Wednesday, April 27, 2016

NFV costs expectation gap

I am fresh off from an interesting week in sunny San Jose, at the NFV World Congress, where I chaired the operations stream on the first day.

As usual, it is a week where operators and vendors jostle to show off their progress since last year and highlight the challenges ahead. before I speak about the new and cool developments in terms of stateless VNFs, open source orchestration, containers, kubernetes and unikernels, I felt the need to share some observations regarding diverging expectations from traditional telecoms vendors, VNF vendors, systems integrators and operators.

While a large part of the presentations showed a renewed focus on operations in NFV, a picture started to emerge in my mind in terms of expectations between vendors, systems integrators and operators at the show.

Hardware
Essentially, everyone expects that the hardware bill for a virtualized network will reduce, due to the transition to x86 hardware. While this transition might mean less efficiency in the short term, all players seem to think that it will resolve itself over the next few years. In the meantime, DPDK and SR-IOV are used to address the performance gap between virtualization and traditional appliance, even at the cost of agility. By my estimate, the hardware cost reduction demonstrated by VNF vendors and systems integrators still falls short of operators expectations. Current figure places them around a 30% cost reduction vs. traditional model, whereas operators' expectations hover between 50 to 66%.

Software
This is an area where we see sharp expectations variations between all actors in the value chain.
VNF vendors expect to be able to somehow capture some of the hardware savings and translate them into additional license fees. This thinking is boosted by the need for internal business case to transition from appliance to software, to virtualized and eventually to orchestrated VNF. We are still very early in the market and software licensing models for VNFs are all over the place, in many case simply translated from the appliance model in other cases built from scratch but with little understanding of he value of specific functions in the overall service chain. Increased competition and market entering from non-traditional telco vendors will level the licensing structure over time.

Systems integrators are increasingly looking at VNFs as disposable. Operators tell them that they want to be able to have little dependency on vendors and to replace VNFs and vendors as needed, even running different vendors for the same function in different settings or slices. Systems integrator are buying into the rationale and are privileging their own VNFs, putting emphasis (and price premium) on their NFVI (infrastructure) and VNFM (management). Of course this leads also to the conclusion that while VNFs (and VNF vendors) should be interchangeable, the NFV MANO (management and orchestration) function will be very sticky and will likely stay a single vendor proposition in a given network. As a result, some are predicted the era of orchestrators war, which certainly feels timely, after the SDN management war (winner OpenStack), southbound interface war (winner OpenFlow), hypervisor war winner (KVM)...
I have spoken at length about the danger operators expose themselves if they vacate the orchestration field and leave systems integrators to rule it. It seems to have gained some traction with open source orchestration projects being pushed in standards. In any case, VNF vendors expect a growth in software licensing vs. appliance model, whereas integrators and operators expect a reduction.

Professional services
This is the area where everyone sees to agrees that an increase is inevitable. SDN and NFV provide layers upon layers of abstraction and while standards and open source are not fully defined, there is much integration and "enhancements" necessary to make a service on NFV work.
VNF vendors and operators who do not want to perform integration themselves usually expect a 50% increase vs. appliance projects, whereas integrators budget a robust 100% increase in average. This, of course, increases even further if the integrator is managing the infrastructure / service itself.

Maintenance and support
Vendors and integrators expect the ratio of these to be essentially comparable  to appliance models, whereas operators expect a sharp reduction, in light of all professional services being extended for integration and automation.

Total
VNF vendors behind closed doors will usually admit that, in the short term, the cost of rolling out a new VNF function /service might be a little higher than appliance, due to the performance gap and increase in professional services. There are sharp variations between traditional vendors that are porting their solutions to NFV and new vendors that cloud-native and have designed their solution for a software defined virtualized environment.
Systems integrator can show an overall cost reduction but usually because of proprietary "enhancements and optimization".
All are confident, though that automation and orchestration makes operation of existing services much cheaper and ramping up of new ones much faster. Expectations are that VNF architecture will be much more cost effective than appliance on a 3 to 5 years TCO model. Operators, on their end expect a NFV architecture to yield savings from day one, compared to appliance and to further increase this gap over a 3 years period.

2 comments:

Ignacio García-Carrillo said...

I read your article Patrick with a lot of interest, coming from a vendor (Hewlett-Packard Enterprise NFV) and having spent the last two years evangelizing the market on NFV.
As usual, many misunderstandings, some deceit and a lot of wrong expectations, but after this time in NFV, and some more in the Telco market, if you look at things with a critical eye and some perspective, everything begins to fit into place, and I clearly see that happening as NFV finally comes of age these days.
On your comment about HW, we must take into account two effects:
First, scale. NFV is way better when you scale. If your deployment is small and/or only a few use cases apply, the advantage in price dilutes because of the overhead due to virtualization, Openstack and orchestration.
On today’s smaller deployments we are simply not seeing the advantages of scale, but we’ll soon see them. When you really achieve some size, adding HW is extremely cheap and more efficient than on non-virtualized solutions, both from the physical HW acquisition and from the operations perspective. Simply put, you add HW, the new resources pop-up in your console, and you launch new instances of your virtual machines/VNFs (yes, this works).
Second, procurement. Typically operators would have expectations on the price they are used to paying, and we vendors would comment on prices of what we try to sell and publicly declare as our list prices. We all know that such gap is extremely significant, even more so with IT HW, so the end price tag, after our suffering through the purchase departments, should be way closer to what the operators are seeking.
Regarding software, the discussion is not very different. Scale and procurement shall keep costs contained and even though some vendors pretend to be able to recover their revenues through raising prices of SW, nobody believes this is happening. Simply put, with increased competition in the SW space, and a perception that costs for SW companies are low, particularly when you scale, procurement is not going to let this source of savings escape. After all, nobody said that NFV was a tool to improve the margins of the Network Equipment Providers (although it can help there).
On services, I am a bit concerned with your appreciations. While it is understandable that services may increase a bit as we learn to deliver these solutions, and it is also true that there are a few more layers and interfaces in the architecture, there should come a moment when the platforms are ready and available, much like the Cloud of today, so deployment is not significantly different to what we see today in the Telco space.
Also the relative standardization that we are seeing in platforms, along with the efforts of pre-integration and validation with partner ecosystems, should help maintain costs contained.
But I don’t want to let the operators rejoice so easily with their hard achieved savings, as they may expect a little too much too soon. With this focus on costs, they are missing the point of NFV, which is really enabling them to do much more with less.
So what I see is a converging perception about costs, and fortunately faster than expected. I do anticipate that we won’t have to go for the 3-5 years ROI models and offer the operators our financing (which they rarely want). We providers are now able to make viable proposals on relatively small solutions, and are focusing heavily on further improvements of the cost structure and sizing. I am beginning to prepare proposals that make sense and fit into budget and shorter timeframes even at small operators, and I could not say that one year ago.
And what’s more, when operators reduce their deadly focus on the bottom line and realize what capabilities these new toys bring, in flexibility and ease of operations, growth, and above all, speed and flexibility, nobody can foresee where they could reach (and yes, there are ideas for those new services out there).

Ignacio García-Carrillo said...
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