Research Report Cloud computing, NFV and SDN: worldwide market sizing and forecast 2014 2018 June 2014 Glen Ragoonanan
2 About this report This report provides: a 5-year forecast of spending on: cloud computing by communications service providers (CSPs); network function virtualisation (NFV) by CSPs; and softwaredefined networking (SDN) by CSPs and data centre providers (DCPs), split by hardware, software and services, worldwide and in four geographical regions: Asia Pacific region (APAC), Europe, the Middle East and Africa (EMEA), Latin America (LATAM) and North America (NA) an analysis of the trends, drivers and inhibitors for the adoption of these technologies market evidence in terms of implementations recommendations for CSPs and suppliers (vendors, systems integrators). For further details, refer to the Market definition section. 1 This report explains the top-down and bottom-up methodologies used to develop and validate the forecasts. Data on CSPs internal spending is excluded from this report. Other data will be refined and published in future reports. 1 For more information, see Glen Ragoonanan and Anil Rao s SDN and NFV at a crossroads: vendors innovating and positioning for the future of CSPs network virtualisation. Figure 1: Software-controlled networking markets, opportunities and subsegments [Source: Analysys Mason, 2014] SCN markets Security Management Cloud computing NFV SDN Hardware Software Services Infrastructure layer Platform layer Key to layers IaaS PaaS = Excluded from this report. Market opportunities SaaS Hardware Software Services Platform layer Control layer Service layer Market sub-segments Core Distribution Access Hypervisors NFV components OSS Co-existence Integration Transformation Co-existence Integration Transformation
3 Contents Slide no. 6. Executive summary 7. Cloud computing, NFV and SDN are sized as separate markets, but their drivers and inhibitors have a significant degree of overlap 8. The spending rate in the SDN market will be slow compared with NFV and cloud computing because the business benefits of SDN are unclear 9. Hardware replacement is needed to support SCN technologies, CSPs will increase services revenue and software solutions are maturing 10. North America will lead the spending, particularly in the cloud computing and SDN markets, while EMEA will lead in NFV investments 11. NFV and SDN will have a more significant impact on established telecoms infrastructure and software in the next 10 years 12. Recommendations 13. Recommendations for CSPs and suppliers 14. Forecasts 15. Cloud computing investments increase in steps because virtualisation slows investment until capacity upgrades are needed 16. Large data centres and intense competition in the cloud services market will ensure that developed markets will lead cloud computing spending 17. CSP investment in private cloud systems will increase as their investment in enterprise cloud computing slows as is the case with DCPs 18. NFV software will not mature significantly in the next 5 years so hardware and services will be the major revenue generators in this market Slide no. 19. NFV revenue in NA will increase faster than in other regions thanks to the disruptive nature of AT&T s Domain 2.0 initiative 20. SDN controllers will mature to COTS solutions for DCPs, which will reduce services revenue, and revenue for SDN-enabled hardware will increase 21. Enterprise WAN services will be the main driver of SDN revenue in all developed markets, and NA will lead in SDN investment 22. SDN overlay solutions will be more popular with CSPs than DCPs because overlay is a proven and non-disruptive CSP migration strategy 23. Summary of our market sizing and forecast methodology 24. Our comprehensive forecast model is supported by a sound knowledge of markets 25. Market drivers and inhibitors 26. Market drivers and inhibitors for the SCN technology markets cloud computing, NFV and SDN 27. SCN market drivers: Integration and co-existence of NFV and SDN solutions with established OSS will accelerate growth [1] 28. SCN market drivers: Integration and co-existence of NFV and SDN solutions with established OSS will accelerate growth [2 29. SCN market inhibitors: The cloud market is already mature and will be less affected by the inhibitors than the NFV and SDN markets] 30. Business environment 31. The NFV and SDN markets are inhibited by the lack of a clear business case, product immaturity and other financial commitments
