Major companies such as Facebook, AT&T, and others are increasingly embracing the new technology called software-defined networking (SDN) to run their networks instead of core hardware, posing a threat to traditional networking-equipment providers.
SDN is the disaggregation of the software-based network control from the actual hardware, and enables users to add speed and features while cutting costs.
In the traditional model, software and hardware are closely tied together or vertically integrated whereas the SDN model is horizontally integrated, just like the Android ecosystem, where one company might provide the software, and another vendor provides the hardware.
SDN has witnessed increasing acceptance within the last two years while the sales of traditional routers and switches, on which the equipment manufacturers depend heavily, continue to grow at a slow pace of 3% since 2011.
California-based Infonetics Research Inc. predicts SDN-compatible products to corner 38% of the $61bn Internet-switch market in 2017, up from about 5% this year.
Further trouble is in store for equipment suppliers as there is a gradual shift to cloud computing over the Internet, eroding profit margins. While routers and switches typically carry profit margins of more than 60%, some bare-bones SDN servers have margins of less than 20%, reports Bloomberg.
Experts say that future for SDN would be like the current PC market - commodity hardware with whatever software you want for various functions.
So in today's SDN-driven scenario, a networking consultant can spend less than $10,000 on switches and SDN software instead of buying hundreds of thousands of dollars worth of equipment from brand-name suppliers. He can then manage the entire network on a computer screen, rather than configure each type of equipment separately.
Phone-service providers and financial firms are quick to jump on the SDN train as they see more sense in reducing operating costs and free network space rather than upgrading gradually to test new technologies and prevent outages.
Another area where SDN is gaining popularity is the ease to roll out cloud-based services to companies that prefer to pay a monthly fee for a virtual firewall or videoconferencing system, rather than buying and operating devices.
SDN has also empowered companies with greater control over their networking equipment.
A big trend emerging is on the hardware side where customers are going directly to manufacturers such as Quanta Computer Inc. and Accton Technology Corp. and getting them to build routers and switches to their exact specifications.
Cisco, which is the biggest name in the networking equipment market, faces the biggest challenge from SDN as it is heavily dependent on sales from traditional equipment.
But the company is slowly warming up to the SDN; recently it introduced Nexus 9000, which works with a broad range of software.
Predicting Cisco to be the leader in SDN by early 2015, Cisco CEO John Chambers unveiled plans last month to introduce software packages that were previously sold as features of its networking equipment, and other services aimed at companies who don't want to build their own SDN-based networks.