Dante Malagrinò

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Separating Fact from Fiction By @DanteMalagrino | @CloudExpo [#Cloud]

More and more service providers and enterprises understand the promise of going virtual with Layer 4-7 network services

Virtual Mythology: Separating Fact from Fiction in the Virtual Network Services Market

While many hardware vendors publicly appear to be embracing the move to virtual Layer 4-7 network services, the reality is quite different. To sell virtual appliances - such as load balancers, firewalls, VPNs and intrusion prevention systems (IPS) - they have to overcome the fear of cannibalizing their hardware product line. As companies that have been solely focused on promoting hardware in the past, they don't immediately recognize how virtual services can enable a wide variety of new use cases and, as a result, increase revenue opportunities. They instead focus on virtual services as one-for-one replacement of existing solutions. If that's not enough to stall any transition to marketing the new offerings they do actually want to sell - or more accurately, ones that customers want them to sell - they also often take the wrong approach to licensing, making it impossible for users to achieve the promised cost benefits for virtual network services.

Perhaps these types of struggles are to be expected in a marketplace that is undergoing radical change, and where companies, from market share leaders to scrappy upstarts, have to figure out how to adapt to a new reality. Vendors want to ride the wave and appear they're on the leading-edge of delivering new technologies and new services, yet internal forces, whether they are real or perceived, are preventing them from moving full force ahead.

There are many incongruities that persist around today's virtual network services marketplace, and here I hope to sort out the fact from fiction as I explore the distinct difference between what vendors are saying, what they're actually doing, and why. Also, I will share insight into how some forward-thinking vendors are approaching virtual appliance sales as they successfully evolve in this ever-changing environment.

The Cannibalization Conundrum
One of the biggest discrepancies between fact and fiction is the fear that when introducing a virtual appliance, a vendor could ultimately cannibalize its successful core hardware business. At the heart of this conundrum is the influence of Wall Street. Investors want to continue to see business grow and stay ahead of the new technology curve, but they also do not want to see the company in which they're investing introduce something that negatively impacts an existing line of business.

In trying to walk the fine line between building new offerings and disrupting existing growth, vendors are often only paying lip service to their virtual appliance solutions. To appear they're embracing the latest trends in the data center, they'll promote their solutions in PowerPoint presentations, website messaging or trade show signage. But an all-out marketing blitz and effective sales strategy, such as aggressive sales compensation for selling virtual network services), is often non-existent.

To capitalize on both their traditional hardware business and new virtual appliance offerings, vendors need to reset expectations from Wall Street to the executive suite to the sales person on the street. Probably the biggest changes have to happen among the sales team. Company leadership, marketing departments and even engineering fundamentally understand that business models exist to make virtual appliance offerings work alongside the hardware products. But sales teams often still remain uncomfortable around the novelty of virtual, since their background is in selling hardware. As a result, they need more guidance in how to sell virtual solutions, and new tools to help them become successful.

For example, it's important to understand what motivates a customer to buy virtual vs. physical devices. Typically enterprises moving to virtual are trying to become more responsive to the business. They want to be able to make changes more efficiently and in minutes rather than weeks. In short, they are aiming to become internal service providers, which means the set-it-and-forget-it world of hardware doesn't apply. Sales teams that will excel at selling virtual solutions will understand the new automation needs and help their customers become heroes in their organizations. They will help their customers get past the "I won't get fired for buying traditional appliances" by showing them that while they won't get fired sticking to the status quo, going virtual will give them a great opportunity to be promoted.

Another tool sales team should get acquainted with is professional services organizations - either internally or through partners. The need for automation and integration with existing infrastructure will require elements of programmability. Most organizations don't yet have a DevOps culture so they will need help. Adoption of virtual network services will require software programming. It's a way to engage with their partners and solve the needs of their customers at the same time.

What's happening with this hardware vs. virtual appliance sales strategy conundrum is very similar to when the hypervisor was introduced, and pundits predicted a timely demise of the server business. Many expected that service providers and enterprises would sharply cut back their spending on servers. Yet, the server market has continued to grow. According to IDC's Worldwide Quarterly Server Tracker, vendor revenue in the worldwide server market increased 4.8 percent year-over-year to $12.7 billion in the third quarter of 2014 - the second consecutive quarter that the server market has experienced a year-over-year improvement. Additionally, server unit shipments grew 5.7 percent year over year during the quarter; and IDC noted that it continues to see signs of a server refresh cycle, which it expects to continue lifting the market into 2015.

