NFV and SDN:

Dont get lost in translation

A white paper for product managers Sponsored by

Beware careless whispers
Ever played the whispering game Broken Telephone? Take a simple phrase, speak it into
someones ear, have them say it to another and so forth. Whatever the last person thinks theyre
repeating is usually hilariously different from the first but thats the fun of the game.

Whats happening with Network Functions Virtualization and Software Defined Networking is
similar. Something is being lost in translation. The true benefits, capabilities, and use cases of
these powerful and transformative technologies are often distorted or misunderstood.

But NFV and SDN are too critical to the telecom industrys health and prosperity for
communication service providers to ignore this situation. The topline messages that should be
getting through are important:
NFV and SDN can secure core revenues and help the telecom industry grow again: The
technologies that make new revenue-generating services possible also underscore the
dependency of digital environments on robust networks.
NFV and SDN enable profitable market outreach to a wider range of customers: The
restructured economics of virtualized infrastructure imagine, no more CPE allow
sophisticated network-cloud services usually sold to big-ticket corporates to flow down to needy
small and medium sized enterprise clients.
NFV and SDN can accelerate service creation to catch up with Web-scale organizations:
The simplification of telco IT and network infrastructure, coupled with the simplification of
provisioning, support faster ideation, testing, and launch of new services.

Join the dots

Perhaps disconnects arent surprising, given the very different stakeholders involved in todays
virtualization ecosystem. Their world view and skills have little in common (see Figure 1).

Figure 1: Stakeholders in the virtualization ecosystem

Telco
Enterprise
product
LOB
Top-line focus management

Enterprise
IT

Bottom line focus Telco

tech
operations

Technology literacy Business literacy

Source: Ovum

Telco product management: Do more with less thats probably the best way to describe
telco product managements current stance. After more than a decade of cost reduction and
consolidation, EBITDA margin across telcos is impressive at an industry average of 32%,
but revenue growth has effectively stalled in many telcos, standing at just over 2% for the

2015 Ovum. All rights reserved. www.ovum.com 2

 industry, according to Ovums World Telecoms Financial Benchmarks. Yet consider the fact that
in most CSPs more than a third of their enterprise resources focus on less than 1% of existing
businesses. Thats partly because of the cost to serve smaller enterprises which represent the
bulk of business demographics. With NFV and SDN, CSPs can not only reach these enterprises
cost effectively, but also embed highly valued capabilities like security and configuration into
the network, without expecting to them to have technical skills themselves.

Enterprise line-of-business: Enterprise LOB managers dont care about technology per se or
see technology as a core personal skill; only a few are truly technically adept. That said, they
do care fervently about whether technology can drive the business forward or hold it back
and they are motivated to seek profitable revenue growth. Often by default rather than design,
enterprise LOB managers are taking technology decisions without consulting anyone, notably in
selecting business applications to run their operations better and to share information internally
and externally. Most of these apps are cloud-based, and routinely accessed via the public
Internet. As their popularity and usage spreads, the unpredictable performance of cloud apps
across different corporate-liable and BYOD devices as well as unfortunate lapses in security
come back to haunt enterprise LOB. Those who made those shadow IT decisions arent staying
in the dark theyre expecting their colleagues in enterprise IT to clean up the mess.

Enterprise IT: If an enterprise IT department exists (a rarity in small and medium-sized firms),
times are tough. On-demand, consumption-based cloud business models are leading some
companies to question whether they need IT departments at all. Although enterprise LOB is
muscling in on some technology decision-making, enterprise IT certainly in larger enterprises
has an ever-critical role in a post-PC, cloud-centric world. As more business processes are
digitized, supplier choice is also growing and becoming more atomized, ad hoc, and globally
sourced. Consequently, the enterprise IT department is transforming. It is expected to become
a developer, conductor, and orchestrator of on-demand digital services. This means far more
than reactively fulfilling orders and fixing problems a common perception of what enterprise
IT actually does. Instead, its a nuanced role of anticipating and matching business needs
to an appropriate blend of vendor and in-house services, given performance, security, and
compliance requirements (while also keeping tight control over expenditure). Not only does
this intermediary role require combined business and technology acumen, it also needs sound
knowledge of how IT and networking infrastructures interplay. The important subtlety is that
this doesnt mean that CIOs want more self-service tools, according to Ovum research. They
value being able to place orders more quickly and to check over their networks applications
performance, but they would prefer service providers to handle configurations.

