Why Network Virtualization is Important and How it Relates to 5G

By: Henry Rademacher

Around the world, people are more dependent on technology than ever before. Things like computers and cellphones are used everyday by billions of people, with the number of users increasing every year. Newer technologies, such as AI and 5G are emerging rapidly and are projected to have massive economic impacts. All of these technologies are connected by networks. In many ways, network technology has enabled the digital revolution that has occurred over the past few decades.

With so much media attention given to emerging technologies, like AI and robotics, it is easy to miss innovations happening in network technology. However, many developers and investors say that these advances are among the most important things happening right now in the tech world. Because nearly every business relies on networks, there is tremendous economic potential in network innovation. One of the most important developments in network technology is the increasing sophistication and adoption of virtualization.

Network virtualization refers to “the process of combining hardware and software network resources and network functionality into a single, software-based administrative entity, a virtual network.” Because networks play a vital role in so many sectors of the economy, network virtualization is one of the emerging technologies with the most potential use cases.

What are the benefits of virtual networks?

For businesses and consumers alike, the most frequently sited advantage of virtual networks is improved security. A key component in the sophistication of virtual networks is micro-Segmentation, a technique that “enables IT to deploy flexible security policies deep inside a data center using network virtualization technology instead of installing multiple physical firewalls.” It allows operators to insert programs, such as encryption, firewalls, and other security features into the fabric of virtual networks in ways that are not possible with physical networks.

According to Frank Chodacki of IBM, Micro-segmentation is “Akin to having a physical switchport where every physical computer you plug in is firewalled off from every other port. So, you can configure exactly what type of traffic you want to transverse across your fabric.”

In addition to improving security, network virtualization can improve the speed and productivity of IT services. Companies that virtualize their networks can reduce their dependence on hardware. This provides opportunities to dramatically reduce expenses, as the types of hardware necessary to power traditional networks can be prohibitively expensive to maintain. Network virtualization can also increase the speed of application delivery, a keystone of all IT services. According to Gigamon, “Since network virtualization automates network configuration, (organizations) can instead cut application deployment time from weeks to minutes.”

Essentially, the increased capacity and sophistication of virtual networks allows them to provide more services than traditional networks, while also increasing speed and flexibility. For businesses, network virtualization can reduce operating costs, while increasing productivity.

Why is network virtualization important?

Beyond its potential to improve security, network virtualization represents an unprecedented business opportunity that could have a transformational impact on the global economy. Because commerce today is reliant on networks, the potential use cases of network virtualization are applicable to almost every sector of the economy. Companies involved in data, cybersecurity, telecommunications, banking, healthcare, and consumer technology all stand to benefit from more secure networks with lower latency and increased capacity.

If the global economy reaches a point where the majority of networks are virtualized, the process of virtualizing those networks will create many new jobs and result in historic sums of money being spent on virtualization services that are not well-known today. While Amazon and Microsoft are leading the pack for now, practically every major tech company is investing in virtualization.

A recent example of an emerging technology rapidly becoming a boon to the economy after years of relative obscurity is the cloud. According to Christopher Hooton, a leading researcher on the digital economy, “the cloud added approximately $214 billion to the U.S. GDP in 2017.” The study referenced by Dr. Hooten also credited the cloud with creating 2 million new jobs in the U.S. that year. Microsoft and Amazon Web Services (AWS), the companies that currently dominate the cloud have seen their early investments result in phenomenal returns. AWS now accounts for more than 50% of Amazon’s operating income. Since 2014, when Satya Nadella became CEO of Microsoft, their stock has more than quadrupled. Analysts frequently credit Microsoft’s resurgence to Nadella’s focus on the cloud.

How is Virtualization different from the Cloud?

Network virtualization and the cloud are not the same thing, but because they overlap heavily, companies that invest in one usually invest in both. According to Red Hat “virtualization is a technology that allows you to create multiple simulated environments or dedicated resources from a single, physical hardware system, and clouds are IT environments that abstract, pool, and share scalable resources across a network. To put it simply, virtualization is a technology, where cloud is an environment.”

How will network virtualization effect trade?

While network virtualization has implications for every sector of the economy, it could be especially impactful on trade, both foreign and domestic. The supply chains that enable globalized commerce depend on networks to remain operational. Virtualization of these networks has the potential to deliver the same benefits (increased security, speed, productivity, and flexibility) to global trade networks that it delivers to businesses.

The U.S. is currently the world’s leader in network virtualization. However, China is not far behind. While there is not an immediate risk of China leapfrogging the U.S. in network virtualization, such a situation would be problematic for world trade. The global deployment of 5G has been complicated by the myriad of controversies Huawei has been involved with regarding network security. If Huawei also ends up being a leader in virtualization, their relationship with the Chinese Communist Party would be sure to generate similar controversies.

If a Chinese company reaches a point where they can offer virtualization services on a scale comparable to Microsoft and AWS, they will likely sell those services at a discounted rate, similar to what Huawei does with network infrastructure. This could lead countries to purchase these services from Chinese companies that are required by law to undermine security if the Chinese Communist Party requests they do so. In countries that purchased these services from unreliable companies, such a situation would effectively erase the advances in network security that virtualization makes possible.

How does Virtualization relate to 5G?

5G is deployed over networks. Virtualized 5G networks will have reduced latency and increased capacity compared to traditional networks. To win market share, companies like AT&T and Sprint have invested heavily in virtualizing their networks prior to, or in conjunction with, 5G deployment. IoT and AI, other emerging technologies expected to fundamentally change the economy, are sometimes predicted to be dependent on the eventual virtualization of the world’s networks. Therefore, the companies that have invested in 5G see virtualization as a promising investment opportunity.

Photo credit: PongoBEAR (flickr)