4 Contents Slide no. 32. We forecast the following inaugural virtualisation events in CSPs during the next 7 years, which may propel SCN progress 33. Our roadmap forecasts that NFV will reach maturity much faster than CSP SDN, which is encouraging CSPs to invest in the technology 34. Market definition 35. Software-controlled networking architectural categories 36. Definitions of SCN market and revenue types 37. Definitions of the SCN market s sub-segments 38. Definition of geographical regions [1] 39. Definition of geographical regions [2] 40. Definition of geographical regions [3] 41. About the author and Analysys Mason 42. About the author 43. About Analysys Mason 44. Research from Analysys Mason 45. Consulting from Analysys Mason
5 List of figures Figure 1: Software-controlled networking markets, opportunities and subsegments Figure 2: Characteristics of, and overlaps between, the cloud computing, NFV and SDN markets Figure 3: Software-controlled networking revenue by market segment, worldwide, 2013 2018 Figure 4: Software-controlled networking revenue by type, worldwide, 2013 2018 Figure 5: Software-controlled networking revenue by market segment, worldwide, 2013, 2018 and 2023 Figure 6: Cloud computing revenue by type, worldwide, 2013 2018 Figure 7: Cloud computing revenue by region, worldwide, 2013 2018 Figure 8: Cloud computing revenue by CSP cloud service type, worldwide, 2013 2018 Figure 9: NFV revenue by types, worldwide, 2013 2018 Figure 10: NFV revenue by region, worldwide, 2013 2018 Figure 11: SDN revenue by type, worldwide, 2013 2018 Figure 12: SDN revenue by region, worldwide, 2013 2018 Figure 13: SDN revenue by SDN deployment type, worldwide, 2013 2018 Figure 14: Key factors influencing forecast assumptions Figure 15a b: SCN market drivers Figure 16: SCN market inhibitors Figure 17: Forecast of virtualisation events that will drive SCN adoption in the CSP environment, 2013 2020 Figure 18: Forecast of NFV and SDN use cases and functions adopted by CSPs, 2013 2023 Figure 19: Software-controlled networking architectural categories Figure 20: SCN market definitions Figure 21: SCN market revenue type definitions Figure 22: Definitions of cloud computing market sub-segments by CSP cloud service type Figure 23: Definitions of SDN sub-segments by deployment type
6 Executive summary Recommendations Forecasts Market drivers and inhibitors Business environment Market definition About the author and Analysys Mason
7 Cloud computing, NFV and SDN are sized as separate markets, but their drivers and inhibitors have a significant degree of overlap The cloud computing, NFV and SDN markets are all driven by service providers need for service agility, and to reduce costs (capex and opex) and improve operational flexibility. Cloud computing spending is directly related to CSPs revenue for IaaS, SaaS and, to a lesser extent, PaaS. This provides a sustainable business model. Growth is also driven by CSPs acquiring DCPs: Verizon Communications acquisition of Terremark Worldwide for USD1.4 billion in January 2011; and Deutsche Telekom s acquisition of GTS Central Europe for USD731 million in April 2014. Spending in the NFV market will increase at a faster rate than in the SDN market during the forecast period because NFV technology is leveraging established cloud computing hypervisor technologies and maturing more quickly. The infrastructure cost savings of NFV are clearer and can be extrapolated from the 30% average IT cost savings achieved with cloud computing. SDN has been present in data centres since 2010, but the take-up is low to date. Take-up of cloud bursting should increase growth. 1 NFV and SDN spending is further challenged because, unlike cloud computing, it is difficult to directly trace revenue from the investment. Figure 2: Characteristics of, and overlaps between, the cloud computing, NFV and SDN markets [Source: Analysys Mason, 2014] NFV Rapidly maturing technology Infrastructure cost savings are clear Hypervisor technology Mature technology Spend is not directly linked to revenue Service agility Operational flexibility Cost optimisation Investments are directly linked to revenue Cloud computing Uncertain business benefits Cloud bursting 1 Mergers and acquisitions SDN Slowly maturing technology 1 Cloud-bursting allows an enterprise to dynamically expand its private enterprise cloud into a service provider s public cloud infrastructure. This solution ideally needs automated provisioning of bandwidth on demand using SDN to allow this hybrid cloud elasticity.
