In the past few years, as the software-defined networking (SDN) and network virtualization (NV) market have evolved from PowerPoint concepts to working products, the market has matured into a multibillion-dollar business. The network virtualization demand is now poised to accelerate as managers look at virtualization’s role in building a more flexible and scalable networking platform for business.
Let’s take a closer look at how this is unfolding – and why. Server virtualization took a decade to drive the cloud market. Now, in just a few years, SDN and NV are driving networking. In 2013, we published an infographic hinting at the size of the SDN and NV markets– which called for $35 billion in SDN spending and $1.2 Billion in data center network software spending by 2018. Not only do these numbers now appear realistic, but actual sales documented in the market reflect this growth.
The easiest way to track real-world spending on data-center virtualization technology is to look at the numbers of the two market leaders — Cisco Systems and VMware. For its second quarter of fiscal year 2016, Cisco Systems reported 1,100 new Nexus 9K customers, bringing the total installed base to just over 6,000. Of course, the Nexus 9K is a hardware platform, but Cisco says that it now has 1,400 customers using Application Centric Infrastructure (ACI) software architecture. It puts the total market of ACI, driven by the Nexus switching line, at a $2 billion run rate.
VMware is also selling NV software at a healthy clip. According to figures released on its fourth quarter of 2015 quarter, VMware has 1,200 paying customers for its NSX product, which first shipped in Q4 of 2013. VMware said that it has bookings of $600 million for NSX on an annualized basis on its fourth-quarter conference call.
These are the two largest players in the market. There are also many private companies or public companies gaining customer traction — such as Juniper Networks and Nuage (owned by Nokia) — that don’t break out NV sales figures. If you add these sales to the market, it’s safe to say that SDN and NV are living up to expectations. In fact, I’d say our estimate of a $1.2B market for NV by 2018 now seems low. SDN, of course, is a much larger market that includes many more software-based networking components, but that also looks poised to reach multiple tens of billions of dollars in revenue the next few years.
What’s driving this growth? Customers have confirmed that they want the flexibility, agility, and security provided by virtualized solutions, according to our research. It’s clear they no longer want their networks nailed down to proprietary hardware. They want their network to be very adaptable – preferable in an automated fashion – to the rapidly changing needs of business applications.
Our surveys have revealed a bit of a shift of the original benefits touted by the NV industry. It was originally thought that dollar savings — in terms of terms of capital spending (capx) savings on hardware or lower operating costs (opex) – would drive the market. But customers are now saying that flexibility and scalability of NV solutions are the primary drivers: The capability to quickly roll out, deploy, or even change their networking infrastructure and applications. Organizations also see SDN and NV solutions as better ways to scale their networks to meet changing demand.
When asked to choose all the benefits that apply to NV, an overwhelming 77% picked flexibility. This year, scalability (68%) overtook operational cost savings (52%), which was the distant runner up last year. Interestingly, cost savings came in fourth at 31%.
Expect this demand for business agility to drive growth. When asked to rank how important it was to find a NV solution in the next 2-5 years, 88% of respondents to our NV Survey said it was “Important” or “Mission Critical.” Many customers see an NV infrastructure as easier to integrate and align with the highly virtualized storage and compute resources it is connecting, delivering quick provisioning, improved resource utilization and operational efficiencies.
If you think the growth is over – it’s just started. Fifty-four percent of respondents to the SDxCentral 2015 Network Virtualization Survey said they have not yet deployed their NV solutions in a production environment. Overall, half of the respondents to our survey have already adopted NV solutions and half have not. Of those that haven’t, 78% have plans to deploy NV solutions. Forty percent have plans to deploy in the next 3-12 months; while 60% believe they will have deployments in the next 12-24 months.
So next time the person sitting in a chair next to you at a conference grumbles about slow growth in the networking business, you might want to point out that real change is actually happening – and that billions of dollars are at stake.