Telco technical operations: Telco technical operations have seen it all before, good and bad.
Theyve seen product management shipped in from other industries like FMCG with bright
ideas and short attention spans. Shiny new services and technologies are just fine, but what
about the tarnished but serviceable old stuff? The old stuff might not be fully depreciated and
still have paying customers. The old stuff might still be mission-critical and there might only
be one guy who knows how to tweak it right. And whatever new stuff is out there, the need
to spend wisely hasnt gone away. The good news is that capex to sales ratios have returned
to healthy levels compared to a decade ago. Then a 10% capex to revenue was common, and
meant barely treading water; today its an industry average of 19%, and is dramatically higher
in some geographies. Nevertheless, investment priorities are shifting, and so are expectations
of technical skills and working styles within telcos. The strategic focus is less on creating a
service, and more about enabling service creation much of which (like it or not) is likely to
come from outside. The pressure to work collaboratively with third parties is acute and thats
a profound culture shift as much as it is a departure from old technology norms.

2015 Ovum. All rights reserved. www.ovum.com 3

People hear what they want to
With such different starting points, no wonder that buyers, sellers, and consumers of
virtualization-centric services dont see and hear the same thing. At the same time, people often
hear what they want to.

In a recent Ovum survey, enterprise IT buyers said they had high expectations of NFV and SDN,
but the number one expected benefit is cost reduction. However, only a minority of enterprises
claim any real understanding of the technologies in question. Importantly, only one in five
enterprise IT decision-makers among major multinationals a segment which usually has the
best resourced and skilled IT departments feels comfortable in their knowledge (see Figure 2).

Figure 2: Enterprise understanding of SDN and NFV is patchy

How well do you currently understand the concepts of SDN and NVF technologies?

Not heard of them Very familiar and clearly understand

20% 21%

Heard of both of them only Somewhat familiar

26% 33%

Source: Ovum Global SDN / NFV survey (March 2015)

But even if CIOs are not entirely comfortable in their knowledge about NFV and SDN, they are
demonstrating a need for these technologies. Take enterprise IT answers to questions about
differentiating and valued supplier capabilities (see Figure 3). These underscore an implicit value
of NFV and SDN technologies: the integration of network and cloud/IT infrastructures.

Figure 3: Enterprises value network-cloud interdependencies

What capabilities make a Network Provider What capabilities make a Cloud Provider
more attractive? more attractive?

Managed security 75% Network services 54%

WAN acceleration 73% Professional services 52%

Secure interconnect E2E SLAs across

68% 43%
with cloud providers network + cloud

Managed storage 67% IT infrastructure 41%

management

Cloud biz apps 63% Cloud apps performance 39%

management

Source: Ovum 2014 Enterprise Insights Survey

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Takeaways
Dont overplay cost against value messages: Sure, everyone wants to save money. But for
many organizations immediate savings are not the leading objective for technology investment,
it may be the creation of better business processes through the application of technology.
Competing purely on price is particularly damaging in the case of NFV and SDN-based services.
This is because a price-led proposition weakens a core argument about enabling finer-grained
customer control over digital assets not something that should be given away cheaply.
Promote orchestration without forcing self-service: Federation, orchestration, and interconnect
are monetizable services. From a cultural perspective, the enterprise IT department is
becoming a service orchestrator for its internal stakeholders. At the same time, dont push the
fact that self-service is now in their hands they may not want this additional accountability.
Many enterprise IT departments want service providers to provide granular orchestration
services, while they have oversight.
Speak to all stakeholders in their language: Consider the different stakeholders in the
virtualization ecosystem (see Figure 4). Sell the vision in a language that each one can
understand in terms of what motivates and constrains them (such as time, skills, processes,
compliance, etc). Not least, help your enterprise IT clients articulate their vision to their internal
stakeholders. Dont let the power of virtualization get lost in translation.

Figure 4: NFV and SDN: A cross-stakeholder perspective

Stakeholders What stakeholders think they hear What NFV and SDN should mean to stakeholders
Telco product management A tough sale internally and externally Differentiation and loyalty building
Innovative service creation for top-line revenue growth
A way to secure core network-centric revenues
Industrialized service personalization

Enterprise LOB Huh? Simpler business processes

Greater working freedom (in terms of locations, devices, tools)
Better access to business resources

Enterprise IT Leverage to put the squeeze on Finer control and accountability over service performance
technology suppliers Consistent user experience
More secure working as functions are embedded in the network
On-the-fly service adjustment (with self-configuration if desired)

Telco IT A big migration project between old Better control over costs
silos and new service creation platforms Demonstrability of absolute and marginal asset utilization
Rapid service deployment

Source: Ovum

2015 Ovum. All rights reserved. www.ovum.com 5

ABOUT OVUM
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