32 We forecast the following inaugural virtualisation events in CSPs during the next 7 years, which may propel SCN progress Figure 17: Forecast of virtualisation events that will drive SCN adoption in the CSP environment, 2013 2020 [Source: Analysys Mason, 2014] 1 Enterprise IT and data centre virtualisation: cloud computing NFV product development of policy control, ISP, IMS, EPC and enodeb First commercial deployments of NFV policy control, ISP and IMS core First commercial NFV and CSP SDN deployments in mobile: EPC, Gi interface, enodeb and IP RAN Cloud computing and NFV becomes more mainstream CSP SDN gains maturity OSS demand for virtualised, IT and telecoms networks 2013 2014 2015 2016 2017 2019 2020 Trials of NFV: policy control, ISP and IMS core Increase in the number of CSP SDN trials in mobile and transport networks Increase transformation to next-generation virtualised networks (cloud, NFV and CSP SDN) begins Decreasing rate of spending in cloud computing (data centre) Increasing rate of spending in NFV Increasing rate of spending in CSP SDN 1 This timeline is based on industry feedback gathered by Analysys Mason. We expect the outlook for these technologies to change as they mature.
41 Executive summary Key implications Forecasts Market drivers and inhibitors Business environment Market definition About the author and Analysys Mason
42 About the author Glen Ragoonanan (Principal Analyst) is the lead analyst for Analysys Mason s Infrastructure Solutions, Service Delivery Platforms and Software-Controlled Networking research programmes. He joined Analysys Mason in 2008 and has worked as a consultant on projects on next-generation IT and telecoms networks, systems and technologies for incumbents, new entrants, private companies, regulators and public-sector clients. His primary areas of specialisation include operations and business support systems (OSS/BSS) solution architecture and integration for business process re-engineering, business process optimisation, business continuity planning, procurement and outsourcing operations and strategies. Before joining Analysys Mason, Glen worked for Fujitsu, designing, delivering and managing integrated solutions. Glen is a Chartered Engineer and project management professional with an MSc from Coventry University.
43 About Analysys Mason Knowing what s going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research. Consulting Our focus is exclusively on TMT. We support multi-billion dollar investments, advise clients on regulatory matters, provide spectrum valuation and auction support, and advise on operational performance, business planning and strategy. We have developed rigorous methodologies that deliver tangible results for clients around the world. For more information, please visit www.analysysmason.com/consulting. Research We analyse, track and forecast the different services accessed by consumers and enterprises, as well as the software, infrastructure and technology delivering those services. Research clients benefit from regular and timely intelligence in addition to direct access to our team of expert analysts. Our dedicated Custom Research team undertakes specialised and bespoke projects for clients. For more information, please visit www.analysysmason.com/research.
44 Research from Analysys Mason We provide dedicated coverage of developments in the telecoms, media and technology (TMT) sectors, through a range of research programmes that focus on different services and regions of the world. Alongside our standardised suite of research programmes, our Custom Research team undertakes specialised, bespoke research projects for clients. The dedicated team offers tailored investigations and answers complex questions on markets, competitors and services with customised industry intelligence and insights. To find out more, please visit www.analysysmason.com/research.
45 Consulting from Analysys Mason For more than 25 years, our consultants have been bringing the benefits of applied intelligence to enable clients around the world to make the most of their opportunities. Our clients in the telecoms, media and technology (TMT) sectors operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that, we have developed rigorous methodologies that deliver real results for clients around the world. Our focus is exclusively on TMT. We advise clients on regulatory matters, help shape spectrum policy and develop spectrum strategy, support multi-billion dollar investments, advise on operational performance and develop new business strategies. Such projects result in a depth of knowledge and a range of expertise that sets us apart. We help clients solve their most pressing problems, enabling them to go farther, faster and achieve their commercial objectives. To find out more, please visit www.analysysmason.com/consulting.
Published by Analysys Mason Limited Bush House North West Wing Aldwych London WC2B 4PJ UK Tel: +44 (0)20 7395 9000 Fax: +44 (0)20 7395 9001 Email: research@analysysmason.com www.analysysmason.com/research Registered in England No. 5177472. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any clientspecific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party.