Instead of accepting that servers were no longer important, vendors repositioned them in the market. Many are now being used for hyperscale data center deployments, and vendors are designing servers that are specifically optimized for virtual solutions.

Sales teams must understand that the motivation for customers to purchase virtual appliances is much different than the reason for purchasing hardware. At the heart of virtual sales is addressing new use cases that will not impact the bottom line of the historical business.

Virtual Not a 1:1 Replacement of Hardware
Part of the reason for the lack of virtual appliance adoption to date is that many vendors pitch them as a one-to-one replacement of hardware solutions. In other words, a customer will inquire about virtual appliances, but when comparing them with hardware for more traditional use cases where agility and dynamic changes aren't typically a priority, hardware wins out.

This approach is completely off-base and will prevent vendors from succeeding in a vibrant new market. Virtual appliances enable new services, agility and cost structures that are not possible with physical devices. And customers want to embrace virtualization to address pain points or deliver offerings that weren't possible with hardware-based solutions. With these new use cases come new revenue opportunities if presented properly to customers.

For example, consider how security can be approached differently with virtual internal network firewalls. One of the most common complaints about hardware-based firewalls is that they are too complicated and time-consuming to manage because the firewall is shared across numerous applications. If you need to add a new rule to the box, it can take weeks to navigate the appropriate workflow and approval processes before that device is updated. While the change is fundamentally easy to make, there are many checks and balances that take place to ensure that other applications tied to the physical firewall are not adversely impacted and security of the network or data center is compromised. The root cause of these challenges stem from the fact that the physical firewall is shared among many different applications.

However, by going virtual, one physical firewall can be replaced by multiple firewalls each designated for its own application. This application-centric approach simplifies management by ensuring that any changes can be made quickly and only impact a single application. Additionally, service providers can dedicate a virtual firewall to each customer, essentially creating a new business model where they build new revenue streams by enabling customers to order dedicated firewalls on-demand - something that would not be possible with a hardware-based offering.

More broadly, service providers and enterprises increasingly want to create an Infrastructure-as-a-Service (IaaS) environment. IaaS is not possible with hardware alone, because it's too rigid and costly. With virtual appliances, they are able to automate the delivery of network services, when and where needed, while making changes on the fly. Additionally, virtualization enables service providers to take advantage of multitenancy to deliver dedicated access to resources or applications to customers. With these capabilities, service providers are able to achieve an even larger return on their investment in virtualization, thus making these offerings more profitable.

A License to Sell
Another roadblock holding back virtual adoption is the approach to licensing. Because the value of virtual is the ability to dedicate a network service(s) to each individual application, it's likely they'll be used in greater numbers and will be distributed throughout the network. As such, virtual appliances require a completely different licensing model than traditional hardware.

With new use cases, vendors will quickly realize that virtual appliances will trigger more virtual editions at smaller throughput than hardware alternatives. As a result, greater licensing flexibility is required so that users select their desired number of virtual appliances then spread their needed capacity across all instances.

Consider if a virtual appliance is purchased from a traditional Layer 4-7 vendor, which licenses it on a per instance basis. Because the customer will likely want to roll out more instances of the virtual appliance, the cost would be exponentially more - resulting in the customer opting for a less expensive hardware option. Additionally, capacity per instance of a hardware solution often starts at 1G, but for virtual appliances that capacity would be much larger than any single application would require.

A more user-friendly way of licensing, and encouraging purchases, of virtual appliances would be an aggregate licensing model. Customers would only need to determine the total number of virtual appliances they need and how much throughput or performance is required in aggregate. This enables the user to divide up the virtual appliances without the need for capacity planning for each instance.

Getting It Right
More and more service providers and enterprises understand the promise of going virtual with Layer 4-7 network services. But vendors still aren't prepared to meet this demand, since they're approaching the sales of virtual appliances as they do their traditional hardware business. With the proper sales strategy, an eye toward promoting new, innovative use cases, and a revamped licensing structure, vendors can successfully evolve from simply paying lip service to virtual network services to truly succeeding with a strong business case that can complement their hardware revenues.

More Stories By Dante Malagrinò

Born and raised in Italy, Dante Malagrinò is the co-founder and chief product officer of Embrane, where he leads and inspires the team to ensure the products continue to provide real value to customers; challenge the status quo in networking; and make the company’s vision a reality.

Dante holds a PhD in Computer Science Engineering from Politecnico di Torino and several patents in the areas of networking, storage and data center infrastructure. He also has experience as a spokesperson with the press, analysts and investors.

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