligent networks in both enterprise and service provider environments.  Lee's work at Doyle Research includes over 20 articles written for Network World, Tech Target, UBM, GigaOm, and the ONF. He has provided analysis for a number of webinars, podcasts, and videos on Intelligent Network topics. 

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