Virtualization-first: The new enterprise mantra

By Aditya Khaitan, Partner, Deloitte India

Network virtualization is the process of transforming the physical hardware within the network to virtual network or machines. Multiple virtual machines are created using software and hosted on a single physical hardware.  The virtual machines perform compute, storage and network functions similar to the physical hardware.

Globalization, market trends in Industry 4.0, automation, growth of artificial intelligence, big data analytics, and internet of things as well as the black swan event of 2020 in COVID-19 pandemic have only accelerated the pace of digital transformation in enterprises. With accelerated digitalization, the growing scale and complexity of IT infrastructure in enterprises have raised concerns around network agility to meet the demand and resiliency to provide uninterrupted service. Network and information security is a growing concern across IT/ ITes, manufacturing, banking and financial services, government and public sector, defence,  telecommunication sectors amongst others.  Further, businesses are focused on cost reduction as a key strategic imperative for sustainability.

Network virtualization offers reduction in hardware and power costs by consolidating multiple physical hardware servers and devices into single host machine. As opposed to managing each physical node in the network, translating into virtual machines enable easy automation of provisioning and configuration processes, trouble-shooting as well as implementation of security protocols. IT teams can then define security policies and controls for each workload or virtual machine which helps ensure enforcement down to the individual virtual machine. Unlike in traditional networks, if an intruder gets through data center perimeter defenses, here threat is localized to a workload by abstracting network from underlying hardware.

This merging of network functionality, hardware and software resources into software defined virtual network is known as software defined networking. This software defined networking or simply referred to as network virtualization can be implemented across wide area networks (also knowns as software defined wide area networks or SD-WAN) replacing the expensive physical hardware with cloud based provisioning of connectivity and services. Network virtualization can also be extended to routers, switches, tunneling gateways for virtual private networks, service assurance, security functions such as firewalls, virus scanners, intrusion detection systems, specific applications in an enterprise network.

Virtual networks are easily scalable providing the agility to meet the business demands. Given these benefits, many of the enterprises have adopted a ‘virtualization-first’ approach. As part of the approach, enterprises are no longer purchasing new physical hardware but meeting the new storage, compute and network requirements through virtualization of workloads. Hardware refresh requirement each year is likely to be minimal, resulting in optimizing capital expenditure as well as improvement in bottom-line through reduction in maintenance and energy costs. Enterprises are virtualizing their network services giving rise to ‘as a service models’ for entire networks, services such as security, assurance or specific applications. Hence, the opportunity is not just one time but continue through managed services phase of virtualized networks.

Businesses across sectors have expressed interest towards investing significantly into virtualization in near to medium term with varying scale of initiatives. Many of large enterprises globally and in India have already planned network virtualization or implementation of software defined networking as part of their network architecture in 2020. Even the small to medium enterprises have shown their interest to virtualize and seem to be inclined towards ‘as a service’ models. Most are likely to look to single service providers as a single stop shop for all their technology needs. With virtualization being location agnostic, enterprise have a wide choice of providers to choose from ranging from system integrators, technology vendors, webscale providers as well as communication service providers.

Communication service providers (CSPs) are uniquely placed to provide these services to their enterprise customers integrating communication, connectivity and networking. Many CSPs have started offering services focused on network virtualization including security services, video conferencing, content delivery networks, unified communication services, mobility, SD-WAN, private networks for their business (enterprise) customers. However, to realize the full potential of the opportunity CSPs would need to undertake and expedite internal architectural, business processes and organization transformation.

As part of the architecture transformation, CSPs would need to consider migrating from IP to software-defined networks of their own, collapsing network and IT boundaries to offer virtualized network services to their customers. Service providers are using virtualization to relocate the network functions in the proprietary gear of original equipment manufacturers such as telecom switches, gateways, IP multimedia systems, etc. This telecom led change is known as network function virtualization and specific to network virtualization effort of CSPs. Implementation of network function virtualization results in infrastructure delivery as a service. Service providers need to realign the organization and operating model from product based to service/ function/ application-oriented models.

As enterprises scale up on the digital maturity ladder, they would require their networks to be agile, resilient and secure. Deployment of 5G, IOT and M2M use cases could require enterprises to provision, control and manage millions of devices. We have seen emergence of private networks deployed by car manufacturers and various other large engineering players as part of Industry 4.0 securing five nines quality carrier grade networks. More and more enterprises are likely to seek their own private virtual networks offering massive broadband, ultra-low latency, high resiliency to offer digital services to their own customers, for example, e-governance services for government, digital payments/ banks in financial services, connected car eco-system in case of auto, tele-medicine/ tele-surgery in healthcare to name a few.

This trend is only the first wave with opportunity slated to grow multifold in the near future. Network virtualization could provide the ability to create service differentiators for both service providers and their enterprise customers.  The opportunity is wide open across a range of telecom and technology sector players, however, realization is dependent on their own ability and agility to provide the most flexible service and performance oriented virtual networks.